Analysis: Europe's austerity-to-growth shift largely semantic

Mon May 27, 2013 1:56am EDT
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By Paul Taylor

PARIS (Reuters) - To listen to some European leaders, especially in France, you would think the era of austerity was over and the euro zone was going full steam ahead to revive economic growth.

In a striking change of tone, European Commission President Jose Manuel Barroso said last month that austerity - the policy of cutting public debt by reducing spending and raising taxes - had reached the limits of public acceptance.

In reality, the shift is more in words than deeds. The rhetoric has changed but there has been no policy U-turn.

To be sure, the European Commission is granting governments more time to reduce their budget deficits to EU limits, chiefly because recession had made those targets unattainable.

Euro zone states have a breathing space because bond markets have ceased to panic since the European Central Bank said last year it would act decisively if necessary to preserve the euro.

The EU emphasis is now on reducing "structural deficits" - an elastic measure meant to take account of the economic cycle - and on reforming labor markets and pension systems, opening up more sectors to competition and easing business regulation to improve countries' growth potential.

Small initiatives are in the works, amid great political fanfare, to combat the scourge of mass youth unemployment which threatens southern Europe with a lost and alienated generation.

The ECB is exploring ways to ease lending to smaller businesses in the hardest-hit peripheral countries of the euro zone. But while it is keeping the liquidity taps to banks open, it has no intention of following the U.S., British and Japanese central banks into massive money printing to try to spur growth.   Continued...

People work at a call center in Lisbon April 22, 2013. REUTERS/Jose Manuel Ribeiro