The Socialists and Democrats MEP group was quick to poke fun at a recent shift by European Commission leaders on austerity policies.

“The S&D Group congratulates [Jose Manuel] Barroso for waking up from his five-year coma and finally acknowledging” the reality of austerity policies, a S&D Group statement said.

With budget cuts blamed for a second straight year of recession, the EU’s top economics official Olli Rehn indicated over the weekend that more flexibility on tough economic targets was needed.

His boss, European Commission President Jose Manuel Barroso, said on Monday that austerity had reached its natural limits of popular support. “While I think this policy is fundamentally right, I think it has reached its limits,” Barroso told a conference. “A policy to be successful not only has to be properly designed, it has to have the minimum of political and social support.”

Hannes Swoboda, president of the S&D Group in the European Parliament, responded: “Five years into the crisis, Commission President Barroso has finally recognised the reality: austerity is neither effective nor socially viable. The protests of the people suffering under harsh austerity measures are at last being heard.”

Budget cuts have been at the centre of the eurozone’s strategy to overcome a three-year public debt crisis, but they have also been blamed for a damaging cycle where governments cut back, companies lay off staff, Europeans buy less and young people have little hope of finding a job.

“I urge him to go to Greece, Portugal, Spain and elsewhere and see the reality of people’s lives,” Swoboda said. “Then Mr Barroso will perhaps also understand the urgency of completely overhauling the rescue packages for the crisis countries, to end austerity and adopt socially balanced measures that allow people dignity and decent living standards. I sincerely hope it will not take another five years until the European Commission understands that.”

Crippling levels of unemployment and outbreaks of violence in response to the austerity in parts of southern Europe are now forcing a rethink, with the focus shifting to economic growth strategies.

The latest revelations that austerity policies may be based on a mistake or the IMF errors measuring their economic impact have also fuelled criticism towards these policies.

End of austerity?

The shift in austerity policies is backed by an improving picture overall, however. The 17-nation eurozone’s combined fiscal deficit was 3.7 percent of gross domestic product, compared with 4.2 percent in 2011 and 6.5 percent in 2010.

Partly as a result, both Spain and France are expected to get more time to reach EU-mandated targets of three percent of GDP. “We need to combine the indispensable correction in public finances, huge deficits, huge public debt… with proper measures for growth,” Barroso said in a speech in Brussels just before Eurostat released its data.

EU leaders are desperate for economic growth, and the Commission will decide on May 29 whether to recommend to EU finance ministers to give Paris and Madrid until 2015 to cut their fiscal gap to three percent, today targeted for 2014.

It is not yet clear just how big a policy shift EU policymakers are planning. Rehn, the EU’s Economic and Monetary Affairs Commissioner, said recently that financial leaders from the group of 20 economies calling for less austerity were “preaching to the converted.”

Rehn is looking increasingly at countries’ fiscal efforts in structural terms, which means removing the effects of the business cycle and one-off measures on the budget. But Germany and the European Central Bank want to see the eurozone put its finances in order after a decade of borrowing when countries’ debt and deficit levels rose dramatically.

In addition, the EU’s Fiscal Compact treaty signed by all EU countries, except Britain and the Czech Republic, in March 2012 requires governments to keep their budgets in balance or surplus with a structural deficit no higher than 0.5 percent of GDP. “I can’t see there’s been a big change and that austerity is off the table,” said Jurgen Michels, an economist at Citigroup. “Most countries will have to come out with additional, substantial fiscal measures in order to meet their new targets.”

(with Reuters)