LIKE France’s François Hollande a year ago, Italy’s Enrico Letta rushed to Berlin immediately after taking power, and with a similar message: Italy would respect fiscal discipline, but Europe must do more to promote growth. “If Europe stands only for negative news, for austerity, then we’ll see more of these movements against Europe,” he told Angela Merkel.

Italy’s new prime minister did not explain how he would pay for expensive promises to cut taxes and expand welfare. Nor did he spell out exactly what he wanted Europe to do. What is clear is that the backlash against austerity has become intense: even Ireland’s president, Michael Higgins, has joined in. The big danger is that, in the clamour for relief from self-destructive policies, countries will give up on the painful structural reforms they need.

For all the hopeful signs of “rebalancing” within the euro zone, the economies of southern Europe are still shrinking. Europe’s single market belies its name when smaller firms in southern Europe must pay far higher interest for loans than German competitors, if they can get credit at all (see article). Forecasts by the European Commission, due this week, will be gloomy. On the eve of Labour Day, Eurostat reported that unemployment in the euro zone had risen to 12.1%. In Greece and Spain, three out of five people under 25 are now jobless.

Austerity has also suffered a double academic blow. IMF economists admitted that the recessionary impact of austerity was more severe than they thought. Then economists at the University of Massachusetts, Amherst, found mistakes and questioned the data and assumptions in a piece of research by Kenneth Rogoff and Carmen Reinhart suggesting that a country’s growth slows down markedly once its public debt rises above 90% of GDP. José Manuel Barroso, president of the European Commission, made a half-admission of defeat when he said austerity was reaching its limits. “A policy, to be successful, not only has to be properly designed; it has to have the minimum of political and social support.” Or as Mr Letta put it more pithily to the Italian parliament, “budget consolidation alone will kill Italy.”

What might replace the current policy is less clear. The obvious trade-off is to go more slowly on deficit-cutting and faster on structural reforms, especially when political capital is limited. The IMF pushed for such a mix from the outset. It would be especially sensible for such countries as Italy and Portugal, which stopped growing long before the euro crisis: in effect, they are suffering the bust without ever having enjoyed the boom.

Yet austerity is not about to end. For countries in bail-out programmes, less of it means asking creditors for bigger loans (or a debt write-off). And nobody seriously suggests fiscal stimulus: the only question is how far deficit-cutting should be slowed. The commission (with Germany’s nod) has become readier to allow countries to delay meeting fiscal targets in the face of recession. The Netherlands should get another year, Spain another two. Even Mr Letta says he still wants to bring Italy’s deficit below 3% of GDP this year. That would release Italy from the EU’s “excessive deficit procedure” and, to an extent, from German tutelage.

France will be a test-case. It is likely to get another year to meet its target, in exchange for a promise of more structural reforms. In June EU leaders will discuss the idea of countries signing binding “contracts” for reform, perhaps backed by the offer of more money. Yet shifting the focus may be harder than it looks. “Structural reform” is a broad term. Each country needs a different mix. Enacting legislation is not the same as implementing it. Reforms tend to increase short-term pain, while the benefits do not come through immediately.

The OECD, a rich-world think-tank, argues that troubled euro-zone countries have made the most progress in enacting reform. Even so, several have a lot more to do to make labour and product markets more flexible, to boost productivity and to create efficient public administration. Structural reforms are hard to measure. But one fact is telling: unit-labour costs in southern Europe are falling, yet even in the region’s worst post-war slump inflation has mostly been higher than in Germany. This amounts to a double assault on citizens: they have not only lost jobs and benefits, but are seeing higher prices.

Governments have found it easier to cut deficits than take on obstreperous unions and vested business interests. Take Greece: it has cut deficits more than anyone else, but only this week, in the sixth year of recession, did it pass a law to allow incompetent civil servants to be fired more easily. Or look at Italy: its technocratic prime minister, Mario Monti, forced through more austerity, but his plan to simplify the sacking of workers was watered down. One underlying problem is dysfunctional politics: countries that got into trouble because they could not reform in the good times are still struggling in bad ones.

The north must reform too

Keynes’s dictum that the time for austerity is during a boom, not a bust, also applies to structural reform. But crisis is often needed to force change. The case for relaxing austerity should not hide the need for big reform. And reform should not be limited to the euro-zone periphery. Germany can do more, even without a spending spree. Just liberalising Sunday shopping could boost domestic demand. Across Europe, deepening the single market, particularly in services, would help kindle growth.

Fixing the euro zone’s banks so they can resume lending also requires Germany to stop blocking the creation of a full banking union. And this means being ready to share the risks of other countries’ banks. Without this, Germany faces an even bigger risk: that the euro zone collapses because political resentment pulls it apart. Rules alone will kill Europe.

Economist.com/blogs/charlemagne