At a meeting this week in Brussels, European finance officials approved a change to budget policies that would lighten the burden of austerity requirements on many struggling European Union countries, the Wall Street Journal reports.
The change is to an obscure calculation that is used to determine how much austerity countries must enact. Officials approved a change to how the “structural deficit” is calculated, which is the actual deficit a country runs adjusted for the weakness of the economy on the assumption that the real deficit will naturally shrink as things improve. Thus far the calculations have found that the deficits countries are running will persist even after their economies bounce back, requiring continuing austerity to reduce the deficits now. But the new methodology will lower estimates of the “natural” unemployment rate for struggling countries, which means that it will assume that the unemployment rates will need to drop much more sharply before their economies can be considered to be back to health. The change still has to be formally approved at a meeting of senior finance ministry officials next week, but Igor Lebrun, a Belgian official who was involved with drafting the changes, thinks approval is likely.
Spain could stand to see a huge impact from the change. The country proposed a new methodology that could cut the government’s estimated structural deficit in half for this year and by two thirds next year, meaning a big reduction in how much austerity it has to enact. It should also benefit Ireland, Greece, and Portugal, all countries that have suffered from austerity requirements.
Other signs of shifting winds in Europe away from austerity have been accumulating. European Union President Jose Manuel Barroso previously said that the EU was considering easing austerity policies and deficit targets to help boost growth. The EU’s Economic and Monetary Affairs Commission also indicated that it would move away from austerity. Officials in France and Italy have called for a total abandonment of austerity. The European Commission also gave French, Spanish, Italian, and Dutch leaders a reprieve from some austerity requirements in May.
But any real changes can’t come too soon for countries like Greece that have experienced devastating effects from austerity. European authorities have kept up the pressure on Greece to enforce austerity in order to receive bailout money, despite the fact that its unemployment rate continues to hit record highs, reaching 27.9 percent in June, and the International Monetary Fund’s initial predictions about the impact of austerity on its economy have proven to be far too optimistic. The country’s enforced austerity measures have meant a huge spike in the rate of stillbirths and a big decline in birthrates thanks to health care cuts. The neo-fascist Golden Dawn party has seen its influence grow.