Europe may have reached the maximum political limits of austerity-led economic policies, according to José Manuel Barroso, president of the European Commission.
In his speech, Barroso said that while he still believed in the need for sweeping economic reforms and drastic cuts in budget deficits, such policies needed to have “acceptance, politically and socially”, which was now at risk, reported the Financial Times.
Barroso said: “While this policy is fundamentally right, I think it has reached its limits in many aspects. A policy to be successful not only has to be properly designed. It has to have the minimum of political and social support.”
Barroso’s comments came in respose to voters revolt in Italy and a deepening recession in much of the bloc. His remarks came the at the same time when Eurostat released data that revealed rise of debt in many eurozone countries despite unprecedented budget cuts and tax increases.
Of the eurozone members that received aid from the EU in 2012, only Greece saw its debt levels decrease, from 170 per cent of economic output in 2011 to 157 per cent.
The Irish, Spanish, Portuguese and Italian debt levels hit euro-era highs last year. Lisbon’s debt rose to 124 per cent of GDP from 108 per cent, while Rome’s debt rose from 121 per cent to 127 per cent. Overall, eurozone sovereign debt rose to 90.6 per cent of GDP in 2012.
The Eurostat report also highlighted the periphery’s divergence from the eurozone’s core, particularly Germany, which was the only EU country to post a budget surplus in 2012.
German tax revenue grew 3.4 per cent in the first quarter of 2013. In March alone, the increase was 5.7 per cent year on year, according to official figures, despite economic growth of 1.5 per cent.
Jens Boysen-Hogrefe, an economist and expert for public finances at the Kiel Institute, told FT: “Falling unemployment and higher wages are the biggest contributors to this development.”
Boysen-Hogrefe said the new data made it unlikely that Germany would post a budget deficit of 0.5 per cent of GDP in 2013, as finance minister Wolfgang Schäuble has estimated.