Advocates of austerity haven't disappeared from the scene. Key leaders such as Germany's Chancellor Angela Merkel still espouse the virtues of balanced budgets.
"Budget consolidation, structural reforms and growth are not contradictions but require each other," Merkel told reporters after the summit of 27 EU countries on Thursday. "It is necessary to trim the deficits to promote growth and investment."
But there is a difference between the rhetoric and the actions these leaders endorse. Merkel's government agreed last year to the EU commission's recommendation to extend deficit-reduction deadlines for Portugal, Greece and Spain. And the EU commission is now judging countries based on their so-called structural deficit â¿¿ or what the deficit would be excluding the effects of the recession. That gives countries more time to get their finances under control.
The new EU stance "doesn't mean countries don't need to do austerity. It means they only need to do the austerity that is needed to bring a country a balanced budget in structural terms. If a country is in a recession, this approach allows some deficit," says Berenberg analyst Schulz.Across the eurozone, deficits as a proportion of economic output averaged 3.5 percent at the end of last year. That's down from 4.2 percent in 2011, and only slightly above the European Union target of 3 percent. However, among individual eurozone members, the picture is far less rosy â¿¿ countries such as Spain and Greece are running deficits more than double the official limit. A growing number of European countries appear headed in the direction of less austerity no matter what the euro region's leaders decide. In last month's election in Italy, most voters supported parties that opposed the austerity policies of departing Prime Minister Mario Monti. And last week, the finance minister of France, the eurozone's second-largest economy, said his country had ruled out more budget cuts despite a deficit of 4.6 percent of GDP.