"We reject an austerity track, this dogma which slows growth", French Finance Minister Pierre Moscovici said. VP Rehn said that "we can for the moment afford a smoother path of fiscal adjustment".
In the biggest rhetorical shift, the German government is indicating acceptance that austerity can be overdone. Governments have earned “enough room to manoeuvre” to act, having reduced budget deficits and bond yields, German Finance Minister Wolfgang Schäuble said.
US Treasury Secretary Jacob J Lew said European policy-makers are still falling short in efforts to revive their economy, intensifying pressure on them to further ease their budget-cutting. Europe’s recession is emerging as the main topic of discussion for Lew and fellow finance chiefs from the Group of Seven as they meet in the UK seeking new ways to rally lacklustre global growth. The lobbying may be paying off, with French and German officials acknowledging to varying degrees a need to blunt their fiscal squeeze.
Evidence has mounted in recent weeks that Europe is willing to cool the austerity drive that marked its response to the three-year debt crisis. France and Spain may be given two extra years to meet EU deficit goals, while other nations, like the Netherlands, Poland and Slovenia, may get one additional year.
“Everybody has said they would never seek to manipulate foreign exchange rates as an instrument to boost growth”, Schäuble said. Lew said that “the world community has made clear that domestic tools that are designed to deal with domestic growth are within the bounds of what the international community thinks is appropriate".
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