Germany likely to prevail in austerity debate

Last week brought mixed news in the debate on growth versus austerity. On the one hand, EU leaders discussed and (to some extent) advocated growth policies at an EU summit. What’s more, the European Commission seemed likely to accept that France would miss its deficit target this year and grant Portugal a second extra year to bring borrowing below 3% of GDP. But this slippage is the consequence of disappointing economic performance and not a deliberate shift towards more growth-friendly policies. The statement following the Summit reiterated the need for aggressive fiscal consolidation. And with Germany announcing measures to balance its own budget, pressure from the core countries for the periphery to do more is likely to mount.