Europe's punishing austerity policies could soon be coming to an end after a top EU official suggested that the pace of spending cuts should be slowed.
Jose Manuel Barroso, president of the European Commission, said that austerity had 'reached its limits' and worried that the programme had lost 'political and social support'.
The dramatic U-turn came after new economic figures suggested that Germany was facing an economic slowdown and Angela Merkel warned that Brussels might soon be dictating national budgets.
Shock: Jose Manuel Barroso, president of the European Commission, seems to have turned against austerity
The majority of European countries are currently undergoing sharp spending cuts and tax rises in an attempt to bring down their deficits to sustainable levels.
But critics have blamed the austerity measures for suppressing growth across the eurozone as well as in the UK, and claim that the policy might even prove counter-productive by reducing the size of the economic base which governments draw on for their funding.
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In a speech in Brussels yesterday, Mr Barroso said: 'While this policy is fundamentally right, I think it has reached its limits in many aspects.'
Pointing to austerity's widespread unpopularity, he added: 'While this policy is fundamentally right, I think it has reached its limits in many aspects.'
The head of the powerful Commission admitted that it may have been a mistake to force cuts on economies as different as Greece, Ireland, France and Italy.
Failure? Austerity is favoured by leaders such as Angela Merkel and George Osborne, but has been criticised
'We have to have tailor-made situations for each individual country,' he said. 'We cannot apply a one-size-fits-all programme to the European countries.'
He insisted, however, that he still believed austerity would eventually see positive outcomes, saying: 'It is a painful programme, but it is working.'
Europe's continued economic struggles were laid bare today when a major survey showed that Germany's business activity slowed in April for the first time this year.
The purchasing managers' index for Germany, measuring growth in companies ranging from hotels to banks, fell to 49.2 in April from 50.9 the previous month.
This meant the index slipped below the crucial 50 point dividing growth and contraction for the first time since November.
'Whereas we'd seen evidence that the economy had bounced back quite nicely in the first quarter... there are suggestions that we could see a renewed downturn in the second quarter,' said Chris Williamson, chief economist at Markit.
Controversy: The EU is increasingly attempting to have a say over the national budgets of eurozone countries
It was also revealed yesterday that both France and Spain fell short of their budget deficit goals last year as debt levels rose across the eurozone.
France posted a deficit of 4.8 per cent of economic output, higher than its 4.5 per cent target, statistics agency Eurostat revealed.
Spain's budget shortfall was the largest in the EU, with the deficit reaching a total of nearly 11 per cent, well up on the previous year and even higher than Greece.
The eurozone's combined burden of sovereign debt reached a record 90.6 per cent of total GDP last year.
The stage is now set for a further showdown between governments such as Germany and Britain which are keen for more tough action on deficits, and weaker economies, backed by the International Monetary Fund, which are looking for breathing space.
German chancellor Angela Merkel yesterday suggested that the EU should act over eurozone governments which are unwilling to streamline their budgets.
‘We seem to find common solutions when we are staring over the abyss. But as soon as the pressure eases, people say they want to go their own way,’ she said.
‘We need to be ready to accept that Europe has the last word in certain areas. Otherwise we won’t be able to continue to build Europe.’