European policy makers expressed a willingness to consider new ways to revive their ailing economy as they confronted fresh U.S. pressure to take action.

The bloc’s finance ministers and central bankers left weekend talks of the Group of Seven signaling that they’re poised to scale back austerity, are open to increased monetary aid and looking to unfreeze bank lending. European officials will meet in Brussels today to discuss the economy and review aid payments for crisis-struck nations from Greece to Spain.

Europe’s governments are in the midst of a policy rethink after three years of slimming budgets as they face up to a deepening recession in the euro area and a record unemployment rate that’s exceeded 12 percent. Still in doubt for economists is what kind of stimulus will actually be delivered and what effect it could have in the crisis-torn 17-member currency bloc.

“The new ‘fiscal realism’ is in evidence,” Mark Wall, co- chief European economist at Deutsche Bank AG in London, said in a report to clients. “Austerity may have reached its political limits and markets are happy to see some rebalancing. The key remains economic growth.”

Yields on sovereign debt that soared during the crisis have eased with the European Central Bank’s pledge to do whatever it takes to defend the euro. The single currency was little changed at $1.2986 as of 9:03 a.m. today.

Record Low

Italy’s one-year borrowing costs fell to a record low on May 10, while Portugal’s 10-year bond yield slid to the least since August 2010. Spanish 10-year yields rose last week for the first time in six weeks after declining to a three-year low of 3.94 percent on May 3. German 10-year yields were about one basis point from the highest level in seven weeks today.

Euro-area governments are already easing up on fiscal consolidation, with countries including France and Spain poised to receive more time to meet European Union budget-deficit goals. That means less pressure to take tax and spending steps to plug fiscal shortfalls caused by economic weakness.

Italy’s new government is trying to reverse some of its predecessor’s policies such as a pending sales-tax increase. Spain has introduced plans to support the creation of new businesses and invest in research and development.

The ECB is also debating what more it can do. The bank’s president, Mario Draghi, told reporters after the G-7 talks that it’s considering buying asset-backed securities among options to support lending to small and medium-sized companies.

“On the lending side, we see that the situation is still tight, especially in the periphery,” Draghi said after the meeting in Aylesbury, near London. Still, “the situation is in a sense getting less bad.”

Bank Lending

Authorities are keen to rally lending at banks, which account for about 80 percent of corporate financing in the euro area, compared with less than 20 percent in the U.S. Small companies in the periphery are especially starved of cash, hurting a traditional engine for hiring.

Europe’s ease in austerity measures could translate into a decline in the bloc’s so-called structural budget deficit by less than 1 percentage point of output, compared with a 3-point decline over the last two years, Credit Suisse Group AG said.

Highlighting the change in tone, French Finance Minister Pierre Moscovici said there needs to be a greater onus on improving the competitiveness of economies and delivering consolidation that’s credible and doesn’t destroy growth.

“I don’t like the word austerity,” Moscovici told Bloomberg Television’s Francine Lacqua after the G-7 meeting. “It means cutting over what is necessary.”

Moscovici said France is suffering “adjustment fatigue” as it teeters on the brink of its third recession in four years.

‘Enough Room’

Even Germany, Europe’s biggest economy and the lead advocate of budgetary rigor, has softened. Finance Minister Wolfgang Schaeuble said May 9 that Europe now has “enough room to maneuver” on fiscal policy.

“Nobody spoke about austerity policy,” he told reporters after the G-7. “Everybody agrees that we never conducted an exclusive austerity policy, but that we always carried out policies for sustainable growth, which of course have sustainable public finances as a precondition.”

Chancellor Angela Merkel too has voiced her distaste of the term “austerity,” even as she continues to press the need for structural reforms to render Europe more competitive globally.

The German government sees economic reform in the euro area pushing in the right direction, while identifying shortcomings in the labor markets of Italy, Spain and Greece that still need to be addressed, Der Spiegel magazine reported, citing a preliminary report on the EU’s “growth pact” prepared by Merkel’s Chancellery in Berlin.

Economic Slump

The shift in emphasis comes amid signs that Europe’s economic slump is outlasting forecasts and as pressure increases from overseas to help tackle a softening in global growth.

Euro gross domestic product fell 0.1 percent in the first quarter, according to the median of 39 economists’ forecasts in a Bloomberg News survey before a May 15 report. That would lengthen the recession to beyond the 15-month-long contraction in 2008-2009, during the financial crisis.

“We feel very strongly there needs to be the right balance between austerity and growth,” U.S. Treasury Secretary Jacob J. Lew told CNBC Television before the G-7 meeting. “Overall, Europe is going to need to do a little bit better. There’s room for progress.”

‘Important Precondition’

Still, Germany’s Bundesbank President Jens Weidmann continued to highlight deficit reduction as “one important precondition for sustainable growth.”

Germany also reiterated its resistance to easier monetary policy. Schaeuble said G-7 officials were “increasingly concerned” about “relative high liquidity” from central banks worldwide. Weidmann said low rates can generate stability risks and noted attention must be paid to German property prices, although he doesn’t yet see a credit-driven bubble.

Economists at Commerzbank AG say a change in the fiscal course could increase short-term economic growth by 0.5 percentage points. Still, they and counterparts at Bank of America Merrill Lynch say still-rising government debts as well as structural weaknesses including weak banks and Spain’s collapsed property market will remain brakes on expansion.

“We do not see this relaxation as having any major positive effects on the economic outlook,” Bank of America economists Ruben Segura-Cayuela and Laurence Boone said in a report titled “Fiscal easing: don’t get your hopes up.”

As for the ECB, Draghi said its role is “going to be mostly catalytic,” since it works with the European Investment Bank and the European Commission, the EU’s executive arm. “It’s going to be very much up to these actors to act, rather than the ECB. So European Commission, the EIB and national governments.”