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.