Europe may accelerate a shift away from its austerity-first agenda this week as the new Italian government changes course and a German-Spanish investment pact underscores a renewed focus on combating record unemployment.

Yesterday's swearing in of Italian Prime Minister Enrico Letta ends a political deadlock nine weeks after voters rejected the country's budget-cutting course. German Finance Minister Wolfgang Schaeuble, a champion of austerity, will travel to Spain today to unveil a plan aimed at spurring investment in Spanish companies. Later this week, the European Central Bank may also cut interest rates at a meeting.

“You have to react to economic developments — we do so in Germany,” Schaeuble told members of Chancellor Angela Merkel's Christian Democratic Union in Berlin last week. “We are not bureaucratic; we are not stupid.”