Suddenly the media is a buzz with the prospect of a recovery in the euro zone. After four grim years of contracting GDP, unemployment and falling real wages, we read that country after country has turned the corner. Austerity worked and now we can reap the benefits.
Before we become too overjoyed, it is worth remembering the advice in Galatians 6:7, “for whatsoever a man soweth, that shall he also reap” (ninth book of the New Testament, which also applies to women, I assume).
The three charts below show the quarterly growth rates measured as annual equivalents, for the seven most frequently discussed countries in the context of the euro zone crisis. The statistics start at the beginning of 2010 and go through the third quarter of 2013, except for Ireland with no report for the most recent quarter.
First, consider the euro heavy-weight Germany. The growth rate declined continuously for eight consecutive quarters before recovering to a positive one-half of one percent, followed by 0.6 percent the next quarter. If you call that recovery, you must think that one percent growth causes an economy to overheat. Belief that two quarters of growth this low signals sustained expansion represents the triumph of hope over experience. The interesting aspect of French growth is how closely it mimics Germany’s, though at a lower level.
For the other two large euro countries, Italy and Spain, recovery is very much in the eye of the beholder. Growth rates remain negative, minus 2 percent for Italy and minus 1.2 for Spain. Will the very slight reductions in the rates of decline for the last three quarters continue as a slow creep into positive rates, or do they reflect stagnation of the economy? Whatever answer you give, it is not “recovery”.
The story for the three smaller countries is even less likely to invoke optimism in a rational mind. Each still suffers in an extended contractionary process, Greece (for 15 consecutive quarters), Portugal (eleven) and Ireland (four). The slowing of the rate of decline, especially for Greece and Portugal, may be a good sign, or merely indicate that these economies hit rock-bottom.
Some call it recovery, Part 1: Germany & France (Quarterly growth rates, 2010.1-2013.3 annualized)
Source: OECD and national statistical web sites
Youth unemployment provides an indication of how disastrous and tragic have been the effects of the euro crisis. Underlying the two charts below is a tale of countries in which the productive potential of the future is undergoing inexorable deterioration. Without work, educated young people lose their skills. Unable to enter training programs because of public expenditure cuts, they cannot obtain the skills which would underpin recovery should it occur. Out of work and out of school, they face lives of idle desperation in which criminality beckons as a false exit from destitution.
But not in Germany, where the youth unemployment rate is less than ten percent. Elsewhere conditions vary from grim to disastrous, with youth unemployment rate above or close to thirty percent for the latest quarter: France (26 percent), Ireland (27), Portugal (37), Italy (40), and Greece (57). For all but the true disciples of the austerity doctrine, it defies belief that in the twenty-first century those leading the euro zone could sleep at night with well over half the youth in a member country left idle with no prospects.
In the Flower of their youth, Part 1: Youth Unemployment rates for those less and 25, Germany, France, Italy & Spain, quarterly rates, 2011.2-2013.3
In the Flower of their youth, Part 2: Youth Unemployment rates for those less and 25, Greece, Ireland & Portugal, quarterly rates, 2011.2-2013.3
And, as usual, the faceless bureaucrats in the European Commission draw their salaries, enjoy their perks and do nothing, right? Actually, no, as discovered by those who attended a recent lecture by Laszlo Andor, European Commissioner for Employment, Social Affairs and Inclusion (at the University of Greenwich in London, 28 November). In response to the appalling conditions indicated by the charts above, the European Union in April of this year created the Youth Guarantee Scheme (details here). The program commits the European Union to the ensuring
that all young people under 25 – whether registered with employment services or not – get a good-quality, concrete offer within 4 months of them leaving formal education or becoming unemployed (emphasis in the original).
should be for a job, apprenticeship, traineeship, or continued education and be adapted to each individual need and situation (emphasis in original).
The EU budget allocates funds for the scheme, and implementation requires member governments to create national schemes. The cost-benefit numbers are staggering, a total cost of 21 billion euro annually, compared to the loss of personal earnings, benefits and taxes of 153 billion. The ultra-prudent government of Finland has already implemented first of the schemes.
Surely, no government would fail to take advantage of such a financially sound and potentially effective program to bring work, training and hope to its youth. But, one has, the coalition government in the United Kingdom. So strong is the anti-EU ideology in the Conservative Party that the last thing these Little England troglodytes want is concrete evidence that the European Union can serve the general welfare. And young people in Britain are the losers.