It was interesting to spend a few weeks in London recently and catch up with…
I am “on the road” again today so short of time (as usual). But yesterday, Eurostat released the latest labour force data from the EU and the Eurozone for the month of August 2012. It showed that the labour market continues to deteriorate and youth unemployment in some countries is heading into unprecedented territory. I have examined various speeches that representatives of the Troika have made when discussing fiscal austerity over the last few years and I have failed to find any specific reference to the the labour market collapse. There is lots of talk about fiscal consolidation and the need to maintain confidence with the “investors” (the bond market recipients of corporate welfare). But very little focus on the real human tragedy – which is epitomised by the rising joblessness. There is a huge disconnect operating between the policy makers and the people. I saw something of the way the European policy makers live and interact during my recent trip to Brussels. They should get out more and travel to Greece and see what is happening on the street where there are now more than 55 per cent of the 15-24 year olds unemployed – and without very many future prospects.
Eurostat’s latest publication (October 1, 2012)- Euro area unemployment rate at 11.4% – for August 2012, provides the best case against fiscal austerity that can be made.
The euro area (EA17) seasonally-adjusted unemployment rate was 11.4 per cent in August 2012 which was “stable compared with July”. In the last 12 months, rates have risen by 1.2 per cent (from 10.2 per cent) – so things are getting worse.
In terms of total people unemployed, the latest data shows that there are “25.466 million men and women in the EU27, of whom 18.196 million were in the euro area, were unemployed in August 2012” – a record level of unemployment.
Over the last 12 months unemployment has increased 2.2 million in the EU27 and 2.1 million in the Eurozone.
Whichever way you want to construct it – the Eurozone has failed to deliver what should be the basic priority of any monetary system – to ensure people have secure income via work.
The following graph is taken from the EU publication. It is the definitive case against fiscal austerity. Notice the pattern – a sharp rise in the unemployment rates as the crisis occurred, then some relief with some fiscal stimulus measures being taken and growth occurring in Britain, the US and Japan, which gave some export stimulus to the Eurozone.
Then came the dreaded fiscal austerity and another sharp increase (which is still increasing) in the unemployment rate.
The next graph shows the aggregate unemployment rate at the Eurozone level and for selected peripheral Eurozone nations. The jobless rate is spiralling upwards and all the summits and bailout plans have not changed that pattern – and can be judged to have failed.
The following graph shows the unemployment rate for Eurozone youth (15-24 years of age) from 1995 to August 2012. Seeing numbers like 40, 50 and 60 on the vertical scale of such a graph is a horror indeed.
The latest data shows that youth unemployment in the Eurozone is 22.8 per cent, for Spain 52.9 per cent, Greece 55.4 per cent; Portugal 35.9 per cent; for Italy 34.5 per cent, and for Ireland 34.7 per cent. These rates have continued to increase over the last 12 months.
The Eurozone elites are indeed creating a lost generation, which they will regret deeply in the coming decades.
The damage that arises from excluding the youth from the labour market is life-long and then some. This cohort will carry the disadvantage throughout their lives and typically endure unstable and low-paid work interspersed with lengthy periods of unemployment when the business cycle turns down.
But even more damaging is that they will find it harder to form stable relationships and if they do their children will inherit this disadvantage arising from the exclusion at this time of their parent(s).
It is unfathomable why this is not an absolute policy priority and the Euro leaders announce immediate job creation programs through the Eurozone targetted at youth, if they cannot bring themselves to introduce an unconditional job guarantee for all workers.
The costs of this folly are so large and so enduring that there is no fiscal justification that can be mounted to not introduce such a plan.
And if you think about it from a conspiracy theory perspective – that the EU elites are trying to destroy unions and the welfare state – it is still a pretty weird strategy to undermine the prospects of the future workforce in an era when dependency ratios are rising and their is a greater need than ever for increasing productivity growth.
The trillions in pension funds in Europe, which themselves are now under threat (a blog on that another day) will only have meaning in real terms if there is growth in output commensurate with the needs of the ageing population. Dis-enfranchising the youth of the world from gaining skills, experience and attitudes relating to inclusion etc is the least clever thing the political elites can do at present.
Further, there is every danger that this cohort will increasingly turn to other means to “gain a living”, which means drugs, crime and other nefarious activities. It is a repetitive pattern. Deprive someone of access to the distribution system and watch them reinvent themselves as hardened criminals attacking the very foundation of stable middle class society.
Tolerating youth unemployment at these levels is first-order madness even if it is driven by ideological motivations to reduce the size of government.
I have ceased referring to the Greek situation as a recession. Their unemployment rate signals it is in a Great Depression. But that is not good enough for the Troika.
With the Eurostat data making it clear that austerity has failed, the Troika appears hell-bent on making the situation worse. The UK Guardian article (October 1, 2012) – Greek debt talks deadlocked as lenders demand new wage cuts – reported that the Troika rejected Greece’s proposal to cut public spending by €2 billion. The Troika want €13.5bn in cuts.
The Greeks wanted to make cuts in spending and “lay off an estimated 15,000 civil servants by 2014”. But the Troika claimed that the Government had to make deep cuts to wages and pensions instead, further undermining the life fortunes of millions of Greeks.
The Guardian implies that it is the EU that is playing hard-ball as a sop to internal political pressures in Germany. But the Athens News reported in its News bits @ 6 (October 1, 2012) – HARSH TROIKA – that:
Democratic Left spokesman Andreas Papadopoulos on Monday told state TV that “the troika is very being harsh”. Papadopoulos clarified that it is the IMF representatives who are the harshest and added that the troika must understand that there are “people behind the numbers” who are watching their lives being destroyed.
The IMF representatives are presumably on secure and high-paid arrangements with massive tax breaks – all courtesy of the public purse. The IMF is funded by government spending. But they have long been bullies and as I have noted in the past I would withdraw all public funding to the fund and force its closure.
Then a new progressive “Fund” could be established which provided assistance to nations in dire need – for example, when there are food shortages. The IMF outlived its purpose when the Bretton Woods system collapsed in 1971.
Whoever is driving the Troika’s approach to Greece is an interesting but peripheral issue. The fact is that the goals being set for Greece are unattainable.
I note in my reading over the last few weeks that the Golden Dawn are now providing food hampers and other help to poverty stricken Greeks and are increasingly being seen as an alternative to government with respect to welfare provision and street security in Athens.
The whole European political plan was to purge fascism from the Continent after the disasters in the 1920s through to the demise of Mussolini and Hitler. By ignoring basic human needs the Troika is paving the way where people will accept these extremist right-wing parties as somehow acting in their best interests. Then it get ugly.
Meanwhile, in the UK, the real sector continues to contract. The latest Markit/CIPS UK Manufacturing PMI – for September shows that the “Manufacturing PMI down to 48.4 in September” and “Production falls as new export orders decline”.
The publication included the following graph, which is now depicting a familiar pattern, which is common across most economic data. Around 2008-09 the time series plummets as the financial crisis spreads, through inadequate government action, into a real economic crisis.
Then on the back of fiscal stimulus packages you see recovery during 2009 and early 2010 (the dates in specific nations depending on when the stimulus was introduced and when it began to taper).
Then as the fiscal stimulus is prematurely withdrawn, given the weak state of private spending in most nations, the real economy moves back towards or into recession.
For series like unemployment (counter-cyclical variables) the pattern is the mirror image.
The repetitive nature of the pattern across countries and across time series puts to paid the claim by nations that there are country-specific issues etc at work. The reason is for the pattern is that aggregate demand drives output and all things hinging on production (for example, employment) and private spending is weak and growth requires larger budget deficits.
Markit say that:
The downturn in UK manufacturing production extended into its third successive month in September, as order inflows remained lacklustre and job losses continued to mount … Companies linked lower production to reduced inflows of new export business and subdued domestic market conditions.
Which tells us that private demand either from domestic sources and/or foreign sources is weak. The much vaunted export-led recovery in Britain is not happening.
Which means that there is only one sector that can lift the economy out of the malaise – the government sector – and it is doing everything it can to undermine growth.
The UK Guardian article (October 1, 2012) – UK manufacturing downturn dashes rebound hopes – reported that the only policy option is a renewed bout of quantitative easing. Which tells us that there is no meaningful policy discussion going on in the UK at present.
QE will not provide the boost to aggregate demand that is required. It was never going to be the solution.
The outstanding question is why are the industrial chiefs supporting policies like this. The typical argument is that they have a vested interest in driving up unemployment and purging existing working conditions. But that doesn’t rub when you realise how many businesses are going to the wall in Britain at present.
So the elites are even prepared to sacrifice thousands of small businesses (and no-so-small businesses) in the name of their ideological crusade to shift activity out of the public sector and into the private sector.
Urgent fiscal stimulus is needed in Europe (and elsewhere). The ECB should announce they will fund stimulus programs without any austerity conditionality.
But the peripheral states would be much better off leaving the Eurozone altogether. Greece should just default completely on Euro denominated debt, introduce its own currency and announce a Job Guarantee to quickly mop up the out of control unemployment situation there.
I have to rush now to catch a flight. Tomorrow I plan to discuss the ridiculous practice of electricity privatisation. But then another topic might arise in the meantime – we will see.
That is enough for today!
(c) Copyright 2012 Bill Mitchell. All Rights Reserved.