In January 2011, 44 per cent of Spanish working people below the age of 25 were unemployed. A year later Eurostat report (in its March 1, 2012 publication) – Euro Indicators – that the rate has climbed to 49.9. For the overall labour force in Spain, the unemployment rate rose from 21.7 per cent to 23.3 per cent over the same period. That is Great Depression-type magnitudes. At the other end of the unemployment spectrum, currently, is The Netherlands. Their overall unemployment rate has risen from 4.3 per cent in January 2011 to 5 per cent in January 2012. Notwithstanding the massive underemployment in The Netherlands (almost 50 per cent of the working age population work part-time – average is less than 20 per cent for EU) and the large proportion of workers hidden from unemployment by disability support pensions – this is a low unemployment rate. And therein lies the rub. The Dutch Centraal Planning Bureau released its latest – Short-term forecast yesterday (March 1, 2012) which showed that over the next 4 years it will violate the current Stability and Growth Pact (SGP) and face fines under the Excessive Deficit Procedure. And to put a finer point on this – the Dutch government has been one of the more rabid proponents of fiscal austerity and one of the first to heel-click in line to sign Germany’s … sorry the EU’s fiscal compact. All of that should tell you that the current leadership in Europe has no viable solution to its crisis. Some French economists have come up with a solution. This blog considers their work and concludes they are on the right track but haven’t penetrated all the neo-liberal myths that they seek to highlight.

It has been interesting to watch how various members of my profession are dealing with the on-going crisis over the last 4 years. Clearly, imbued with the notion that the “business cycle” is dead, which the mainstream macro economists had been attempting to establish as a given in the public debate, most economists were in denial at the outset of the crisis. That denial moved into the manic deficit terrorism that has sought to reconstruct the private debt crisis into a sovereign debt crisis – which allowed them to vent on their pet topic – dislike of government fiscal policy when used to increase employment. They have no problems with active fiscal policy when it is aimed at contraction. They just hate the public sector supporting growth even when the private sector is incapable of doing so. But as the empirical reality has increasingly rejected the predictions of the mainstream macroeconomic models – there has been no inflation breakout or rising interest rates or sovereign government insolvency – there has been a shift going on. Some of those that were advocating austerity now seem to be advocating growth. But when you dig a little deeper there is no fundamental catharsis in my profession going on. The only motivation for those now saying Europe needs growth not austerity is that they are trying to distance themselves from the train wreck that the political leaders are creating there. As the title suggests – yesterday austerity, today growth – but leopards don’t change their spots.

While the Eurozone leaders appear to be obsessed with a relentless series of meetings which discuss largely irrelevant problems that they identify, there is a growing chorus that is highlighting the reality facing the region. It is patently obvious that the only short-term solution to the Euro crisis is for the ECB to keep its vacuum cleaner on and keep “hoovering” up the debt of governments who are unable to gain access to funds in private bond markets at reasonable yields. While the long-term solution is an orderly dismantling of the monetary union, the ECB is the only show in town at present that can in the spiralling crisis and ensure that the Eurozone countries return to growth as quickly as possible. This is even more paramount now Germany has recorded a negative quarter of growth with worse expected in the coming months. It beggars belief that the Euro elites have engineered a crisis of such a proportion that that their worst fears become the only solution.