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Euro on Respirator: Two reports published this week claim some glimmers of
light amidst the gloom in peripheral economies. One report says
"fiscal results drive home one fundamental point: austerity is a potent
medicine. It has to be applied in the right dose. A lack of the necessary
medicine can kill a patient. But so
can an overdose." Meanwhile, in September 2012, according to Eurostat, the
EU's statistics office, there were 5.5m young persons (under 25) unemployed in
the EU27, of whom 3.49m were in the Eurozone. Compared with September 2011,
youth unemployment rose by 164,000 in the EU27 and by 275,000 in the Eurozone.
In September 2012, the youth unemployment rate was 22.8% in the EU27 and 23.3%
in the Eurozone, compared with 21.7% and 21.0% respectively in September 2011.
In September 2012 the lowest rates were observed in Germany (8.0%), the
Netherlands (9.7%) and Austria (9.9%), and the highest in Greece (55.6% in July
2012) and Spain (54.2%). However, while the situation in both Greece and Spain
is very bad, the statistics makes the reality look even worse. Spain's more
realistic rate is in the low 20s and Greece's is about 15%.
Excluding construction, Ireland had no real growth in the past decade; Italy
only managed 3% in 2001/2010 - - 0.3% per year; US 16% (worst since 1945); UK
15%; France 12%; Germany and Japan 8%. Japan had a per capita annual GDP of
1.6%; US 0.7%; France 0.6% and Germany 0.8%.
For most of the decade, there was a huge international credit boom.
As for Spain, the unemployment rate was at a record 24.5% in 1994; 21% in 1997
and in some regions such as Andalucía, it was above 30%. The rate fell to 8% in
early 2007 and is now over 25%.
Italy's unemployment rate was higher in 1996 than it is now.
Several countries have had structural problems
that pre-date the launch of the euro in 1999.
Marco Annunziata, chief economist, General
Electric Co., in an article in VoxEU,
last May on the wasted lives of today's youth said: "Youth unemployment is one of Europe’s most glaring
problems. Opponents of austerity point to the swelling ranks of unemployed young
(15-25 years of age) people in Europe’s periphery as proof that fiscal
tightening can no longer be tolerated.
The seriousness of the problem cannot be
underestimated, and the speed at which young people have been thrown out of the
labour market is frightening. But equally frightening is how long Europe has
lived with high youth unemployment. Sadly, in several countries the rise in
youth unemployment looks largely like a reversion to the mean after
unsustainable credit growth spurred a bubble in fixed-term jobs.
Implausible as it sounds, Italian voters have put up
with an average youth unemployment rate of 30% for the last 40 years; Spanish
voters with a rate of 32%. Italy experienced “strong” economic growth during
1994-2000, with GDP rising at an annual average of 2%. During this boom period,
the youth unemployment rate still averaged 33%. In other words, one young person
in three was unemployed when the economy was at its strongest. The rate never
dropped below 20%.
Spain’s economy grew at an average of 3.6% between
1995 and 2007. During this impressive run, the youth unemployment rate averaged
28%; it was below 20% for just three years, with a 'best performance' of 18% in
former professor of economics at University College Dublin (UCD), wrote last
June about the issue of measuring youth unemployment.
Stephen (sic) Hill pointed out in a
piece in the Financial
Times on June 24th,
the unemployment rate may
not be the best measure of labour market conditions among young people who
have opportunities to stay in the educational and training systems rather
than entering a depressed labour market. For this reason, an alternative
measure, the unemployment ratio, has gained currency.
The conventional unemployment rate is
the numbers ‘unemployed’ as a proportion of the ‘labour force’. The
‘labour force’ is the sum of the employed and unemployed. The ‘unemployed’
are those actively seeking work, but not at work. (For young people it is of
interest to break unemployment down into those ‘looking for first regular
job’ and those who are ‘unemployed having lost or given up previous job’.)
The problem with using the unemployment rate to
measure labour market conditions among young people is that the denominator
does not include those who are in the educational system or on full-time
training courses. During a recession, the higher the proportion of a youth
cohort that stays on in school or college or in training, the smaller the
labour force and the higher the unemployment rate. This is perverse."
"If the Eurozone gets through the current acute crisis and stays on the
reform path, it could eventually emerge from the crisis as the most dynamic of
the major Western economies," Holger Schmieding, chief economist at Berenberg
Bank and author of the '2012 Euro Plus Monitor,'
said on Monday this week.
In the absence of major policy mistakes, the euro crisis could gradually fade
in 2013, the report noted, as long as the region avoids overdosing on austerity
like Greece. Rather, policy focus should shift urgently to pro-growth structural
However, Giada Gianni, European economist at Citigroup, told CNBC that while
Europe had made some progress in its public sector finances since 2009, the
impact of major restructuring and reform has yet to be seen. “Bits and pieces
have been put in place, but we still haven’t seen the impact of reforms on
budgets as yet,” Gianni told CNBC. “Definitely, the public sector finances have
improved compared to 2009 or even 2010, and current account balances have shrunk
significantly … but this is also because countries are importing less and
consuming less,” she said.
The report by the Brussels-based Lisbon Council and Berenberg concluded that
the economic crisis that had forced countries such as Greece, Ireland, Spain,
and Portugal to reform their fiscal systems and as a result all four countries
had strengthened “their adjustment efforts over the last 12 months.”
Using four criteria to review how the Eurozone’s economies were responding
to the economic crisis, the report ranks key aspects of adjustment such as
change in the fiscal position, external economic accounts, unit labour costs,
and supply-side reforms as a basis for analysis and the results were aggregated
to indicate the speed of progress made in each European country.
“Almost all countries in need of adjustment ... are slashing their underlying
fiscal deficits and improving their external competitiveness at an impressive
speed,” Schmieding said, adding that “the Eurozone is turning into a much more
balanced and potentially more dynamic economy.”
“In other words” he added, “under the pressure of crisis, the countries that
need to shape up fast are doing so” and that financial aid for countries such as
Greece hadn’t led to a general malaise in enacting reforms. “The results reveal
no trace of a ‘moral hazard,’ that is of a hypothetical risk that outside
support could blunt the readiness to adjust,” Schmieding said.
Irish data which is distorted by the dominant foreign-owned sector, is
invariably misread by international observers. Why wouldn't it apply to other
Allianz Euro Monitor, (pdf link to report at bottom of linked page) based on
14 indicators, measures macroeconomic imbalances in the Eurozone. The results
for 2012 show above all an encouraging picture for the peripheral countries.
Prof. Dr. Michael Heise, chief economist of Allianz SE, said on the results of this
year’s report: “Apart from Belgium, Greece, Spain and Portugal are the only
Eurozone countries to record an improvement in their overall score compared with
last year. The results show: reforms take time, but the ‘problem countries’ are
on the right path. We therefore expect the economy to stabilize gradually next
The German insurance giant notes the: "genuine progress is being made towards
restoring the health of the Eurozone economy. The only countries that managed to
improve their overall score were Belgium (5.9), Spain (5.0), Portugal (4.1) and
Greece (3.4). From a low level, Greece in fact managed to record the largest
improvement of any Eurozone country, helped for instance by a drop in unit labor
costs. Private sector debt levels also improved."
Destatis, the German federal statistics office,
reported this month that just over half a million people arrived in Germany from
abroad from January to June of this year. That was some 66,000 more than came in
the first half of 2011, an increase of 15% and marked the continuation of
a trend. Last year, immigration was up 20% over 2010.
The steepest rises in the first half of this year have come from Eurozone
countries. More than 15,700 people arrived from Greece in the first six months
of 2012, a 78% increase over the first half of 2011. The 11,000 people who
arrived from Spain mark a jump of 53% over the previous year. The influx from
non-Eurozone country Hungary rose by 46%, mainly due to tough economic
Numerically, however, Poland remains on top of the list of origin countries.
Some 89,000 people arrived from Germany's neighbour in the first half of the
Deutsche Welle says that just six German
soccer players would have fought in the 2010 World Cup's semi final against
Italy without the support of the team's players with immigrant backgrounds:
Sami Khedira (Tunisia), Mesut Ozil (Turkey), Jerome Boateng (Ghana), Lukas
Podolksi (Poland) and Mario Gomez (Spain) all were born abroad, or were born to
immigrant parents living in Germany. Thanks to their German passports, they are
allowed to play for the German national team. The importance of immigrants for
German society cannot be stressed enough.
7.1m people live in Germany without a
German passport. Then there are those 8.6m Germans with a so-called migration
background, according to the German Federal Employment Agency's job market
analysis in June 2012. In total, 15.7m people with an
immigrant history live in Germany - or some 19% of Germany's overall
Journalist Pitt von Bebenburg and his colleague
Matthias Thieme examined the importance of immigration for Germany by looking
into a scenario without them. Their book 'Germany without foreigners' deals with
the question what would happen if all those migrants without a German passport -
- about 7m - - would need to leave Germany overnight?
Deutsche Welle asks is the history of immigration
to Germany big story of success? Not everyone thinks so. According
to a study by Bielefeld University, 47% of Germans have a critical attitude
Von Bebenburg and Thieme try to tackle prejudices
with facts. "We are in a transition where tensions and conflicts still exist,
but I believe it will soon be a matter of course to have a migration
background," said von Bebenburg. Because an immigrant-friendly culture does
already exist in Germany, he adds.
Just like it does in the world of sports - - and
what might help Germany's multicultural national soccer team secure the next
international victory soon.
Unemployment in Spain is at a
generational high of 25% hit by the financial and sovereign debt crises. Luis
Garicano, professor of economics and strategy at the London School of Economics
discusses with FT leader writer Ferdinando Giugliano what the government should
do to reduce unemployment in Spain: