|Net new jobs in France from the 1970s |
Europe's growth crisis is likely to continue even if there is less focus on
austerity. Like so many other countries, Ireland needs a new model because the
challenge to create 200,000 net new jobs cannot be met with stale ideas that had
their genesis in less challenging times.
On Thursday, Spain reported
that the unemployment rate jumped to a new record of 27.16% in the first quarter
of 2013 as the number of unemployed persons increased by 237,400 persons to
6,202,700. In addition to this astounding figure, 22% of the Spanish workforce
are temporary workers. Also on Thursday, France reported
record unemployment figures with the number of unemployed rising for the 23rd
month to 3.2m in March, overtaking a previous peak in 1997. The total including
all those seeking full-time work rose to 4.7m.
An ageing society and the time needed to work through its debt crisis will
keep growth in Europe subdued for years to come, Wolfgang Schäuble, German
Finance Minister, said last Friday. “No one should expect that Europe will
deliver high growth rates for years.”
He was speaking at a presentation at a lunch hosted by the Council on Foreign
Relations in Washington DC.
Angela Merkel, German chancellor, on Thursday highlighted the gulf in the
Eurozone by indicating Germany would need
higher rates, in contrast to struggling southern states of the single currency
“The ECB is obviously in a difficult position,” Merkel said in Dresden. “For
Germany, it would actually have to raise rates slightly at the moment, but for
other countries it would have to do even more for more liquidity to be made
available and especially for liquidity to reach corporate financing.”
In London Thursday, David Lipton, first deputy
managing director of the IMF
warned: "If recovery does not materialise, the euro area could find itself
facing the spectre of policy quicksand—in which relentless balance sheet
deterioration drags the economy in deeper and blunts the impact of even bold
policy adjustment. We saw that scenario play out in Japan over the past 20
years. It has only been in recent months that the new government and BOJ
leadership have started to take more vigorous action to escape deflation
In Europe cross-border capital flows are seen as
culprits of the crisis but not all of them were for speculation. The
level has plunged since 2007 and it's simply foolish to think that governments
can fill this breach. However, big European companies have over €1tn in
cash but they are inclined to invest in emerging markets.
Cross-border capital flows rose from $0.5tn in 1980 to a peak of $12tn in
2007 and down to less than $5tn in 2012. Eurozone banks have cut such
cross-border lending and other claims by almost $4tn since 2007, and central
banks now account for more than 50% of capital flows within the region.
It would be also foolish to regard the 'end of
austerity' as a key victory as for a while at least, it could give the
impression that the growth problem was solved. The fact is that austerity has
mainly hit minorities in the private sectors. There have not been huge cuts in
public spending in most countries.
As for Ireland, tax and social security revenues as a percentage of GDP
(gross domestic product) were at 30% in 2011 compared with an EU average of 40%
and 44% in Finland and Austria. Use GNP (gross national product, mainly
excluding the profits of the foreign-owned sector) as a metric and the ratio is
still well below the average.
The Department of Finance said in April 2012 that while Irish taxation
receipts in 2012 would be above 2004 levels, while the gross voted expenditure of
Government Departments and Offices in 2012, at €56bn, would be about 37%
above the level it was in 2004.
Seamus Coffey, the UCC economist, has put the estimated deficit ex bank
support and debt interest in 2008-2013 at €60bn — almost 50% of GNP.
Contrast that with California....
Last year welfare payments, healthcare for the poor, and benefits for elderly
and disabled Californians were immediately cut by around $8.3bn - - 17% of
Governor Jerry Brown’s entire discretionary budget. And state offices, which
employ roughly 200,000 people, were forced to operate on a four-day, 38-hour
San José, the biggest urban area in Northern California in the midst of
Silicon Valley, one of America’s richest regions, has been struggling with its
budget for a decade.
This was after several years of cutbacks and last November, voters supported
a rise in the sales tax to avoid education cuts.
France has raised more in taxes than spending cuts and its public spending is
still 56% of GDP -- temps accounted for 13% of jobs in 2007 but more than 60% of job losses
since the onset of the crisis.
France’s public sector generated 600,000 net new jobs in the 1980s, shed
40,000 jobs between 2000 and 2009.
So it's no longer able to rely on adding public
sector jobs while growth in the private sector is mainly in health. China has
10% of its workforce in the public sector compared with France's 27%.
Philip Stephens in an op-ed in the Financial Times
New Deal for Europe: more reform, less austerity' says:
"the economy is too important to be left to economists. More importantly, it
presents policy makers with a chance to escape a flawed orthodoxy.
Excessive austerity has seen much of Europe mired in depression. In spite of
swingeing spending cuts and tax rises, debt is increasing. The crisis of the
euro may be over, in the sense that the existential threat to the currency has
been lifted. But the crisis within the euro is extinguishing political consent
for European integration. The continent badly needs to reset its course.
The answer is not a new fiscal splurge. A heavy price must be paid for the
unchecked spending and credit booms that ended in the global financial crash.
But timing and pace matter. Governments with a demonstrable determination to
raise long-term economic growth with supply-side reforms should be given more
time to cut deficits."
Sweden, Finland and Germany responded to financial crises
in past years with
significant reforms. Ireland carried on with business as usual and the bubble
provided a temporary prosperity.
President Jacques Chirac of France lost the appetite for reform after street
protests in the early months of his presidency.
Until the 1990s, France was among Europe’s leading economies in per capita GDP.
By 2010, however, the country had dropped to 11th out of the EU-15. Low labour
force participation of older and young people, as well as high unemployment
rates are the main drivers of this per capita GDP gap.
I hope the young Enrico Letta (46), the prime
minister designate, will have a chance to govern Italy well.
The southern countries were particularly hit by globalization and within
Europe competition from the former communist states.
Even Brazil had to impose special duties on Chinese shoes as its industry was
Italy has had a poor record in attracting FDI for several reasons. It's the
same with Greece even though it has a much better infrastructure than Romania
No country can be assured of maintaining a high standard of living or even
reaching one without a sustainable model.
Tom Healy of the Nevin Institute
"There is little evidence that the lessons of this most recent economic
crisis have led to a new understanding or determination to rebuild our economic
and social model in a different way.
The Republic of Ireland has not been alone in championing a model of
economic development which is short-termist and lopsided.
Reliance on ever lower rates of effective taxes for corporations and
tax reliefs for those on relatively high incomes reduces the capacity of the
Irish State to provide quality public services in an efficient and fair manner.
The policy of pursuing export-led growth through reliance on foreign
direct investment is seen as the silver bullet that will deliver economic
success once again."
There is an obsession with exports in Ireland even though jobs in that sector have been
static for years.
Only 7% of Irish SMEs are engaged in exporting —
so most private sector jobs are engaged in the domestic economy. FDI production
has a high import content. The Irish Central Bank has
said [pdf] that "64% of all workers work in indigenous, non-exporting firms,
highlighting the importance of domestic demand for job creation."
Nominal export value almost doubled between 2000 and 2012 but full-time jobs in
the exporting sectors are still below the 2000 level despite a 25% growth in the
workforce (including the unemployed).
The target to be recognised as a 'world-class knowledge economy' by 2013 was
based on a delusion that in the lexicon of the current and former enterprise
ministers, Richard Bruton and Micheál Martin, 'quality jobs' would grow in the West while low paid
manufacturing workers would continue to dominate in regions such as Asia.
Of course a job in a manufacturing plant can be much more interesting than
sitting in a call centre battery-hen like production line.
Ireland produces 5% of the Dutch output of potatoes - - they export
seed potatoes to China and the technology. In Ireland because farm welfare comes
from Brussels, there seldom is attention to the greatest native resources.
How bad do things have to get before people wake up?
333 Action Plan for Jobs initiatives!! Let’s have
a new national ideas competition!
The first step in a long march is to junk the pervasive fairytales and look at
the emerging challenges with a cold realistic eye.
Irish Economy: Innovation, a failed enterprise policy and inconvenient facts for
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