General News, Euro and unemployment: seeking alternatives, 17.10.2014

Euro and unemployment: seeking alternatives

The economic crisis in Europe, so far, seems to have spared Germany. All over the world, German goods and services are in demand and in addition to exports, the construction industry is flourishing, real estate assets in metropolitan areas achieve whopping increases in value and employment reached an historic record level. While the level of employment declined since 2007 in other industrialized countries, or at best stagnated, it rose vigorously in Germany. Among the major industrialized countries, Germany is on top, with a participation rate of 76.5% as of 2011 - ahead of Japan, Great Britain and the United States(1). Germany has exceeded the goal of a participation rate of 75% percent of the adult population by 2020, set by the European Union (2).

The development in the Euro-crisis countries is in stark contrast to this. Their already low employment rates collapse even further. The situation is especially startling for men who are still the main breadwinners in most households. In Greece, Portugal and Spain, their participation rates have declined by about 10% and in Ireland by almost 15%(3). An end of the decline is not in sight; on the contrary, Italy and France are sliding deeper into the crisis. It first hits the young men who seek access to the labor market: In France, more than a quarter and in Italy approximately 40% of under-25s are now unemployed. In Spain, more than 55% and in Greece nearly 60% of young people have no work. Also, older people more frequently are unable to find work and income. In Andalusia, for example, one-third of the total labor force is unemployed(4). The economic decline threatens the livelihoods of millions, especially as minimum social security systems in Southern Europe are only rudimentary. Given this, it is understandable that austerity and reform policy, as advocated by Germany, is met with rejection and anger.

Likewise, it is understandable that the German federal government is trying to bind credit support to reform requirements. Its own debt burden, the aging population, and in many places crumbling infrastructure and an expensive "energy revolution" means Germany cannot simply afford to give away hundreds of billions extra to the "euro rescue". However, above all, the current prosperity did not fall into Germans’ laps but rather came with a high price: a moderate wage policy and more flexible labor markets let the real wages stagnate over more than a decade, if not decline(5). At the same time benefits were reduced painfully - "Hartz IV" comes to mind - and savings were made in the pension system. Germany is the only country in Europe where the share of pension benefits in the gross domestic product did not increase, rather (slightly) decreased. The pension expenses increased the most in the "bailout country" Portugal(6). However, Portugal as a relatively poor country needs to keep pace with the others. What the Portuguese should have done was to reduce their consumptive spending in order to invest in infrastructure, research and development. Instead, their wages and pensions increased sharply - favored by lower interest rates for the Euro, temporarily facilitating further debt. The Portuguese economy therefore lost in competitiveness. The once low unemployment rate (about 5%) has more than tripled compared to the year 2000, with a further rising tendency(7). In order to be competitive again, Portugal (as in Greece) needs wages and prices to fall by 30-40%(8). Such a drastic "internal devaluation" cannot be implemented in any democratic country - most recently Mario Monti was punished in Italy for much lower cuts.

However, when German "austerity" does not prevail, what options are there left? The southern countries and France call for a "policy of easy money", i.e. more inflation and more debt to "stimulate" the economy. Their accusations towards Germany are getting louder and louder, and little by little the federal government has already yielded to their demand for a departure from the austerity and reform policies. Within this euro discord it is not the "best practices" that prevail but the most inefficient and socially unjust models. Even the Germans are threatened by a steep decline - alternative solutions are becoming more urgent(9), especially for Germany. Alternatives would inevitably incur costs; the Euro experiment has a high price, for better or for worse. It is, however, key that they make it difficult to live at the expense of others and return countries to their individual responsibility.

(1)  'Labor market development after the global financial crisis "(Figure)
(2) Among the objectives of the EU:
(3) See: "Men employment - development since 2000" (pictured below)
(4) For the current unemployment figures
(5) See: . 0-weeks-24-25 2012.html
(6) See: "Growing pension expenditure in the Euro zone - consolidation only in Germany" (Figure),
(7) See: ,,Arbeitslosigkeit 2000-2012" (Figure below).
(8)  Hans-Werner Sinn: “The target case. Dangers for our money and our children”, Munich 2012, pp.105
(9) Such alternatives are there, to be seriously considered would be particularly orderly sovereign defaults and the introduction of "parallel currency" to open a viable option for devaluation in the crisis countries. See: