Economic recovery won’t tackle youth unemployment problem

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro (on the left), Algirdas Šemeta, Member of the EC in charge of Taxation and Customs Union, Audit and Anti-Fraud (in the middle), and László Andor, Member of the EC in charge of Employment, Social Affairs and Inclusion, gave a joint press conference on the 2013 country-specific recommendations (CSR). (EC Audiovisual Services, 29/05/2013).

Eurozone unemployment rate rose by one decimal point in April reaching 12.2%, from 12.1% in March. This development does not constitute a strong indication that recession in euro area is getting worse. For one thing the rise of the rate of people without a job is very slight and falls in the margin of the statistical error. At that same time though Eurostat, the statistical service of the European Union, announced that inflation in May is estimated at 1.4%, up from 1.2% in April. Unquestionably this is solid evidence that at least recession is not getting worse.

Inflation

In detail now the increase in the May inflation estimate as announced by Eurostat cannot be attributed to the cost of energy. According to this source, “Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have had the highest annual rate in May (3.3% compared with 2.9% in April), followed by services (1.4% compared with 1.1% in April), non-energy industrial goods (0.9% compared with 0.8% in April) and energy (-0.2% compared with -0.4% in April)”.

It is very clear that energy prices changes still remain in the negative region. On the contrary the sectors which have led to this small increase of inflation in the Eurozone are food, services and manufactured goods. In short this acceleration of the rate of change of consumer prices has to be attributed 100% to home economy, not the imports of energy. It is the entire internal productive machine of Eurozone that produced this increase of inflation.

Given that, it wouldn’t be an exaggeration to allege that this development may constitute an indication, if not of an end to recession at least of a backstop of the continuous fall of economic activities. All economists agree that an increase of inflation is an infallible sign that the economy in question is growing. Not to forget that the Bank of Japan in order to revive the country’s economy increased last month its target for the home inflation from 1% to 2%, on the assumption that more liquidity will lead simultaneously to price increases and real growth. That is why the BoJ is to infuse tens of trillions of newly printed yen into the economy.

Unemployment

Coming to the other important announcement of Eurostat, the slight increase of the unemployment rate in March is not necessarily an indication of a worsening conjuncture in the euro area economy. What is alarming however in this front of people without a productive job is related to the younger generation.

According to Eurostat, “In April 2013, the youth (under 25) unemployment rate was 23.5% in the EU27 and 24.4% in the euro area, compared with 22.6% in both zones in April 2012. In April 2013, the lowest rates were observed in Germany (7.5%), Austria (8.0%) and the Netherlands (10.6%), and the highest in Greece (62.5% in February 2013), Spain (56.4%), Portugal (42.5%) and Italy (40.5%)”.

This is not only an appalling situation but it is worsening fast. The same source reveals that in “April 2013, 5.627 million young persons were unemployed in the EU27, of whom 3.624 million were in the euro area. Compared with April 2012, youth unemployment rose by 100 000 in the EU27 and by 188 000 in the euro area”.

Of course the worst side of this problem is haunting Eurozone’s southern countries. Unfortunately Paris and Berlin decided yesterday that a strong banking union, as Italy and the others wanted it, cannot be enacted soon. A strong banking union could have helped the region’s SMEs to exit from today’s misery and probably employ more youths. Not to forget that 85% of new jobs in Eurozone are created by SMEs.

Al in all even if Eurozone’s economy exit from its present state of recession and enters into a slow recovery path, the dead ends for the young generation in the south will persist.