Is Europe misjudging its abilities to endure more austerity and unemployment?

Matteo Renzi President of the Council of Ministers of the Italian Republic, addressed the plenary of the European Parliament. Italy assumed the EU Council Presidency as from 1st July. (EP Audiovisual Services, 02/07/2014).

The European Economic and Social Committee (EESC) worries about the “effectiveness of EU policies in bringing young generations back into the labour market”, and quite rightfully so. A steady stream of statistics confirms the assessment that the European economy has entered into a long-term stagnation and very low inflation period without visible exit from it, despite the efforts of the European Central Bank.

Last week Eurostat, the EU statistical service revealed that industrial producer prices actually fell in May in comparison with April 2014 in both the Eurozone and the EU28. The same source found also that in May the seasonally adjusted volume of retail sales fell in the EU28, while it stagnated in the euro area, where it displayed zero growth compared with April. Let’s take one thing at a time.

The EESC on the occasion of its 500th plenary session is to hold a vote on the completion of the European Economic and Monetary Union (EMU). With this opportunity it will also present the results of a study on youth unemployment – a first in assessing the success of EU policies in bringing the young generations back into the labour market.

EESC worries for the youths

Dealing head-on with the labour market, the President of the Labour Market Observatory (LMO) of EESC Christa Schweng will present a study on the successes or failures of EU’s policies in support of youth employment. This research is entitled “Implementation of EU policies for youth employment: a civil society perspective”.

Painstakingly, the EESC Labour Market Observatory (LMO) has carried out a report on the “impact of the EU’s youth employment policies in six Member States (Greece, Croatia, Italy, Austria, Slovakia and Finland) in close cooperation with national workers, employers and youth organisations”. This analysis highlights some clear-cut solutions and best practices that work, “notably in terms of the links between education and the labour market, implementation of the “Youth Guarantee” scheme and the involvement of organised civil society in reforms”.

As the President of the Labour Market Observatory of EESC puts it: “This exercise gives national stakeholders an opportunity to put forward their comments and recommendations, providing for an opportunity for mutual learning and better understanding of the functioning of national systems”.

The road to accomplish the EMU

The EESC has also conducted a paper on the road to completion of the Economic and Monetary Union. The document will be presented by EESC members Van Lersel and Carmelo Cedrone. They both call on the new European Parliament to urgently establish a roadmap for the completion of EMU, “ensured by a robust governance structure of the euro area and based on:
*a monetary and financial pillar with a full Banking Union and a complete ECB mandate;
*an economic pillar fostering competitiveness, convergence and European solidarity;
*a social pillar to fully take into account the social effects of economic adjustments; and
*a political pillar to restore confidence and enhance democratic legitimacy.
The two rapporteurs will stress that “An immediate step in the roadmap would be to implement a real, investment-driven European plan for growth, jobs and stability”.

Unfaltering statistics

Let’s turn now to the unpleasant statistical findings proving that Europe is an economic laggard. Of course, Eurostat is the authority in this field. According to this unfailing source, “in May 2014, compared with April 2014, industrial producer prices fell by 0.1% in both the euro area (EA18) and the EU28.” This is not the end of the story though.

If a fall of just a decimal point is not enough to convince everybody, what about a decrease of a whole percentage unit? Let’s see to that. The same supplier of statistics inform us that “In May 2014, compared with May 2013, industrial producer prices decreased by 1.0% in the euro area and by 0.9% in the EU28”. Not to forget that industrial goods production represents the very heart of all European economies. If prices in this crucial sector continue to fall, events may come to the end of the line. That is a deflationary spiral and a crash of all values. It’s more than certain that this dreadful eventuality doesn’t threaten the core Eurozone countries.

Conversely, what if such a spiral starts in the peripheral countries? Will the core remain intact? This was the question the German Chancellor Angela Merkel had to answer under great pressure in the spring of 2010 and again in the summer of 2012, in relation to the then imminent financial default of Greece. Unfortunately, all along the pre-crisis years the main decision makers in Brussels, Berlin and Paris had grossly neglected to identify the real problems of Eurozone. They had let the large German and French banking groups to bring the financial bubble to its limits.

Stagnant retailing

Equally frustrating are the data for retail sales. The relevant Press release issued by Eurostat bluntly states that “In May 2014 compared with April 2014, the seasonally adjusted volume of retail trade remained stable in the euro area (EA18) and fell by 0.1% in the EU28”. “Remain stable” of course means stagnation, but Eurostat is not supposed to express value judgments in presenting its data.

There is no doubt that the statistical data are adamant about the real position of the European economy. Unfortunately, European decision makers are one more time quite hesitant to confront head-on the plights of the unemployed and those in danger of losing their jobs. The causes of that are obviously the strong EU regulations about austerity policies and the reluctance of Germany to accept a relaxation.

Again Berlin makes a fatal error not to recognize, ahead of the political breaking point, the fatality of the sequence, if things are left to take their course untamed. It seems that the German politicians have always lacked the vision to foresee the obvious possible course of events, if things are left untamed. It was like that in August 1914, again in 1939 and then again in 2010 and 2012.

This time is different

Hopefully, this time, we are coming closer to the relaxation of the EU rules, imposing austerity and feeding unemployment, after the Italian Prime Minister Matteo Renzi has undertaken a campaign towards this end. He has already found support from almost every EU leader at the exception of Germany. There is strong evidence though that even Berlin will soon yield to the general outcry. Merkel knows very well that Italy is the only southern Eurozone country which can prosper even outside the euro area and that gives Renzi extra leverage.