Can Eurozone’s uncertain growth answer the challenges that lie ahead?

Discussion between José Manuel Barroso, President of the European Commission and Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship (in the foreground, from right to left), minutes before Barroso delivered the speech on the “State of the Union Address 2013” at the plenary session of the European Parliament in Strasbourg. (EC Audiovisual Services 11/09/2013).

Bit by bit the much advertised resumption of economic activity in Eurozone fades away. The fall of unemployment rate by just one decimal point to 12.1% in June and the increase of GDP during the second quarter of this year by 0.3% fuelled overoptimistic estimates that Eurozone has definitively left behind the lowest part of its U curve. It’s highly possible however that this is not quite so. Presumably, the European economy as a whole will stay on the average in the positive part of the graph, but crucial variables like employment and industrial production wouldn’t follow this growth path albeit weak, oscillating around zero or below it. Let’s take one thing at a time.

Employment doesn’t follow

The fall of unemployment in June and the increase of GDP during the second quarter of 2013, after years of negative developments, didn’t translate into enough more jobs. According to Eurostat, the EU statistical service, during the second quarter of this year in relation to the first quarter the number of employed persons fell. It retreated by a very tiny percentage, just one decimal point. However the fact that a fall of unemployment and an increase of GDP didn’t support an increase in the numbers of people with a job is indicative of the very slow and quite uncertain growth path Eurozone is thought to have entered.

It’s not only that though. The number of employed people during the second quarter of 2013 was smaller by a whole percentage unit in comparison to the same period of 2012. In absolute numbers this means a net 1.5 million persons lost their job in the meanwhile and the total number of employed men and women fell to 145 million this year. It is as if the entire work force of an EU country like Ireland was almost totally erased. The Irish people in employment are around 1.8 million.

This is an obviously negative turn difficult to explain with ready-made economics. It is visible to the naked eye though that there is an ongoing structural change in employment and job creation in Eurozone but very difficult to theorise about the phenomenon. Skills, qualifications, professions, trades and specialisations are changing fast while the labour force and the education system are having grave difficulties to follow.

What industry?

Industrial production volume is another crucial variable that doesn’t support the view that Eurozone has definitively abandoned the bottom of the curve. Again according to Eurostat “In July 2013 compared with June 2013, seasonally adjusted industrial production fell by 1.5% in the euro area (EU17) and by 1.0% in the EU28…In July 2013 compared with July 2012, industrial production dropped by 2.1% in the euro area and by 1.7% in the EU28”.

A detailed annual comparison of industrial production data gives also disappointing results. Eurostat says that in July 2013 compared with July 2012 “production of durable consumer goods fell by 3.9% in the euro area and by 1.8% in the EU28. Capital goods dropped by 3.3% and 1.9% respectively. Energy decreased by 2.8% in the euro area and by 4.4% in the EU28. Intermediate goods declined by 1.2% in both zones. Non-durable consumer goods fell by 0.7% in the euro area and by 0.4% in the EU28”.

All in all there is no doubt that Eurozone’s economy has marked some tangible progress during the second quarter of 2013 after three consecutive years of decline. The problem is that this recent economic progress didn’t support a positive change in two crucial variables, which are of high social importance too. Employment and industrial production are two parameters of political and strategic character apart from their obvious economic content.

Growth that cannot create enough jobs and industry that shows continuous signs of decline can present insurmountable social, even political, problems in the future, if the current trends continue. Obviously for Eurozone to answer these negative phenomena is not an easy task at all and relates not only to economic determinants but to social attitudes and educational structures and aspirations. Discrepancies between global market led developments and realities on the one side, and the ability, even the willingness, of our societies to adapt to changes will continue haunting our economic and political future in Europe during the next decade.

In this respect differences between member states will play a decisive role, determining Eurozone’s overall ability to respond to those challenges without risking a breakup. Centrifuge forces are already in motion but still are controllable.