Unemployment and exclusion brings EU cities to boiling point

ECB Governing Council Meeting and Press Conference of 2 June 2016 in Vienna. The President of ECB Mario Draghi (on the right) accompanied by the Vice – President Vítor Constâncio explained the Governing Council’s latest monetary policy decisions and answered questions from journalists at a press conference in the afternoon. They are both pictured here in the Governing Council room.The ECB is currently pumping hundreds of billions into the euro area banking sector, in the hope that ‘money matters’ and will help the real economy gain a sustainable and robust growth path. If not…

Last Tuesday Eurostat, the EU statistical service release its latest estimates about the April unemployment rate and May inflation in Eurozone, which unfortunately didn’t diverge markedly from the gloomy predictions of analysts. This week however, the same source published a very interesting survey about the labor market situation in EU.

It’s a special report about employment and the poverty risk in the urban conglomerates of the Union. It revealed that the real unemployment rate amongst city dwellers is around 30% (only 70% are in employment), while 24% of this population lives on the brink of poverty. The title of the survey clarifies that only “7 out of 10 city dwellers aged 20 to 64 are employed”. Let’s take one thing at a time.

Menacing labor circumstances

Starting from the overall picture, Eurostat found that in the EU labor market “The euro area (EA19) seasonally-adjusted unemployment rate was 10.2% in April 2016, stable compared to March 2016, and down from 11.0% in April 2015”. The insignificant drop of unemployment during the past twelve months is not at all a comforting development.

The rate of jobless invariable remains in the double-digit area. But this fact doesn’t tell the full story. This newspaper has insisted more than once , that the headline unemployment rates, as they are reported by the statistical services of the EU member states and bundled together by Eurostat, cannot reveal what actually happens in the labor market.

Revealing the truth

It seems then that the people in the EU statistical service are not happy about that. So they conduct deeper and more extensive labor market research and have proved that there are large parts of hidden or outright massive unemployment lumps which are not included in the official overall rate or are being veiled within the headline percentages. This time it’s the city dwellers that have attracted the interest of Eurostat, obviously for very good reasons.

Traditionally, the European, and generally the western type urban conglomerates have always been the driving force behind every major political or social development. In this respect, the labor market situation of city dwellers is understood to play a major role in the wider socio-economic and political processes.

It may be true that in every major western society, the rest of the country may not follow the tendencies and the preferences of the urban populations, but the choices of the latter play a crucial role in shaping the future of entire countries, if not continents. For all those reasons and many others, the rates of unemployment amongst city dwellers present an issue worthwhile to be separately and deeply studied. This is what Eurostat did.

The back street people

In this line of thinking, the EU’s statistical service says that “Home to a large share of the population aged 20 to 64 in the European Union (EU), cities can be viewed as both the source of and solution to many of today’s economic, social and environmental challenges. Among EU city dwellers aged 20-64, 70% were in employment. The risk of poverty or social exclusion affected around 24% of all city dwellers”. For understandable reasons the writer of this phrase avoided mentioning, that the most important ‘challenges’ that the major cities are hosting are the political ones.

In any case, the truth is that only 70% of city dwellers have a job and almost one out of every four of urban people are at risk of poverty and consequently also of social exclusion. To be noted that according to the Eurobarometer (the public opinion analysis tool of the European Commission) the feeling of social and economic exclusion haunts every second European aged 15 to 30, with this rate ranging from 27% in Germany to 93% in Greece. No wonder then why adding together those two explosive social ingredients, and the city youths constitute the most unstable social element in our modern western world societies.

The dangerous alleys

Last week Eurostat also announced the April seasonally-adjusted overall unemployment rate in the euro area at 10.2% as in March and down from 11% in April 2015.  The slight drop of the overall rate most likely doesn’t mean anything, as far as the labor force of the European urban conglomerates is concerned. One out of four of them are still at the brink of poverty, while the young ones feel overwhelmingly excluded from the social and economic life.

There is more to it though. The finding that 70% of city dwellers are in some form of employment doesn’t not necessarily mean that at least some of them do not belong also to the 24% who are in the brink of poverty. It’s a fact that a large number of city dwellers despite in some ‘modern’ kind of employment, they continue to run the danger of poverty and what goes with it, social and economic exclusion. Mathematically, this appalling reality concerns more than 30% of the big cities populace.

The Range of Disinflation

Last but not least, it’s worthwhile commenting on the Eurostat release of its flash estimate about the May inflation, which still remains in the negative part of the chart with a -0.1% reading. Since last February the euro area headline inflation remains in the zero/negative region undermining any hope for a swift revival of the economy.

In conclusion, the Eurozone monetary area of the nineteen EU countries seems stuck in a stagnation trap. The only hope for a change comes only from the hundreds of freshly printed billions that the European Central Bank keeps handing for free to the banks. Given that this is the first time in the economic history, that the central bank floods the financial market with printed money at huge quantities and zero cost to the takers, the theory that ‘money doesn’t matter’ when it comes to real growth, may regrettably be proved right.

At the same time however, this money bonanza having failed to revive the real economy may have created utterly dangerous new financial bubbles. If this turns out to be the case, the latest fallacy that ‘many matters’ may be proved worse than the initial problem; the stagnation. And the question comes freely; how are the city dwellers  to react in a new and more devastating financial crisis?