A Dying Dream: Europe's Never-Ending Economic Nightmare
This past Saturday the members of the new European Commission, the “cabinet” of the European Union’s executive branch, took office. Led by former Luxembourgish prime minister Jean-Claude Juncker, the new Commission faces a wide range of challenges both within the Union and in its near abroad. The EU faces an unemployment rate higher than 10 percent, is near deflationary territory, and may well end up in a triple-dip recession. Meanwhile multiple armed conflicts are raging just across its borders, new and extreme political parties dominate the politics of various member states, and secession movements (Scotland, Catalonia) threaten both the EU and its constituent members. The Commission, as always without a direct electoral mandate, composed of commissioners handpicked by national governments and assigned to posts by an unelected leader, may not be able to address these problems by itself, but the priorities it ought to set for the entire constellation of European institutions are clear.
The European economy is still in shambles, and the Eurozone economy even more so. In the latter, the unemployment rate is 11.5 percent, higher than it was at any point in 2008, 2009 or 2010. Astonishingly, it is still around 25 percent in both Greece and Spain. Youth unemployment rates are also near record heights for the Euro area, at over 20 percent overall and over 50 percent in Greece and Spain. Yes, that is correct: around half of the Greeks and Spaniards between the ages of 15 and 24 who want to work cannot find work, and that has been true for years now. The only positive note here is that most of the people who were in that age group at the start of the financial crisis have aged out of it by now. Growth has been minimal ever since the Eurozone last year left recessionary territory for the second time since 2008, and improvements are not in sight.
A lot of this is unnecessary, and European policy makers bear a significant share of responsibility for the harm that has been and continues to be inflicted on especially the younger citizens of peripheral Eurozone members. Most obviously, the common currency continues to look like an unforgivable mistake by a hubristic class of utopian Eurocrats. Sadly, what is done cannot always be easily undone; there is path dependence in the options we get to consider; and dismantling the Euro now would come at a tremendous cost—and in any case, the political courage to even admit mistakes on that front, let alone reverse course, can be found only on the (growing) fringes of the European political spectrum.
Closer to the realm of feasible adjustments, monetary policy as set by the European Central Bank has been much tighter than is desirable, as many have observed. It has also been much tighter than the Federal Reserve’s, despite dealing with a much more disastrous growth and employment situation. Only now, years later, is the ECB taking its first steps toward quantitative easing: with inflation rates that have not topped 1 percent in the entire Eurozone for quite some time, and with actual deflation in some of the Southern member states, nothing could be more overdue. A more accommodating stance will hopefully allow for the beginning of a start of an incipient recovery in the South, for more balanced competitiveness dynamics on the continent as a whole, for the alleviation of ever-increasing debt burdens for already heavy-hit households, and for some sort of future on the labor market for Europe’s younger generation. And though monetary policy cannot solve everything, one thing is for sure: remaining well below your inflation target when unemployment is over 10 percent practically everywhere and over 20 percent in some places is unconscionable.
Federal Reserve policy, which has been a model to follow these past few years, keeping the West afloat in times of economic dire straits, may make a helpful contribution to Europe’s near future as well. The end of tapering has strengthened the dollar, helping the Eurozone recover some of its competitive edge and raising its export prospects. It may even lead to the importation of some much-needed inflation.