Can anything be done for social situation while recovery is awaited?

Is there any light at the end of the economic tunnel?

The interlinked banking and sovereign debt crises, which have played havoc with  economies in the euro area and beyond over the last five years, look set to continue in 2013. Some countries, notably Germany, Sweden and Poland, appear to have overcome their difficulties but that only highlights the contrast with the weaker economies of southern Europe, as well as the UK, where there are fears of a triple dip recession, and Hungary, Bulgaria, Latvia and Lithuania in central-eastern Europe. There are some positive developments. Spain, Portugal and Ireland are now running current account surpluses, which implies that exports of goods and services are now exceeding imports of goods and services to a sufficient extent to allow interest to be paid on external public and private debt with something left over to reduce that debt.  This is largely due to reduced imports but exports were rising despite difficult market conditions in 2012. increased competitiveness and the incentives for companies to search for export markets due to weak domestic markets should lead to increased export growth in 2013. If that occurs there is not just the direct boost to economic growth but also the multiplier effect through the income generated.

Any such benefits still have to offset the adverse economic effects of fiscal tightening in the most troubled economies as well as the paying off of household and company debt. Economic forecasts are a matter of groping in the mist. Still the hope expressed the prime minister of Spain, Mariano Rajoy, that the economy is close to its low point and that the beginnings of economic recovery will occur from the second half of 2013, are not completely unrealistic; and the situation could be the same for Italy. Both countries should continue to be helped by the increased confidence over recent months that they will avoid unaffordable interest rates on their debt provided that policy consistency is maintained after the Italian election on February 24-25th (this in turn requires that opponents of austerity including Berlusconi’s grouping and Grillo’s Five Star Movement are in a minority).

 

Meanwhile how much suffering and longer term damage is occurring?

The questions to which insufficient attention is being paid is whether the stringencies and job losses being imposed on the EU’s weaker economies are not just causing pain but also causing longer term social and economic damage or even weakening the countries’ democratic systems. Long-term unemployment risks leaving its victims without the basic skills and motivation to be employable and thus increasing marginalization and social divisions. Cuts in government spending leave the weakest in society even more vulnerable. Such vulnerability can be exploited by criminals or political extremists, as in the case of the Golden Dawn Party in Greece, which hands out food to Greeks but not to migrants.

The European Commission has tried to address some of this in a recently published document entitled Employment and Social Developments in Europe in 2012. Much of the document is dry and dense in figures but the employment commissioner Laszlo Andor, pulls no punches in his introduction: “2012 has been another very bad year for Europe… Groups already at a heightened risk of poverty such as young adults, children and to some extent migrants, are now experiencing an even worse situation”.  The report indicates that poverty worsened most in Bulgaria, followed by Ireland, Latvia, Spain, Lithuania and Greece in that order, between 2008 and 2011. Interestingly Portugal and Italy avoided deteriorations while Romania and Poland showed significant improvements. However, absolute levels as opposed to changes give somewhat different outcomes. The three countries with the highest incidence in 2010 were the most recent EU members Romania and Bulgaria, together with Greece. Moreover in 2012 harsh austerity measures imply that the situation deteriorated most sharply in Greece. Visitors to Athens can indeed see very visible changes in terms of homeless, begging and other signs of severe poverty over the last 12 months. Other countries in the euro zone, Portugal, Italy and Spain in that order also experienced significant economic declines as a result of unavoidable austerity measures in 2012 and are therefore likely to have seen increased poverty. (In contrast, growth rates in Romania and Bulgaria were mildly positive and Lithuania and Latvia saw stronger recoveries.)

In a situation where recover is awaited while more and more people are having their hopes disappointed, what can be done? Some believe there is some answer in macro-economic policy such as euro bonds or a big fiscal stimulus by Germany. Debates by economic commentators such policy will rightly continue and improvements could most probably be made but no rapid game-changing answer is likely. In that situation what can be done to directly help those most affected, especially young people?

 

Commissioner Andor proposes Youth Guarantee Scheme

On December 5th 2012, Andor proposed a Youth Employment Package, the main element of which is that all member states by February 2013 implement the kind of Youth Guarantee Scheme which had already implemented in some countries, that would guarantee that within four months of leaving education or a job anyone under 25 would be offered a job, a traineeship or further education. However, what may be feasible in Scandinavian countries where youth unemployment is in single figures is going to be far more difficult in southern countries, in some of which youth unemployment exceeds 50% and where government is having to drastically cut expenditure. There is the Commission says still €10bn so far unused from an existing European Social Fund scheme. But spending such money in a manner which is well-audited to ensure that it serves the purpose for which it is designed is far from easy and it will be even more difficult to use it to provide the backing for the proposed universal guarantee rather than individual schemes. But if the money could be spent effectively it would be an example of good use of the EU budget. Other questions that arise are whether unpaid “work experience” would count as a job and how “ training” can be effective. The Commission has only reached the stage of launching a consultation on how to monitor the quality of traineeships.

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