Anyone doubting whether Europe’s adoption of a single currency in 1999 was a major policy blunder need only look at the steady upward march of European unemployment over the past five years to its present staggering level of almost 19.5 million employees. According to EUROSTAT data released last week, Eurozone unemployment rose to another all-time record of 12.25% in April 2013 from around 7.25% in 2008. Meanwhile, youth unemployment rose to almost 24.5%.
Equally disturbing has been the growing disparity in unemployment rates between the Eurozone’s prosperous North and its beleaguered South. While unemployment in Germany is currently around 5.5%, in Greece and Spain it is 27%. More disturbing yet, youth unemployment is close to 60% in Greece and Spain and it is over 40% in Italy and Portugal.
Sadly, there is every indication that Europe’s unemployment rate will rise over the next twelve months to approximately double its equivalent US rate. Europe needs economic growth of at least 1.25% to stabilize its unemployment rate at its current level. Yet the ECB itself is forecasting that European GDP will decline by over half a percent in 2013. On the basis of Okun’s Law, such a growth shortfall would be associated with a rise in European unemployment to around 13% by end-2013.
Increased European unemployment has already led to a veritable political backlash against budget austerity and structural reform. With little prospect of a meaningful economic recovery that might make a dent in Europe’s distressingly high unemployment rate, one has to anticipate heightened political instability in the European periphery in the period ahead. One also must expect increased political tension between Europe’s southern and northern member countries over the future direction of Europe.