Even if European Union member states were to implement every reform in the book, they would not succeed in reducing unemployment in the bloc within a short enough space of time to prevent it having a negative impact on growth as well as social and economic stability, the Brussels-based Bruegel think-tank says in a report, seen by Kathimerini, that will be presented at an informal meeting of eurozone finance ministers in Athens on Tuesday.
European politicians need to make more concerted efforts to tackle unemployment and inequality, especially in the crisis-hit nations of Europe’s south, like Greece and Spain, the authors of the report, Zsolt Darvas and Guntram Wolff, said.
Titled “Europe’s social problem and its implications for economic growth,” the report stresses the social and economic problems exacerbated by governments’ efforts to improve public finances through austerity policies.
The number of unemployed people in the European Union rose by 6 million between 2008 and 2013 to reach a level of 26 million, causing a rise in poverty and inequality, especially in Europe’s south and the Baltic states.
“Current levels of unemployment and poverty are not only undesirable, but also undermine the short- and long-term growth potential of Europe’s economies, with negative implications for the sustainability of public debt,” the Bruegel report says.
The biggest issue, according to the authors, is what a young unemployed person in Greece, Spain and Italy can expect from his or her government and from Europe.
“We are telling the [finance] ministers that the unemployment problem is huge and that if they insist on existing policies it will take many years before unemployment is contained by new jobs,” Wolff, director of Bruegel and one of the report’s authors, told Kathimerini.
“We are also telling them that even if they implement all of the reforms in the world they will not achieve growth in employment unless there is economic growth.”
Given that the countries hit hardest by austerity are in no position to boost demand, the Bruegel economists propose that it is up to the European Union to take the initiative.
“What the countries of the south could hope for would be some kind of major investment program from the EU. What is clearly needed is some kind of ‘Marshall Plan’ because without investment there will be no growth,” Darvas, the other author of the report, told Kathimerini.
“Investments could be made through the European Central Bank and through so-called project bonds. Other than the direct benefits investment would have on the south, it would also illustrate that the EU believes the countries of the south have a future, which would also boost confidence in these countries.”
The authors propose that tax/benefit systems should be better targeted and aligned with the needs of the poor and unemployed, stressing that a generational divide in how tax burdens are shared between young and old also needs to be addressed.
“An increasing generational divide is visible, with severe material deprivation rates rising for children and working age people but falling for the elderly,” the report notes.
The authors also argue that “countries with higher inequality [such as Greece, Spain, Italy and Latvia] tended to have higher household borrowing prior to the crisis resulting in more subdued consumption growth during the crisis.”
According to Wolff, subdued consumption has resulted in deepening and lengthening the crisis.
“The impression that current policy will enable us to solve our problems is mistaken,” he says. “In fact, extremely low inflation makes the fiscal adjustment more complicated and the creation of new jobs harder.”