Europe sacrifices a generation with 17-year unemployment impasse

Seventeen years after their first jobs summit European Union leaders are divided on how to create employment and a fifth of young people are still out of work.

At a meeting in Milan Wednesday Italian Prime Minister Matteo Renzi plans to tout the new labor laws he’s pushing through. French President Francois Hollande will argue for more spending, a proposal German Chancellor Angela Merkel intends to reject. Britain’s prime minister David Cameron isn’t coming.

Their lack of progress may increase the frustration of European Central Bank President Mario Draghi who has faced down internal dissent to deploy unprecedented monetary easing. He’s calling on the politicians to do their bit now and loosen the continent’s rigid labor markets even if that means facing the ire of protected workers.

“An entire generation is being sacrificed in countries such as Spain,” Ludovic Subran, chief economist at credit insurer Euler Hermes said in an interview. “That has a real impact on productivity in the long run.”

The 18-nation euro area is still struggling to heal its debt-crisis scars, five years after Greece revealed that its deficit was more than twice its forecast, forcing it into two bailouts. Across the bloc, growth has ground to a halt and inflation is at its lowest for five years.

When EU leaders met in Luxembourg in November 1997, the soon-to-be-born euro zone’s unemployment rate was about 11 percent. Jean-Claude Juncker, then prime minister of the host country, now president designate of the European Commission, promised a mix of free-market solutions and government plans would mean a “new start” for young people. Today the jobless rate is 11.5 percent.

Youth unemployment

The Milan summit will focus on youth unemployment, which afflicts 21.6 percent of people under 25 across Europe, according to Eurostat. Even this number is almost identical to 1997, when it stood at 21.7 percent.

The leaders “need to discuss meaningful job creation,” Subran said. “It’s about avoiding the neither-nor situation of people being out of both work and school. This means providing jobs in the short term and training to improve skills and employability in the long term.”

In February 2013, the EU allotted 6 billion euros ($7.6 billion) for youth-employment initiatives between 2014 and 2020, with the bulk of the spending in the first two years. The centerpiece of the initiative is a “Youth Guarantee” that anyone under 25 should have either a job, apprenticeship, or training program within four months of leaving formal education or becoming unemployed.

Sharing funds

The initiative focuses on regions with over 25 percent youth unemployment, which is the whole of Spain, Greece, and Portugal, all but the north-east of Italy, about half of France, and a few regions of eastern Germany.

France adopted its 620 million-euro allotment of the plan in June and Italy’s 1.1 billion euro program was approved by the European Commission in July. Spain’s share of the program is 1.9 billion euros, augmented by EU structural funds.

While France plans to push in Milan for the initiative to be expanded and for the money to be spent faster, Germany is opposed to discussing new spending until already allotted sums have been spent. Instead, Merkel’s government has stressed liberalization of labor markets as the best path to create jobs. France and Italy argue they are already taking steps to loosen their labor markets and those efforts won’t work without a background of growth.

Senate vote

Labor ministers will meet over lunch before heads of government join them in the early afternoon. A final press conference is planned for about 6 p.m.

Renzi met representatives of both employers’ and workers’ unions Tuesday to discuss an overhaul of the country’s labor code, which will be put to a vote in the Senate Wednesday. The proposed rules, opposed by some lawmakers from Renzi’s Democratic Party, aim at making firing easier while providing a new system of income support for those who lose their job.

European employment did improve after 1997, with the unemployment rate bottoming between 2007 and 2008 at 7 percent, and 15.7 percent for young people, as a credit bubble boosted growth in Spain and Greece. It ballooned during the subsequent financial crisis.

“I’m worried how the euro zone has detached itself from rest of the world economy,” French Prime Minister Manuel Valls told business leaders in London Oct. 6. “If there is no strategy to support growth at the euro zone, we will be in even greater trouble.” [Bloomberg]

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