A year ago, European leaders pledged “immediate action” on growth and jobs. Since then, the euro area economy has shrunk nonstop and unemployment has risen to a record 12.2 percent from 11.4 percent.
The solution, according to a draft statement prepared for a European Union summit Thursday in Brussels: “determined and immediate action” on growth and jobs.
Neither forecasters nor the eurozone’s 19 million unemployed expect the renewed vow to turn around an economy weighed down by the debt crisis and now endangered by rising interest rates in the US and China, the world’s pacesetters.
“Just shifting the rhetoric to a focus on growth is not going to give us growth,” said Paul Hofheinz, president of the Lisbon Council, a Brussels research group. “The working assumption is that we’re going to have a traditional 1930s-style infrastructure-based stimulus, and that’s going to give us growth. It’s just not working.”
Two potential complications were taken off the table for the summit early Thursday with accords by lower-level officials on bank-loss rules and on the bloc’s 2014-2020 budget. The seven-year subsidies package will fall to 960 billion euros ($1.3 trillion) from 994 billion euros in the current budget cycle, the first cut in EU history.
On the growth-and-jobs front, the main undelivered promise from last June’s summit involved using the European Investment Bank, the EU’s project-finance arm, to channel loans to smaller businesses that were starved of credit, especially in southern Europe.
While governments did their part by supplying 10 billion euros of fresh capital, the EIB is only just getting started with its souped-up lending program, snagged by its own rules that permit loans only to high-quality borrowers. How to loosen or get around those standards is up for discussion at today’s summit.
European emphasis on freeing up labor markets and cutting health-care and pension costs reflects Germany’s experience with a structural overhaul that made businesses more competitive and relaunched an economy struggling with the burdens of unification in 1990.
Started in 2003, the German initiative trimmed unemployment and social benefits and made it easier to fire workers. The effort took years to bear fruit, coming too late for the project’s author, Gerhard Schroeder, who in 2005 ceded the office of chancellor to Angela Merkel.
Merkel used a pre-summit speech to the lower house of parliament in Berlin on Thursday to call for European countries to go further down the road of structural reform, praising “the first, important signals” for job growth coming from measures taken such as Spanish changes to the labor market.
Jobs rely on economic growth which in turn is dependent upon solid finances, and reducing debt while spurring the economy is no contradiction, she said. “We can do both,” Merkel told lawmakers. Decisions taken now will shape “Europe’s future role in the world,” she said.
Economic desperation has forced southern European countries to do a German-style remake in a hurry. Greek Prime Minister Antonis Samaras got a taste of the resulting frictions last week when the Democratic Left party quit his three-party coalition to protest his order to shut public broadcaster ERT, axing 2,600 jobs.
Soon-to-be-fired TV personalities and technicians occupied the broadcaster’s headquarters, in the sort of publicity stunt that masked economic progress. Greece, at the origins of the debt crisis, topped the Organization for Economic Cooperation and Development’s international reform rankings for 2011-12, followed by Ireland, the second bailed-out country during the crisis. Portugal, Spain and Italy also figure in the top 10.
Not everyone buys that assessment. One critic is Jean-Claude Trichet, who spent eight years as European Central Bank president sparring with governments over deficits. Political leaders have done too little to unleash the forces of growth, squandering the benefits of low interest rates and “unconventional” monetary stimulus, the ex-ECB chief said.
“I would put the blame on the governance of the euro area,” Trichet said at an Institute of International Finance panel discussion on June 25 in Paris. “There is a great disappointment because we know what we have to do, we have a consensus on the avenues we should go, and we do not deliver.”
European rules on the mutual recognition of professional qualifications show how even ideas that don’t require money can be controversial. At last June’s summit, the leaders pledged “as soon as possible” to strengthen a 2005 EU law that, for example, enables doctors or architects trained in one country to work in another.
No “radical change” was intended, the European Commission said when proposing the amended law in 2011. The main innovation was a European professional card, offering portable proof of the holder’s qualifications. Still, the wrangling dragged on. A provisional deal wasn’t struck until this month. The rules won’t take effect until after a European Parliament vote in October.
Political leaders are acting faster — or are being seen to act faster — on the jobs crisis in southern Europe, where unemployment in the under-25 age bracket is 56.4 percent in Spain, 42.5 percent in Portugal, 40.5 percent in Italy and 62.5 percent in Greece.
In February, the EU agreed to retarget 6 billion euros from its 2014-2020 budget for programs to fight youth unemployment. At the summit, the leaders will pledge to pay out that sum in the first two years of the period, according to a draft communique that calls youth joblessness “a particular and immediate priority.”
Merkel, saying that the scourge of youth unemployment is a cause of the “utmost concern,” called Thursday for the money to be made available “as soon as possible.” A jobs summit she plans to host in Berlin on July 3 with attendees including French President Francois Hollande will study how best to allocate the money, she said.
Singling out youth unemployment is misplaced, partly because the statistics overstate the problem, said Daniel Gros, director of the Centre for European Policy Studies in Brussels. He said teenagers and college-aged people can continue their education, increasing their future earnings power — an option not available to older workers.
“You are really attacking the wrong problem if you focus specifically on youth unemployment,” Gros said. “To the extent you make special funding available to mitigate youth unemployment, you have to take that money away from somewhere else.” [Bloomberg]