EU Unemployment Rate Hits Historic High—Europe Has Only Itself to Blame

More

You don't hear much from Europe these days, now that the continent's debt crisis is more or less under control. But the jobs crisis has never been more dire. Unemployment in the euro zone hit a record high of 11.8 percent in November, according to a new Eurostat report. In Spain, Greece, and Portugal, joblessness has never been higher during this crisis.

Screen Shot 2013-01-08 at 8.52.34 AM.png

The problem gets worse for the young. Unemployment for workers under 25 is now closer to 60 percent than 50 percent in Spain and Greece, and youth joblessness is rising in France, Italy, and Portugal. (Note: the red bar for Greece shows unemployment from September 2012, not November)

Screen Shot 2013-01-08 at 9.00.42 AM.png

The last time I passed along a euro zone update, I recalled a saying among start-ups companies: The metrics you pay attention to are most likely to move in the direction you'd like. So, you'd better pick the right metrics.

Compared to most countries and international organizations, the EU is something of a start-up, itself -- a brave currency experiment. For most of this crisis, its central bankers have picked low inflation and low government spending as their key metrics. Lo and behold, inflation across the EU is low and government spending has plunged. The result has been good  for banks, depositors, bondholders and lenders. It has been disastrous for two other metrics that you might consider equally important: jobs and growth.

History will almost certainly show that Europe did the wrong thing. In fact, we hardly have to wait for history's judgment. In a remarkable letter, chief IMF economic Olivier Blanchard recently acknowledged that the IMF's diagnosis of austerity for Europe was based on a math error. The error comes down to a number called the "fiscal multiplier," which tells us how much economic activity comes from one dollar (or euro) of government spending. The IMF assumed a small multiplier, about 0.5, meaning that each euro cut from government spending would do very little damage to the overall economy. Instead, the multiplier was high, greater than 1.0, so as the cuts mounted, austerity crashed the European economy.

And so, here's where we are today with the EU: Optimistically, Europe will grow about 0.0% this year. The last time Spanish growth was this weak was during the Spanish Civil War. Greece's GDP decline is the worst of any peaceful, non-communist post-WWII economy. Both countries have youth unemployment kissing 60 percent and still rising. And, remarkably, this is what an improving EU looks like.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

Is Technology Making Us Better Storytellers?

The minds behind House of Cards and The Moth weigh in.

Video

A Short Film That Skewers Hollywood

A studio executive concocts an animated blockbuster. Who cares about the story?

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Video

What Is a Sandwich?

We're overthinking sandwiches, so you don't have to.

Video

Let's Talk About Not Smoking

Why does smoking maintain its allure? James Hamblin seeks the wisdom of a cool person.

Writers

Up
Down

More in Business

Just In