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.
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)
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.