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.