“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
‒ Mario Draghi
Those were the now famous words of European Central Bank (ECB) President Mario Draghi this time last year as he pledged to do whatever it takes to save the Euro currency. And the markets believed him, thus far at least. It is only his words that have had to stand behind the recovery of the Eurozone as their central bank is yet to participate in the Outright Monetary Transactions (OMT) where they would act as a buyer in the debt markets to support struggling European nations. But as Europe proceeds’ forward, some analysts seem to forecast the worst is soon behind them in terms of growth as they attempt to escape a triple dip recession. The caveat, however, is the employment scene despite improving marginally is still dire.
The most pertinent part of a recovery in Europe is that it is sustained, and in order to attempt to bring their public finances back into balance it becomes necessary. Their states and governments require revenue, and that is achieved from a broader tax base of an economy that has reached full employment. Jobs have been the long term problem to any of the economic recovery’s around the globe. The United States is witnessing devastating effects to the long term unemployed members of their labour force, but particular to Europe are the stories of little prospects for the youth either graduating high school or university.
There is still a massive divide between the North and South Eurozone. It is no secret the German’s have benefitted from a strong export sector that has learnt to rely on a weak Euro. And for that reason, the German economy has a strong labour force. Michael Steen in the Financial Times writes, “if you are out of work in Germany and apply for a job, there is, statistically, just one other person vying for that position, but in Portugal there are 89, in Spain 71 and in Ireland 31.” That tells us that labour is immobile across the Eurozone, and either before or after Chancellor Merkel attempts to get re-elected this fall, Germany has decide what real part they will play in supporting the peripheral nations.
Under no circumstances will the Eurozone be able to move forward without greater integration between member nations, both fiscally and economically. And this is not a call for bigger government; moreover, there is a need, like elsewhere in the world, to systematically restructure their system of government. To make headway though and move forward, this recovery needs legs, and the recovery is dependent on jobs.
Continual improvement in the labour force will be the only way for Europe to move forward. It’s very similar to the US where indeed their employment situation is not perfect, but modest gains have continually been made to give their recovery traction. Everything in Europe is good news at the moment. Business surveys have turned positive for the first time in over a year and a half, and employment data in countries like Spain have shown improvement in the right direction. For things to continue to get better though, ‘sustained recovery’ is the key word.