Commentary Magazine


Topic: eurozone

Eurozone Unemployment Crisis

Whatever the U.S. unemployment figures turn out to be on Friday, they will be far better than what the eurozone—the 17 countries that use the euro currency—released today. The eurozone economy is contracting, which is to say it’s in recession, and the overall unemployment is a dismal 12 percent, up from 11.9 percent last month.

But the spread among the 17 countries is far, far wider than among the 50 American states. Unemployment is a mere 4.8 percent in Austria and 5.4 percent in neighboring, but far larger Germany. Both figures are much better than U.S. unemployment, which is at 7.7 percent. Germany and Austria are adding jobs, not shedding them like the rest of the zone. That includes jobs in manufacturing, an economic sector that is bleeding jobs elsewhere. The purchasing manager activity index, a measure of manufacturing strength, dropped sharply last month to 46.8 from 47.9 the month before. Anything less than 50 is an indication of economic contraction.

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Whatever the U.S. unemployment figures turn out to be on Friday, they will be far better than what the eurozone—the 17 countries that use the euro currency—released today. The eurozone economy is contracting, which is to say it’s in recession, and the overall unemployment is a dismal 12 percent, up from 11.9 percent last month.

But the spread among the 17 countries is far, far wider than among the 50 American states. Unemployment is a mere 4.8 percent in Austria and 5.4 percent in neighboring, but far larger Germany. Both figures are much better than U.S. unemployment, which is at 7.7 percent. Germany and Austria are adding jobs, not shedding them like the rest of the zone. That includes jobs in manufacturing, an economic sector that is bleeding jobs elsewhere. The purchasing manager activity index, a measure of manufacturing strength, dropped sharply last month to 46.8 from 47.9 the month before. Anything less than 50 is an indication of economic contraction.

In France, the second largest economy in the eurozone, the unemployment rate is 10.8 percent, double Germany’s. In Spain it’s a staggering 26.3 percent, about what American unemployment was at the very bottom of the Great Depression. In Greece, the youth unemployment rate is 58.4 percent. In other words, nearly six out of ten of the young in Greece have nothing better to do than riot in the streets. Now that the weather is improving, they might well do exactly that.

Together with the crisis of the euro itself, most recently manifested in the bail out of the banks in tiny Cyprus, Europe is in deep economic trouble and the solutions are not easy to see.  And Europe is this country’s largest trading partner. The collapse of the euro, or even a severe recession, will not be confined to Europe.

As Bette Davis famously advised, “Fasten your seatbelts, it’s going to be a bumpy night.”

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The EU’s Pursuit of Stability Über Alles

At City Journal, the invaluable Theodore Dalrymple reviews the equally invaluable Dan Hannan’s A Doomed Marriage: Britain and Europe, and predicts pessimistically that it will change few minds about the EU, since “in the Eurocrats’ world, ignoring arguments is the highest form of refutation.” By way of explaining why the EU has a stranglehold on elite opinion, Dalrymple argues that the EU is good at corrupting business with the promise of controlled markets, politicians with perks far beyond their merits, and civil society with bribes.

All that is true, but not true enough. In Britain, the EU appeals to the elite in part because of the myth of leadership, i.e. the belief that, if only it rolls up its sleeves, Britain will be able to lead the EU in a direction that suits its desires. This is the myth that lies behind the so-called lost opportunity of Britain’s failure to sign the original Treaty of Rome, and it has inspired politicians as diverse as Harold Macmillan and Tony Blair to toss their chips in with Brussels. In reality, the reason why Britain did not sign on was because its interests and ideals led it to prefer different arrangements, and the past 50 years have proven comprehensively that the EU imposes far more on Britain than Britain is able to impose on the EU. Yet the myth lingers.

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At City Journal, the invaluable Theodore Dalrymple reviews the equally invaluable Dan Hannan’s A Doomed Marriage: Britain and Europe, and predicts pessimistically that it will change few minds about the EU, since “in the Eurocrats’ world, ignoring arguments is the highest form of refutation.” By way of explaining why the EU has a stranglehold on elite opinion, Dalrymple argues that the EU is good at corrupting business with the promise of controlled markets, politicians with perks far beyond their merits, and civil society with bribes.

All that is true, but not true enough. In Britain, the EU appeals to the elite in part because of the myth of leadership, i.e. the belief that, if only it rolls up its sleeves, Britain will be able to lead the EU in a direction that suits its desires. This is the myth that lies behind the so-called lost opportunity of Britain’s failure to sign the original Treaty of Rome, and it has inspired politicians as diverse as Harold Macmillan and Tony Blair to toss their chips in with Brussels. In reality, the reason why Britain did not sign on was because its interests and ideals led it to prefer different arrangements, and the past 50 years have proven comprehensively that the EU imposes far more on Britain than Britain is able to impose on the EU. Yet the myth lingers.

But the larger reason why the European elite like the EU is simple. From their point of view, Europe tried democracy in the first half of the twentieth century. The result was two world wars, the near-collapse of European civilization, and the rise to superpower status of the U.S.S.R. and (even worse, for many of them) the U.S.

Blaming democracy for the Kaiser and Hitler is poor history, but–as Ben pointed out last week–European voters, unlike British and American ones, do have a predilection for political extremism when times get rough. That’s what comes of not having conservative movements in the Anglo-American tradition of individual liberty. It’s also why Europeans always expect fascism to dawn in the U.S.: they’re looking in the mirror.

The idea behind the EEC, from its start, was to prevent wars, reassert European power, and promote economic growth by removing decisions about portions of the economy from the exclusive control of the nation-state, i.e., from the control of the voters. It was an explicitly elite approach. Add to that the fact that the EU has allowed the image if not the reality of national parliaments to survive–with most laws now made in Brussels, Gladstone would not recognize the House of Commons, even if it still sits in Westminster–and the appeal the EU has long had to France as a way to assert its political superiority over an economically potent Germany, and one does not need to appeal to corruption to explain the EU’s appeal to the powers that be.

But the EU turned from an instrument for restoring a degree of stability to one dedicated to the preservation of the status quo. That approach–and Dalrymple is absolutely right about this–is bound to fail. It means the EU, which still talks a lot about increasing Europe’s power in the world, is more interested in pursuing policies which guarantee Europe’s continued relative decline. It also means that the reality of German dominance of the EU–politics win in the short run, but economics win in the long haul–is becoming ever more obvious to most Europeans, which is one reason why the EU is less popular now than ever. When the Germans take full account of how rapidly they are sinking into the same debt morass that afflicts their profligate neighbors in and out of the euro, they too may well decide that their elites (and their Constitutional Court) have made a hash of it.

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French-German Rift Puts Voters and Markets On Edge

The dominoes continue to fall. The deepening of the Eurozone economic crisis claimed the sitting governments of Greece and then of Italy, and the biggest domino yet–French President Nicolas Sarkozy–trailed French socialist Francois Hollande after the first round of voting during the weekend. As the French political class began preparing this morning for the upcoming runoff between Hollande and Sarkozy, they were greeted with the expected news of the collapse of the Dutch government.

This latest is the most significant for France, if only because the Netherlands was generally supportive of the austerity-first budget strategy promoted by Germany and backed by Sarkozy. But the political currents began pulling the French president as well, who was sufficiently spooked by the events of the past week, as the Wall Street Journal reports:

Following the weekend political developments in France and the Netherlands, the German-inspired fiscal pact, agreed by Eurozone leaders in Brussels in December, could also be delayed or thrown into question.

In a U-turn from his earlier stance, Mr. Sarkozy has used recent campaign rallies to call for changing the course of Eurozone policies to ensure they are also designed to stimulate growth.

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The dominoes continue to fall. The deepening of the Eurozone economic crisis claimed the sitting governments of Greece and then of Italy, and the biggest domino yet–French President Nicolas Sarkozy–trailed French socialist Francois Hollande after the first round of voting during the weekend. As the French political class began preparing this morning for the upcoming runoff between Hollande and Sarkozy, they were greeted with the expected news of the collapse of the Dutch government.

This latest is the most significant for France, if only because the Netherlands was generally supportive of the austerity-first budget strategy promoted by Germany and backed by Sarkozy. But the political currents began pulling the French president as well, who was sufficiently spooked by the events of the past week, as the Wall Street Journal reports:

Following the weekend political developments in France and the Netherlands, the German-inspired fiscal pact, agreed by Eurozone leaders in Brussels in December, could also be delayed or thrown into question.

In a U-turn from his earlier stance, Mr. Sarkozy has used recent campaign rallies to call for changing the course of Eurozone policies to ensure they are also designed to stimulate growth.

The blame game has commenced, with predictable parameters. The Journal’s editorial notes that because Sarkozy’s chances for success in the runoff election hinge on his ability to woo right-wing voters who supported neither Hollande nor Sarkozy in the first round, his “appeal will probably include a combination of anti-immigration riffs and more attacks on the European Central Bank (which has become the modern French substitute for running against the Germans).” The feeling is mutual, writes Mathieu von Rohr for Der Spiegel:

This election is a referendum on Sarkozy’s presidency…. His first-round result is poor, as was expected — Sarkozy is the first incumbent in the Fifth Republic who didn’t win the first round. It is an expression of the almost physical revulsion that many people feel for him.

If there’s any immediate relevance for President Obama’s reelection campaign, it’s that he probably cannot afford a Eurozone collapse or another serious financial crisis in Europe. A big question will be how the markets react and how nervous they get. In February, global markets rose on just the expectations that a Greek deal was imminent. In the near-term, this week’s events won’t calm anyone’s nerves, and the markets today predictably signaled their discontent. Long-term, a French-German split would likely be a headache for everyone on both sides of the Atlantic.

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