A SENSE OF PERSPECTIVE
I write from Spain.
Being out of Ireland, even temporarily, offers the chance for some perspective. Spain, the fifth economy in Europe, the twelfth in the world, is in trouble. And one figure leaps out from the many: over 50% of those under twenty five are unemployed, almost 40% with a third level qualification. Moreover, what jobs there are on offer are for the most part temporary or part time.
Greece is in a worse situation. The economy is virtually a basket case with figures for youth unemployment a staggering 60 plus %. The Greek government recently shut down the State Television service overnight to save money. Both countries, incidentally, have welfare systems and benefits at the lower end of the EU scale. In Italy youth unemployment has touched 40%.
Seen from here, then, Ireland is actually doing quite well, with “only” around 30% of youth unemployed. Given the different interpretations of what constitutes “youth unemployment” it can be difficult to draw any definite conclusions, beyond the fact that these percentages are frightening. Even when the better performing European economies are included, the overall unemployment figure for those in the 15-24 age group is 22.9% – almost one in four. The figure for Ireland, of course, does not factor in emigration, the traditional safely valve, now returned with a vengeance. In the last four years an estimated 300,000 have left the country, 40% of them aged between 15 and 24.
Some other indicators show the economy here to be holding up well, given the cross of austerity it has been bearing. Irish exports have done well, despite the slowdown in the global economy and the hiccups in the pharmaceutical sector as some very lucrative patents expired. Irish business is markedly more competitive than several years ago. Employment has actually risen and the overall unemployment rate, though stuck stubbornly at around 14%, is not too far off the EU average of 12.2%, though here again the emigration effect probably flatters the figures.
Politically the targets set by the Bailout Troika have for the most part been met and the country seems on target to exit the austerity programme on schedule. This also without the wholesale dismantling of an idiosyncratic but still generous welfare system.
The welfare cuts have undoubtedly caused distress at the margins but this could have been avoided had the government not ducked some of the harder political choices. We still, remember, pay generous child benefit irrespective of means and pay the unemployed roughly $230 per week without any cut off date. And here it is worth pointing out that, in one respect at least, Ireland is not doing well. Once unemployed in Ireland it appears difficult to secure employment again. Irish long term unemployment (a minimum of twelve months) is 61% of the total – the second worst in the EU; this despite the emigration effect.
The overall European figures, which show little indication of improvement in the short term, do not augur well. How can Spain or the others in trouble generate the growth required to dent these frightening percentages (overall Spanish unemployment is 26.2%) ? Long term unemployment seems set to rise significantly over the next year in Spain, Greece and Italy unless something happens. But what? The debate on austerity in Europe is now finely balanced, with political opposition to current fiscal policies mounting, certainly among the PIGS. However there is unlikely to be any marked shift in overall policy this side of the German elections due in September. Then we shall see.
For consideration is whether the European institutions, in particular the ECB, as currently structured, are capable of effecting significant sufficient changes in policy. In the USA the Federal Reserve has engaged in quantitative easing – a euphemism for printing money – since 2009, and most commentators credit that policy with preventing a world recession morphing into a depression. The ECB has done some tinkering, and printing money, under a different name in the last two years, but remains subject to a more restrictive mandate and a political climate strongly influence by fears of inflation among the fiscal conservatives of Germany and the Netherlands.
A second consideration, not always addressed, is just where the desperately needed new employment is to be found. Time was there were export opportunities in new markets or new sectors. The Celtic Tiger offered a prime example. It was followed by a domestic building boom which reached unsustainable levels and eventually collapsed. A somewhat similar boom (and collapse) occurred in Spain. Can the boom be repeated? Certainly not for the foreseeable future in the domestic construction area. Yes, there are new emerging markets as the BRICs and the economies emerging behind them become more prosperous. However, there are now more competitors, spearheaded by China.
Early last month the EU imposed sanctions against Chinese exports of solar panels, initially for a two month period, to allow for negotiation. The EU argument, led by France and Italy, was that China, by dumping billions of euros of panels, had captured 80% of the EU market. China has threatened retaliation against European wine exports. The European hawks contend that virtually everything China produces is subsidised, either directly or through exchange rate manipulation. The European doves fear a trade war, with exports to China threatened.
Déjà vu anyone? Consider what happened to traditional industries in Europe and the USA during the sixties and after as first Japan and then Korea systematically targeted sectors. Shipbuilding, cameras, motor bikes, cars, televisions, electrical goods were among the areas to succumb.
A compromise of sorts was reached, with essentially Asian management methods and techniques accompanying increased Asian investment in Europe and the USA. European and American manufacturers found enough in new, niche or luxury markets to replace some of what was lost. Rising world prosperity, increased global demand and the information revolution meant there was enough cake to go round. Then.
It is by no means certain that this is the case any more. The comparative advantages that the EU (and the West) enjoyed, in terms of education, intellectual capital, levels of capital investment and an international trading environment skewed in its favour have all been eroded.
I remember a decade ago addressing a women’s symposium in Estonia on the subject of “Security.” Estonia was in the process of joining NATO and the European Union, and inter alia the Estonians were interested in how Ireland had managed to maintain military neutrality. In the Q and A which followed I was asked what I regarded as the biggest threat to the security of the West. In response I pointed to my silk tie: “You may not like the tie, Ladies, but the salient point is that similar ties in Europe sell for $ 30 or more; I bought this in China for $1 last year.” I suggested that, in the years to come, the willingness of those in poorer economies to produce similar goods much cheaper than us would pose a stern test for the West. That time may now be here. Where will the jobs Europe needs come from? Our moment in the sun may be past.