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Commentary & analysis with a focus on European economic policy

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Unemployment in the Euro Area passes a milestone

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With the latest unemployment figures from Eurostat, for November 2017[1], the Euro Area has passed a milestone: for the first time the unemployment rate, at 8.7%, is below the average of the “normal times” prior to the economic crisis. This provides a good occasion to evaluate the current state of the labour market, as far as unemployment rates are concerned, in the Euro Area and its member states. To what extent have the scars of the crisis healed? Where do the most serious challenges remain?

Figure 1 shows the labour market recovery from the double whammy of the global financial and then the Euro crisis: it begins in the spring of 2013, in the wake of the belated “whatever it takes” announcement by the European Central Bank. Unemployment fell from its peak of 12.1% and by January 2017 it was below its average for the entire history of the common currency to date (9.6%). By November the continued improvement had brought the figure down below the average recorded up to the crisis (8.8%). Over the last 12 months the unemployment rate has fallen at an average of almost 0.1 percentage point – around 130 000 persons – a month. [Read more…]

Après Macron – Schulz en marche?

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On Sunday Emmanuel Macron embarks on a five-year term as President of the second largest EU country. An overwhelming two-thirds of those casting a valid ballot – and a sizeable 42% of all eligible voters – backed him. French people are weary of the political system, as manifested by the demise of the traditional centre-right and centre-left parties.  While France faces several problems, its economic and social model is far from the basket case that it is often made out to be by those antithetic to a large public sector and who want more liberté and less égalité et fraternité.

Nonetheless, the fact is that without external support Macron and his La République en marche! Movement/party will fail. The reasons for this are not the superficial ones linked to the candidate himself. His youth and inexperience are not the issue. He may lack a party machine but he does not need a parliamentary majority for the party emerging from his movement. I would be surprised if he fails to put together a working-majority coalition between centrists and the right wing of the social democrats (PS) and the left wing of the conservatives. With the PS pulverised and the Republicans demoralised, I don’t anticipate any shortage of takers.

His problem – and it is very much Europe’s problem – is rather that his programme is very unlikely to work electorally under prevailing circumstances. Essentially, ‘Macronism’ consists of a two-handed, and supposedly joined-up, strategy. At home, ‘structural’ reforms to increase competitiveness and stimulate growth, along with moderate fiscal consolidation to reduce government debt levels. In Europe, far-reaching changes to economic governance in the direction of a step-change in political integration, driven by a new and equal partnership between that old two-cylinder motor: Germany and France. The alleged link is that the efforts to strengthen France domestically will force Germany to recognize it as an equal partner, while falling debt levels reduce the perceived risk to German policymakers of pooling sovereignty.

There are many reasons why this sensible-sounding approach is highly unlikely to work, unless external conditions change for the better. [Read more…]

EU making solid labour market progress – the starting point is the problem

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There is an old Irish joke about a man who is lost and asks a local the way to a small village. The local pauses and answers: if I wanted to go there I surely wouldn’t start from here. Something similar applies to the European labour market. The news on joblessness in Europe has seemed so bleak for so long that it might seem hard to find a good word to say about it. But consider the following.

The EU labour market turned in May of 2013. Since then unemployment, seasonally adjusted, has fallen month for month, continuously in the EU28 and with a few brief intermittent spikes in the Euro Area, too. Over the more than three and a half years of expansion unemployment has fallen by 5¾ million of which just under 3 ¼ million in the Euro Area. On average, each month unemployment came down by 140 thousand and 78 thousand persons respectively.

The figure, which shows the month-on-month changes in unemployment (in thousands, slightly smoothed to reduce noise) puts this recent performance into perspective.

Month-on-month change in unemployment
Note: own calculations on Eurostat data, 3-month moving average; data available from 01/1998; €A changing composition

In terms of reducing unemployment the recent labour market expansion has been substantially stronger than that following the severe post-German-unification recession of the early 1990s. The monthly cuts in joblessness have been of a similar order of magnitude to those between the downturn/stagnation of the early 2000s and the subsequent Great Recession: the monthly averages between May 2005 and March 2008 are very similar (a touch lower in the EU28, a bit faster in the Euro Area). But the recent expansion has already lasted longer. As a a consequence, the overall improvement is great by around 750 thousand in the EU and more than half a million in the Euro Area. Moreover, it is not yet over, although, worryingly, the decline in unemployment seems recently to have decelerated.

The problem, in short, is the starting point. In particular the catastrophic mismanagement of the euro area crisis that came on the heels of the initial financial/trade crisis, and from which the European labour market had begun to heal (see here and the links therein). So the jobs recovery has been solid and extended but it has only been enough, in the Euro Area, to get us back to where we already were at the start of 2011, as you can see in today’s graph of unemployment rates from Eurostat:

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Given the amount of labour market slack that had been created, a much faster pace of reduction in unemployment would have been needed to mitigate social hardship and avoid longer-term damage to employment prospects and economic growth potential. Progress has been steady, that’s the good news. But we should never have started from here. Alternatively – for there is no use crying over split milk – given the starting point in 2013 we should not have walked to the village but taken a car, which would have meant finding a way to permit expansionary fiscal policy.