EU Unemployment and an Endless Recession

The debate over whether financial stimulus is needed for the economies of the eurozone’s weakest nations to recover from deepening recession has been trumped by the insistence of those supplying rescue capital to demand austerity. Germany, for example, has said that deficit reductions come almost exclusively from government expense cuts. It has set the limits of its contribution to eurozone bailouts partially on that belief. There is at least one powerful reason to say this austerity position is flawed. Unemployment in Spain was 23.3% in January, based on the latest numbers from Eurostat. The jobless level was 19.9% in Greece and 14.8% in Ireland and Portugal. It is hard to find an example of an improvement in this kind of unemployment that has not been coupled with some investment in broad national economies.

The recession and unemployment levels in the U.S. from 2008 to 2010 are not an entirely fair comparison to the much smaller economies of Europe. America has intellectual property that stayed in demand worldwide. The export of American weapons and aerospace products continued throughout the downturn, as did the demand for many agricultural products. But the U.S. did need a stimulus package despite those strengths. The Obama administration’s $787 billion plan set three years ago may not have added the millions of jobs the White House said it would, but most economists argue that the program kept gross domestic product from falling further than it did.

U.S. unemployment did not rise much above 10% and has come down sharply from that level. The damage to the American economy was devastating at those levels. At rates double that in Greece and Spain, it is impossible to make a case for any GDP recovery in those nations in the foreseeable future. It may not be a hard and fast rule, but it should be. Unemployment levels at 20% cannot be improved by austerity, or even economic policies that favor neither austerity nor stimulus. Without some substantial stimulus packages, GDP in the four weakest economies will continue to fall — and fall rapidly. That cannot be proved conclusively except in hindsight, but what reasonable argument is there that the assumption is not true?

Unemployment across much of Europe is staggering. Internal consumer and business demand in these nations is insufficient to help their GDPs. Purchases of their very modest exports are not enough either. There is no solution to their recessions without some stimulus help.

Douglas A. McIntyre