by Dirk Ehnts
I was at a conference in Madrid last weekend and later on in Valencia. In both cities, protesters (‘Los indignados’) were camping on the main square, Puerta del Sol in Madrid and Plaza de Ayuntamiento en Valencia. Here are some numbers from Eurostat concerning unemployment (Unemployment rates by sex, age groups and nationality (%), upper graph 15-19, lower graph 15-24, source):
An unemployment rate of 72.5% for ages 15-19 is a catastrophe. It can be considered normal when it is somewhere in the 30s, but now it is double. The unemployment rate for ages 15-24 stands at 48.4, which is also very high. It seems that both statistics are not improving lately (in the graph I chose Q1s only to have a longer timeframe). The people in the camps have banners flying reading “We don’t pay for your crisis”. Actually, they do. High unemployment is the price of the financial disaster, as households pay off debt and cut consumption. The most vulnerable in the labor market are the young, and it shows.[video:youtube:N7P2ExRF3GQ]
The basic story of the Españistán video is correct, although I am not so sure about the details. Spain has no monetary policy options, it has no room for fiscal policy – quite the opposite, actually – and supply side reforms won’t translate into the labor market in years. Even if they were quick, they probably would produce even more unemployment since the limited demand is the problem. Those arguing that prices would fall when productivity goes up tend to forget the financial side, where debt levels are fixed and rise in real terms when productivity and wages fall.
What we see is a political problem. The distribution of the economic hardship of the crisis is divided in an asymmetric way, with those that participated in the boom the least – the young – being hit hardest. Spanish unemployment insurance runs for 6 months, if you had a job for a year, and then it is back to Mom and Pop. You can imagine the social stress arising on Spanish family tables. The recent book “Crematorio” by Rafael Chirbes (now a TV series) nicely portraits the life of a real estate developer and his clan.
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Euro Crisis: Key Facts and Predictions by Elliott Morss
Should European Nations Repudiate the Debt? by L. Randall Wray
Eurozone Banking Crisis Is Both Global and National by Clive Corcoran
Savings Rate Disparities by Michael Pettis
The Global Financial Crisis is not Behind Us by Steve Keen
End of the Shell Game? by Dirk Ehnts
The Rough Politics of European Adjustment by Michael Pettis
Will Europe Face Defaults by Michael Pettis
The ECB as the Lender of Last Resort by Dirk Ehnts
The Eurozone in bad need of a Psychiatrist by Stefano Micossi
Eurozone: Caught in a Global Financial – Sovereign Web by Clive Corcoran
Euro Zone – Abwarten und Tee Trinken by Dirk Ehnts
Dr. Dirk Ehnts is a research assistant at the Carl-von-Ossietzky University of Oldenburg (Germany). His focus is on economic integration and economic geography, covering trade, macro and development. He is working at the chair for international economics since 2006 and has recently co-authored a book on Innovation and International Economic Relations (in German). Ehnts has written at his own blog since 2007: Econblog 101. Curriculum Vitae.