Francois Hollande States The Bleedin' Obvious...

[Zaune]

The Guardian

European leaders warned on Tuesday that youth unemployment – which exceeds 50% in some countries – could lead to a continent-wide catastrophe and widespread social unrest aimed at member state governments.

The French, German and Italian governments joined forces to launch initiatives to "rescue an entire generation" who fear they will never find jobs. More than 7.5 million young Europeans aged between 15 and 24 are not in employment, education or training, according to EU data. The rate of youth unemployment is more than double that for adults, and more than half of young people in Greece (59%) and Spain (55%) are unemployed.

François Hollande, the French president, dubbed them the "post-crisis generation", who will "for ever after, be holding today's governments responsible for their plight".

"Remember the postwar generation, my generation. Europe showed us and gave us the support we needed, the hope we cherished. The hopes that we could get a job after finishing school, and succeed in life," he said at conference in Paris. "Can we be responsible for depriving today's young generation of this kind of hope?"

. We're talking about a complete breakdown of identifying with Europe.

"Imagine all of the hatred, the anger"What's really at stake here is, not just 'Let's punish those in power'. No. Citizens are turning their backs on Europe and the construction of the European project.

Germany's finance minister, Wolfgang Schäuble, warned that unless Europe tackled youth employment, which stands at 23.5% across the EU, the continent "will lose the battle for Europe's unity".

Italy's labour minister, Enrico Giovanni, said European leaders needed to work together to "rescue an entire generation of people who are scared [they will never find work].

"We have the best ever educated generation in this continent, and we are putting them on hold," he said.

The UK Department for Work and Pensions and the Treasury were unable to say why Britain, which has a 20.7% rate of youth unemployment, was not represented at the conference in Paris on Tuesday.

Stephen Timms, shadow employment minister, attacked the coalition for remaining "utterly silent on youth unemployment".

"This government has totally failed to tackle Britain's youth jobs crisis. This government must stop sitting on the sidelines and take the urgent action we need to get young people back to work."

Hollande outlined a series of measures to tackle the problem, including a "youth guarantee" to promise everyone under 25 a job, further education or training.

The plan, which has been discussed by the European commission, will be supported by €6bn (£5bn) of EU cash over the next five years. Another €16bn in European structural funds is also set aside for youth employment projects.

Herman Van Rompuy, European council president, pledged to put the "fight against unemployment high on our agenda" at the next EU summit in June. "We must rise to the expectations of the millions of young people who expect political action," he said.

The commission estimates youth joblessness costs the EU €153bn in unemployment benefit, lost productivity and lost tax revenue. "In addition, for young people themselves, being unemployed at a young age can have a long-lasting negative 'scarring effect'," the commission said. "These young people face not only higher risks of future unemployment, but also higher risks of exclusion, of poverty and of health problems."

The European ministers, who will meet German chancellor Angela Merkel to discuss the youth unemployment crisis in July, said small- and medium-sized businesses (SMEs) will form a central plank of the plans. SMEs traditionally employ the vast majority of young people, but have complained they haven't been able to borrow enough money to grow since the financial crisis struck in 2008.

Ursula von der Leyen, Germany's labour minister, said: "Many SMEs, which are the backbone of our economies, are ready to produce but need capital, or they have to pay exorbitant borrowing rates."

The minsters are working on establishing a special credit line for SMEs from the European Investment Bank (EIB), which will have a €70bn lending capacity this year.

However, Werner Hoyer, head of the EIB, warned minister not have "expectations completely over the horizon".

"Let's be honest, there is no quick fix, there is no grand plan," he admitted.

Schäuble warned that European welfare standards should not be jeopardised in order to cut youth unemployment figures. "We would have a revolution, not tomorrow, but on the very same day," he warned. Germany and Austria have the lowest rate of youth unemployment, with 8% not in work, education or training.

Only taken them two or three bouts of mass riots in major European capitals to notice, then.

[energiewende]

It's not so obvious actually. The obvious way tor reduce the really crazy figures (Spain, Greece, Italy, etc.) is quantitative easing but that is disallowed by the Euro. So the solution might be for the Southern countries to leave the Euro but that's the opposite of what Hollande wants. What he's really worried about is that perceptions of the EU have gone from 60-70% in favour to 60-70% opposed in most of these countries. I guess this is why the UK isn't invited: it's not in the Euro.

The Swedish riots on the other hand are hard to tie in to this. Sweden isn't in the Euro and has had pretty much the strongest recovery of any European country and youth unemployment is only middle of the table. Not sure what other European capital had riots this year.

[Guardsman Bass]

The best strategy would be for the southern European countries to leave the Euro, do a haircut for bond-holders when they swap Euros for new local currency during a freeze on currency trading, and then devalue like crazy. Iceland did something like that (haircut plus devaluation of the krona), and they're doing a lot better since 2007-2008. That might cause some issues with international capital markets a la Argentina down the line, but pre-Euro Greek Debt, for example, was fairly high before the Euro anyways.

[cosmicalstorm]

1914 here we come
I don't see many nice ways out of this.
The best roads ahead, such as the one voiced by Guardsman Bass, will probably be ignored by moron politicians.
As a Singularitard I also wonder how much of this is caused by increased automatization and machine intelligence?

[energiewende]

None at all. It's caused by sub-optimal interest rates and was predicted before the Euro was introduced. I don't see any similarity to 1914 frankly.

[Zaune]

For once, I'm with energiewende. I'm reminded less of 1914 than the mid-1930s...

[Starglider]

As a Singularitard I also wonder how much of this is caused by increased automatization and machine intelligence?

Not this time; give it another couple of decades for those riots. IT was a contributing factor though in providing the telecomms and software to support large-scale outsourcing and global supply chains. Without the Internet it would have been harder to relocate manufacturing, capital and services to developing economies (with lower labor costs).

[Simon_Jester]

Interesting point- and yes, I imagine that it would be a lot less appealing to try to outsource consumer products factories to India in 1970, when every time you had an argument about the blueprints for something you'd have to wait for them to get air-mailed around the world...

[energiewende]

What is your econometric data that technology or trade causes unemployment? Long run total unemployment in the developed world isn't higher than it was when most people were agricultural labourers.

This recent spike in unemployment is due to the financial crisis and the fact it is so deep in southern europe is due to the inherent inflexibility of the euro.

[DoomSquid]

The best strategy would be for the southern European countries to leave the Euro, do a haircut for bond-holders when they swap Euros for new local currency during a freeze on currency trading, and then devalue like crazy. Iceland did something like that (haircut plus devaluation of the krona), and they're doing a lot better since 2007-2008. That might cause some issues with international capital markets a la Argentina down the line, but pre-Euro Greek Debt, for example, was fairly high before the Euro anyways.

That would be sensible. The northern Eurozone countries don't want that, though, because it would send the value of the Euro skyrocketing without the weak economies weighing it down (after a probable initial dip, and assuming the currency didn't just dissolve completely as a result), which wouldn't be good for major exporters like Germany. Quite apart from that, the Euro was never designed to have a neat an easy mechanism by which countries can exit, because it was supposed to be permanent. Even if something is worked out that prevents a disorderly exit, the prestige blow to the 'European project' would be massive, and that's something that the politicians at the head of Europe want to avoid if at all possible.

However, they also don't want to do what they should do in that situation and just bail out the states that need it without crippling strings, because that would be domestic political suicide, for Merkel in particular. They want to have their cake and eat it too; they want a monetary union, and they don't want to have to pay for it.

[Simon_Jester]

I once remarked that the EU's problem is that they need either more OR less federalism. Less federalism would allow them to decouple the national economies and avoid damaging the weak ones. More federalism would make it more tenable for the rich nations to subsidize the poor ones, as is the case with individual states in the US. Right now they get the worst of both worlds, at the same time that their politicians are trying to finesse the situation to get the best.

[energiewende]

Simon_Jester has the best analysis so far. But there is a wider issue: US doesn't just make rich states subsidise poor states, or even mostly. Rather what happens is people move from states with high unemployment to states with low unemployment. This is practically very difficult in the EU and increased centralisation and commonality of laws can only partially change that.

Ultimately there is a hard choice:

1. Continue with EU project to glue together 6 dead empires to make one that can compete with US and China.

2. Unravel EU to maximise living standards in each country.

The 1. is strongly favoured by everyone in power but I guess 2. is favoured by the man on the street. What I am interested in is what do people in power think is the compelling reason to prefer 1.? It is not as if there is threat Europe will be invaded soon.

[Dr. Trainwreck]

The 1. is strongly favoured by everyone in power but I guess 2. is favoured by the man on the street. What I am interested in is what do people in power think is the compelling reason to prefer 1.? It is not as if there is threat Europe will be invaded soon.

The man in the street is hardly that much in favor of 2. For the politicians, though, just leaving the euro would mean to turn to their populations and admit they have been riding them for a decade. Outright disbanding the EU would imply that everything after WWII was wrong. And finally, these politicians are elected: people in every country stand to lose by leaving the euro, and if their numbers suffice they can elect a government after their own hearts.

[energiewende]

Most people stand to gain from leaving the Euro. Some people have a romantic (arguably quasi-nationalistic) attachment to European Unity, but this has imploded in the South. Approval rates of EU have gone from 60-70 to 30-40 in Spain, Italy, Greece, etc.

I doubt the man in the street sees the causation very clearly but this tends to understate the actual case for unravelling, ie. more people would support it if they knew.

[Guardsman Bass]

There's no reason to abandon the EU as a whole, just the Euro. If or when Europe gets to the point where broader fiscal transfers and control have greater political support, then they can go back to the single currency if they want to (although I suspect that the ease of electronic currency exchange might make that less necessary in the future).

And finally, these politicians are elected: people in every country stand to lose by leaving the euro, and if their numbers suffice they can elect a government after their own hearts.

Greece is the key example there, with majority support for the Euro even if moving back to the Drachma would allow them to devalue their way out of most of the crisis. But as energiewende said, I'm not sure that most Greeks know that last part - or they do, and they're worried more about the negative stuff that will happen (like imported food and fuel getting temporarily more expensive, requiring lots of aid).

[K. A. Pital]

Liquidate or constrain the EMU, but keep the free travel zone. Everyone happy and free to choose their economic policy, as well as face consequences thereof. Except the ECB goons who'll lose their jobs and a fancy building, but those are callous and power-hungry oligarchic managers, and therefore their cleptocratic interests should not be considered when speaking about the future of Europe.

[Simon_Jester]

Simon_Jester has the best analysis so far. But there is a wider issue: US doesn't just make rich states subsidise poor states, or even mostly. Rather what happens is people move from states with high unemployment to states with low unemployment.

Yes, to an extent, both happen. The US government pours vast subsidies for agriculture, education, infrastructure consumption, and welfare into poor states (ironically, many of these then vote for deficit-hawk politicians). At the same time, Americans move to places where they hope to find jobs.

This is practically very difficult in the EU and increased centralisation and commonality of laws can only partially change that.

It is vastly easier than it used to be, because the immigration controls between European nations are vastly lighter now than they were before the EU.

The 1. is strongly favoured by everyone in power but I guess 2. is favoured by the man on the street. What I am interested in is what do people in power think is the compelling reason to prefer 1.? It is not as if there is threat Europe will be invaded soon.

Because all of Europe profits from a lot of the centralization measures- the removal of economic barriers and the creation of continent-wide standards for things like industrial practices and education is a positive thing.

[K. A. Pital]

The Bologna process has been positive in the sense that now a person with a Spanish diploma can go to Germany, work, and possibly prevent himself and his family from going hunrgy during this crisis. But in that thing only.

It has been negative as a tool to increase the education accessibility. Education in all European nations is becoming less free, more class- and condition-restricted and of course, a totally commericalized Masters degree (at the same time it is becoming a minimum work requirement) will serve to extract more money from students, rendering it impossible for the poor to successfully complete their education.

The universality of the Bologna process it good; the commercialization that follows it is bad. Like my fav bearded guy said, the machine itself is good, it is the capitalist application of it which is bad and gives birth to exploitative practices, heh. Same is true for the education machine.

I find it abhorrent that education can be thought of as a class-based inheritance and your financial status determines the very ability to get higher education, not your pure intellectual capabilities alone. Education is a right and not a good, just like one's life.

[energiewende]

There's no reason to abandon the EU as a whole, just the Euro. If or when Europe gets to the point where broader fiscal transfers and control have greater political support, then they can go back to the single currency if they want to (although I suspect that the ease of electronic currency exchange might make that less necessary in the future).

I agree that leaving the Euro is the important thing and rest of the EU may be not important or even beneficial (there are a lot of factors in both directions). I say 'unravel the EU' because countries leaving the Euro is regarded by the EU leadership as tantamount to beginning to unravel the whole project. Perhaps they are mistaken but you can see their argument: admitting the Euro is harmful and then restarting treaty negotiations from base of the 1980s or 1990s is a dangerous proposition.

It is vastly easier than it used to be, because the immigration controls between European nations are vastly lighter now than they were before the EU.

Yes but what is harder for you: filling out a visa form or leaving your friends, family, and anyone you can even converse with to move to a country with a different language and culture, which may well be dramatically at odds to your own? This is why more people from the UK and Ireland emigrate to America and the Commonwealth than to Europe even though it is notionally much harder.

Because all of Europe profits from a lot of the centralization measures- the removal of economic barriers and the creation of continent-wide standards for things like industrial practices and education is a positive thing.

It's not all or nothing: we could just go back to levels of integration of 1990 and forget about the Euro.

[Dr. Trainwreck]

Greece is the key example there, with majority support for the Euro even if moving back to the Drachma would allow them to devalue their way out of most of the crisis. But as energiewende said, I'm not sure that most Greeks know that last part - or they do, and they're worried more about the negative stuff that will happen (like imported food and fuel getting temporarily more expensive, requiring lots of aid).

They know; but devaluing our way out of the crisis would destroy bank accounts. This might not have been so bad in other countries, but in Greece you can't rely on the state to provide you with a proper pension or basic benefits and you had better rely on the family and anything you save up yourself. This situation gives you a solid block of people (over forty, middle-class, preferably self-employed) who will vote pro-euro and pro-austerity.

Funny thing is, there is nothing to show that austerity will be in any way effective or keep Greece in the Eurozone, and everything to show the opposite. So all these people who voted last year essentially threw anyone who wasn't them (literally: immigrants, under forty, students, pensioners, private and public sector employees) under the bus to win the awesome priviledge of being last to starve. They weren't deterred, even if it meant electing rightwing nuts and pseudo-leftist clowns into power.

[Dr. Trainwreck]

It's not all or nothing: we could just go back to levels of integration of 1990 and forget about the Euro.

No, it truly is all or nothing as far as currency goes: either forget the euro completely or get centralization over with.

[Guardsman Bass]

Greece is the key example there, with majority support for the Euro even if moving back to the Drachma would allow them to devalue their way out of most of the crisis. But as energiewende said, I'm not sure that most Greeks know that last part - or they do, and they're worried more about the negative stuff that will happen (like imported food and fuel getting temporarily more expensive, requiring lots of aid).

They know; but devaluing our way out of the crisis would destroy bank accounts. This might not have been so bad in other countries, but in Greece you can't rely on the state to provide you with a proper pension or basic benefits and you had better rely on the family and anything you save up yourself. This situation gives you a solid block of people (over forty, middle-class, preferably self-employed) who will vote pro-euro and pro-austerity.

That's what I suspected. The least painful way to do it would be to temporarily slam down full capital controls, do a mandatory Euro-Drachma swap and revaluation (with a haircut for accounts/assets valued above a certain level), and then re-open and weather the worst of it - but it still will be quite painful in the short-term, even if it also means that Greeks will get more jobs after devaluation.

Funny thing is, there is nothing to show that austerity will be in any way effective or keep Greece in the Eurozone, and everything to show the opposite. So all these people who voted last year essentially threw anyone who wasn't them (literally: immigrants, under forty, students, pensioners, private and public sector employees) under the bus to win the awesome priviledge of being last to starve. They weren't deterred, even if it meant electing rightwing nuts and pseudo-leftist clowns into power.

Yep, I think it's pretty obvious at this point that austerity isn't going to work. It might have worked to get Greece back into balance if they'd also been able to use monetary policy and their currency to push up demand while doing it, but then they'd probably never be able to get that much in debt in the first place.

All of this should have been obvious from the beginning, too, so why did the Greek government choose to join the Euro in the first place? I understand that easier borrowing was a big plus, but it still should have been obvious as to how dangerous this would be if they got into a downturn and couldn't devalue.

[Starglider]

There's no reason to abandon the EU as a whole, just the Euro

Strictly speaking it would be possible to abolish the ECB and allow individual member states to adopt their own monetary policy, without abandoning the euro. This would create economic stresses and gnashing of teeth, but would probably still be better than the current situation. Germans would be complaining about spillover inflation instead of Spanish complaining about ECB blocking QE-based debt reduction; so far it has been unthinkable because the Germans now have de facto control of the EU, but a sufficiently widespread and serious case of fiscal desperation could overthrow that.

[energiewende]

That's the least practical proposal, sort of like letting anyone in the US print dollars in their back room. Only 17 people printing Euros at random, but the same principle. Spain would try to inflate massively while Germany would try to buy Euros and destroy them... it would lead to immediate breakup of the currency zone by all participants rather than just the South leaving.

The EU is ultimately more of a political organisation. An attempt to produce a new Holy Roman Empire or new Austro-Hungarian Empire. Unlike the origins of the financial crisis itself, the Euro's problems were not some accident or collective mistake, it was well known and predicted long ago, based on the basics of economics accepted by everyone. EU didn't know this crisis specifically would come along, but they knew there would someday be a recession again, this was known to every government that chose to join also, it was pushed on despite the economic disadvantage and will continue to do so.

[Starglider]

That's the least practical proposal

In an abstract economic analysis sense sure but not necessarily in the real world of political expediency. If massive funding is needed in an emergency and the ECB is dragging its feat, countries can issue legally mandatory IOUs that function as QE; several US states have done this and arguably Spain as well. Actual printing of euros is quite possible as the national central banks still exist and the TARGET2 mechanism can simply be bypassed in the short term; leaving the Germans to either shut up and legalise it post facto, or object and watch the eurozone messily explode.

sort of like letting anyone in the US print dollars in their back room

Physical currency is not as relevant but obviously individual countries can do that as well, and again if it comes to that Germany must either allow it or self-destruct the eurozone.

it would lead to immediate breakup of the currency zone by all participants rather than just the South leaving.

I would expect not immediate; too many massive egos and inertia involved. The leadership of the EU has reflexively covered up, suppressed, downplayed, stalled and adopted short-term fixes for every aspect of the financial crisis since 2008. No mainstream politician wants to be the one who destroyed the euro. As such financial train wrecks in the eurozone happen in slow motion; starting from explicit periphery monetisation, I'd expect a year or two of shouting, recriminations, legal silliness and financial insanity before countries actually start to leave.