A hearty well done to the European Union for boosting unemployment to Sub-Saharan levels
THE skill with which the EU has been managing the wider economy is shown delightfully in these new figures from Greece:
Overall unemployment has risen to an all-time high of 27 per cent, data showed on Thursday, while joblessness in the 15-to-24 age group jumped to 64.2 per cent in February from 59.3 per cent in January.
A 27% unemployment rate is higher than the United States had at the worst level of the Great Depression. And a 64% youth unemployment rate: that’s more like some godawful shanty town in the wilds of sub-Saharan Africa than anything else.
So how did this actually happen?
Essentially, because the politicians ignored all the economists. Yes, Germany, France, war, never again, continent of peace. But when they first started to discuss the euro the economists did point out (Robert Mundell and Milton Friedman among them) that it would only work if it was an “optimal currency area”. In this case, perhaps Germany, Austria and Benelux. Trying to add in places like Greece and Spain etc just wasn’t going to work.
The reason being that an optimal currency are reacts pretty much the same way to some external change in the economy. Doesn’t really matter what that change is: a change in the price of oil, in interest rates, whatever. For example, a country that lives by exporting wheat will have a different reaction to a change in hte price of wheat than one that lives by importing wheat.
Going a little further, what you want is, when countries do not make up such an optimal currency area, some way of making the necessary adjustments easy. That’s what individual currencies do. Take away that easy method of adjustment and you’re left with the difficult one: what’s called internal devaluation or austerity.
Which is exactly what is happening in Greece. Without the euro, if they still had the Drachma, the Greek economy just wouldn’t be as shafted as it is now. The exchange rate would change instead of the unemployment rate. What we’re seeing in Greece is not some unfortunate side effect of the euro: this is the inevitable consequence of it.
So, well done to the politicians in the European Union then. It may well be that you want to ignore economics in favour of politics. But that doesn’t mean that economics is going to ignore you.
Nor those 27% of Greeks unemployed.
Photo: A Greek presidential guard stands as he seen through the remains of a European Union flag half-burnt by protesters in Athens, on Wednesday, May 1, 2013. About 8,000 people took part in subdued demonstrations in Athens as austerity-weary unions held a strike for May Day. The countrys main labor unions protested soaring unemployment, which is the highest in the 27-country European Union, and the austerity measures the conservative-led government is enacting in return for crucial bailout loans.