Catastrophic economic news continues to flow out of the eurozone, this time it was the unemployment data for April.

The economic depression gripping the bulk of Europe was revealed with the unemployment rate rising to 12.2 per cent, the highest level ever recorded. A year ago, the unemployment rate was already a disastrous 11.2 per cent and the fact it has risen since then shows how things are going from bad to worse for what is still the largest economic region in the world.

The 1 percentage point increase in the eurozone unemployment rate in the last year is yet another sign that its economy shows no sign of stabilising, let alone turning towards recovery. This is evidence, if more were needed, of a monumental policy failure from both government and the European Central Bank.

The ECB should be humiliated when it looks back on its decisions to hike, yes hike, interest rates on two occasions during 2011. The ineptitude of this implementation of monetary policy is showing up now with 19.4 million people unemployed in the 17 nations that make up the eurozone and 26.6 million people in the 27 countries of the European Union.

Compounding the ECB’s folly was its lethargy in deciding to reverse those inappropriate rate hikes of 2011.  Even with scope to move interest rates lower, the ECB cut interest rates only once in 2012 and waited until last month for the latest rate cut when it was obvious it had scope to take rates towards zero. Even now, interest rates are 0.5 per cent and have scope to be cut.

It must be noted that the ECB’s policy folly is only part of the problem. Perhaps more significant is the fiscal policy settings which have seen cuts in government spending and hikes in tax when overall GDP has been falling. It is preposterous having the government sector, which accounts for between one-quarter and one-third of GDP in most eurozone countries, going into sharp reverse via fiscal austerity at a time when private sector demands have been bludgeoned by the banking and property debacle. It is policy incompetence.

What is going on in policy makers’ minds?

What do they think when they see the unemployment rate in Greece at 27 per cent and 26.8 per cent in Spain. As absolutely depressing as those numbers are, there are another 12 countries out of the 27 in the European Union with an unemployment rate above 10 per cent.

More cuts in spending? Tax hikes? Cuts to wages, services, jobs as a means of fixing the economic ills of Europe?

Despite some minor respite in recent months in the fervor with which budget cuts and tax hikes are being pursued, the government sector will continue subtracting from GDP growth in Europe until 2015. This could see the unemployment rate break above 12.5 per cent if the private sector does not pick up the slack.

Part of the policy zealotry is linked to fears about an inflation break out. This looks to be an absurd phobia given the depressed economic conditions and evidence of disinflation that shows up with ever increasing regularity.

The ECB concern about inflation as a reason for its incredibly hawkish stance on monetary policy in recent years has no factual support.

In addition to the dreadful unemployment data on Friday night, Eurostat released the inflation data for April which confirmed annual inflation running at 1.4 per cent in the eurozone as a whole. Excluding the volatile items (energy, food, alcohol and tobacco) the annual core inflation rate was a miserable 1.2 per cent.

This low inflation should not be a surprise given Europe has recorded six quarters in a row of negative GDP growth, with the depression conditions in many countries delivering deflation in some countries. Even when the eurozone was recording decent growth prior to the crisis, inflation was contained with annual core inflation below 2 per cent every month since 2003.

It is all very well to be vigilant against inflation, as all good central bankers must be, but to have such a poor reading of inflation risks when the economy you are managing is sinking in quicksand is hard to excuse.

The glimmer of hope for a recovery in the early part of 2013 has been extinguished. Policy errors are to blame, which is a huge pity for the millions of people unemployed and even those lucky enough to have a job whose living standards are going backwards at a rapid pace due to fiscal austerity. 

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I find it constantly amazing to see people arguing that governments shouldn't be operating the same way a business does - that is, living within their means.

The whole thing about austerity, irrespective of whether it would have reduced the severity of the recession, is that it stops the cycle of putting todays debt on future taxpayers shoulders.

As a business owner, if I stuff up and for whatever reason, don't make money, I don't continuously borrow money to keep things afloat while operating as 'business is usual'. I change the way I do things, specifically trying to cut costs and operate more efficiently.

I don't see how a country doing that is anything but the only option - lets not forget that governments are there to govern, not prop up an economy through borrowing.

yes i get confused by this continuous propping up.
i think it has to do with managing the mood of a country - it seems the last thing governments want is for countries to feel depressed as it would stifle innovation and "society energy"etc.

so they spend up and keep everything happy.
Problem is if it doesn't work - then you are completely stuffed.

Greg, let me explain how modern western societies constructed.

1. Elite guys want to be reelected again and again (they personally profiting from it)

2. Is capitalism good for it ? No

3. So called democracy good enough, but elite have to give out more and more
That's why constant and bigger (in country totals) payouts, subsidies, etc.

4. To give out more and more only socialism is good structure.

5. Once using socialism there's no stop. More should be given out, so more borrowed etc.
Down spiral.

6. To make it worse, it's not even socialism, it's fashistic structure, when good nice looking propaganda used, but behind the screen financial speculators control markets and politicians.
Profit private, but all losses public.

7. That make whole story even much worse. Public constantly asking more, but all money stolen by elite speculators who create huge debt in process so that there's no spare money to feed growing public appetite to subsidies.

8. The point of collapse eventually comes (2008) and choice is simple.
a) cut off socialism/fashism model and return back to capitalism (can trigger revolutions)
b) print more and increase debt more trying to bring whole system in new price scale,
with bigger prices but devalued money (calms down public and gives huge profits to speculators/elite)
As plan b) can not work in straight line, shake outs periodically done using all financial tricks and propaganda. i.e. QE will be stoped, banks never again will be bailed out, banks reserves must be increased, etc.

No brainer that plan b) always choosen

When you put it like that yes - of course option B would be chosen.
but doesn't there come to a point where you cant kick the can down the road any further because you have fully rented out your balance sheet?

then what - default ?

Martin, the flaw in your argument is this.
The purpose of businees is to make profit.

The purpose of government is to seve the Common Weal.

And there are times hen debt is the best way to achieve that.

Stephen calm down ole sport, count to 10, and think how lucky Greece has been to get an enforced private sector write down of 75% of value in its bonds without performing very much of its agreed program. Think how the ECB has been back dooring Greek banks with soft loans and just smile, dont focus anyones minds that Greece once again is going to come a begging for more very soon.

Right now the few countries who can put money into the ECB are having second thoughts about doing it.....they know Greece is ripping into their well being and will continue to do so as long as they are foolish enough to put in. The ECB are being prudent trying to get something back, after all Greece may well pull the plug if they don't get any more backing.

Thye have just formed a political party aimed at doing that very thing.....and would you believe its polling more than all they other parties could very well lead the elections and pull Greece out of the EU.

And then were would we be....mind you, it maybe a good idea to blame the ECB and not Germany or any of the other ECB maybe your are smarter than I give you credit for, yes are a genius.

Twenty years ago Japan made the decision not to allow bankruptcy and liquidation to cleanse the economy of huge burdens of unserviceable debt in the course of a few years.At the time, economists in the US scoffed at Japan's decision to save the banking system,pointing to the successful western system of bankruptcy and liquidation.Below is the 20-year history of the Bank of Japan's cash rate.
After 20 years,Japan's banks are still wards of the state.

1993 to '94 3% down to 1.75%
1995 1%
1996 to 2000 0.5%
2001 to 2005 0.0%
2006 to 2007 0.75%
2008-2012 0.3%

At what point along the road would this Spectator decide that having zero bound interest rates doesn't work?
If the Spectator was in the position of advising the BOJ,would he say : "let's just try it for one more year....I'm sure it will work this time?"

Low interest rates in extremis has not worked anywhere in just destroys capital.


Your definition of success needs to be reconsidered.

The objective of lowering the price and increasing the availability of capital is to encourage risk taking, and to ensure that those who have previously taken risk and SHOULD suffer consequences of poor decisions.. DON'T.

Insiders are protected, the common punter suffers.

On that simplistic basis, ZIRP is very successful indeed.

Yes, capital is destroyed, but not the capital of the insiders.. Only yours and mine.

An intended consequence.

The Germans can't leave the euro without a BIG banking hit. Spain, Greece etc will not leave the euro without a German repayment deal. The ECB keeps the loans coming but no forgiveness via the PRINTER.

Someone will break this cycle by buying someone else's gold. Who is going to make the first bid? China will be ready soon. So better that the Germans at least make the offer.

Its the result of 5 years of countries printing money hence more debt
Most countries should of lived within thier means after the gfc.
The opposite has happened.
Now the world is in a currency war a predicament it has never witnessed before.
Jim rogers predicts it will all end in tears ,take the pain,,then flourish.

I think Geoff Crocker is on the money.

Easy monetary policy settings that Mr. Koukoulas advocates is simply another 'kick the can down the road exercise'.

Cheap abundant capital and disproportionate govt. spending delays the natural creative destruction which must happen in order for unproductive resources to be reallocated, and losses to be incurred.

It delays the day of reckoning, it doesn't prevent it.

Better for the Europeans to take their medicine now, have a sharp downturn, restructure, and come out the other side, lean and ready to compete.

Dead jobs are at the hands of bankers who created a global debt crisis by lending money too easily and too cheaply. Blame the politicians for not regulating banks properly and for encouraging real estate ponzi schemes. The problem with real estate bubbles and other asset bubbles is that they eventually pop. Governments that think they can now stop a global depression by spending and borrowing more money will only make the final bust more devastating in size.

Frans You are on the money. Good call.

The ECB need to understand that their share of the world prosperity pie has become smaller due to the Asian tiger economies and will be smaller again when the shale gas becomes main stream in the US.

No point propping up their loving standards with more debt.they have to take their medicine now with unfortunately a sever depression resulting in lower living standards in every sense of the phrase.Only then will they become competitive.

I meaning "living" standards - although "loving" also works

Perhaps Stephen could convince Germans and Asians to work smarter and harder to produce even more goods for wise EU politicians to redistribute to their unfortunate flocks, in order to keep them all in the manner to which they've become accustomed? Don't forget to argue our case to these selfish slaggards too.

Catastrophic? Come on, lay off the 'hyper-bowl' as Ms Gillard would say.

It makes zero sense to starve a sick patient, (austerity). You feed a sick patient, but you would put a healthy patient piling on the kilos on a diet.

So it is with austerity.

The time for austerity, (bringing down the deficit) is when the economy is doing well.

The debt takent on by this goverment was the corrct course of action given the GFC.

Especially as, even now, our debt is among the lowest in the developed world.

A sign of a well managed economy.

Ps. I'm referring to the Australian economy.

Sorry Anthony,I disagree.
Australia didn't have a GFC.
The GFC in the US and Europe were caused by housing price crashes leading to bank insolvency, which led to sovereign debt crisis and recession.
Australia had no housing price crash,no bank insolvency and thus no recession or sovereign debt crisis.
The newly appointed Australian government went into apoplexy and panicked into borrowing large amounts of money and upon this,wasted it.
Unfortunately,we will experience our turn for all these problems in the not too-distant future.

You only had to look at the fall in the stock market and what happened to bank and mining shares to see that we had a GFC as well. During the GFC I had 2 friends who had their housing loans pulled by two different banks because the banks could not secure funds for the home acquisitions. As well Bankwest and St George were taken over in emergency acquisitions sanctioned by the RBA. The Government had to step in and guarantee external bank financing to allow loans to be rolled over.
It is amusing to see right wing commentators trying to rewrite history despite the plethora of evidence that invalidates their arguments.

Jim (& Anthony). Whatever course of action the government took, rightly or wrongly, I think what Stephen is trying to say is,"....they wasted it".

Jim I voted Labor in 2007...
Being quick on the trigger doesn't always hit the target.

Wellcome to the Post Peak Oil World !

You can't say you weren't warned. This is exactly what Colin Campbell, Kenneth Deffreyes and others as far back as 1956 warned about.
It was confirmed by the IEA in 2010 that peak crude oil occurred in 2006. Oil will never be cheap again and can only get dearer.
The ratio of old cheap oil to new expensive oil is continually changing to produce a higher break even price point. At present it is around US$80 at the well head, which is why it is about $95 in the US, $106 for Brent and $115 for TAPIS which is what we pay.
It has a large effect on food and other prices and will not get cheaper and will continue eating up our GDP.

Barry White - you need to google the words 'shale gas' and perhaps you'll then understand why your posting was one of the silliest of the year. Oil has barely moved from its current price in about 18 months and while we can expect a gradual increase, in the absence of a major middle-eastern war it won't be rising swiftly again for a long time to come.

you have a point, obviously the solution is not to leave federal labor in long enough so that you have to choose between austerity and crazy deficits that cost so much in interest payments that you could fund dreams with them, however once you are already in the situation, what is the correct course of action. Well let's be honest, nobody knows, even Ben Bernanke is not sticking around to find out. The real solution is for Germany to exit the euro zone and just let all the other countries blow themselves up in a period of rising interest rates. They just dont want to do that, as they are a net exporter and if they went back to the Mark, they may be uncompetitive on price, so the relatively lower euro (due to the PIGGS and others) actually helps them.

The crisis seems to be getting worse all over, and our politicians clearly lack the competence to bring about any sort of recovery. Perhaps politicians and administrators should turn to professional economic crisis specialists, as already happens in the US. For example, the Orlando Bisegna Index, specialists in the economic crisis, apart from measuring the intensity of the econonomic crisis in many countries, have improved the economic condition of many families and have helped various counties with debt problems, business failures and unemployment ecc.