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Europe on brink of recession, unemployment above 10%

January 26, 2012


ECBBRUSSELS: Since the start of the year, one phrase has tripped off the lips of European leaders more than any other: “jobs and growth”. After two years of debt crisis and budget austerity, there is a strong desire to shift the narrative on.

To that end, the EU’s first summit of 2012, to be held on Jan 30, will focus on finding ways to kickstart growth and create jobs across the 27-country union, which is on the brink of recession and has average unemployment of 10 percent, rising to 45 percent among the young in countries such as Spain.

The problem is that after years of preaching austerity and telling wayward governments to cut spending and raise revenue, there is scarce capital readily available for investment, either at a national level or across the EU budget.

As a result, there is little expectation that Monday’s summit will produce concrete measures to boost either output or employment in the near-term, despite EU leaders first adopting their competitiveness mantra more than a decade ago.

“They don’t have much of a strategy apart from the typical laundry list of structural and labour market reforms, which is fine, but that is not going to deliver much in the short-term,” said Guntram Wolff, deputy director of Bruegel, a Brussels think-tank whose analysis frequently informs EU policymaking.

“It’s become clear that this focus on austerity and fiscal consolidation is not enough, so they need the economic growth and employment element. The signal is the right one, but we need to do better about how we go about achieving it.”

While there may not be readily accessible pools of capital to launch infrastructure projects or other labour-intensive schemes that can boost output, the EU does have large amounts of funds squirreled away in its long-term budget that could be released to help countries such as Greece, Spain and Portugal.

Spanish Prime Minister Mariano Rajoy said on Thursday that any leftover money in the EU’s structural funds should be used to generate jobs.

There is also a need to create more stability in the banking system so that banks have the confidence to lend to small- and medium-sized companies, the biggest engine for job creation in the EU, delivering up to 85 percent of new jobs since 2000.

The European Central Bank’s flooding of the bank sector with nearly half a trillion euros of cheap three-year money – an offer it will repeat in February – has helped in that regard.

The summit is also expected to see leaders commit to making it easier for young people in struggling countries such as Portugal and Greece to travel abroad to seek work in high-performing economies like Germany, Denmark and the Netherlands.

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