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‘Keeping euro afloat at all costs behind catastrophic EU unemployment’

‘Keeping euro afloat at all costs behind catastrophic EU unemployment’
The EU needs to reverse its macroeconomic policies and stop supporting the euro if it doesn’t want record unemployment to result in civil disorder and political problems, Dr. Stephen Davies from the Institute of Economic Affairs told RT.

Skyrocketing youth unemployment is becoming the greatest concern for European nations. EU leaders are sounding the alarm over an entire generation who they fear will never find jobs.

At a Paris conference, Germany, Italy and France have urged for action to avert a continent-wide catastrophe, with over 7.5 million young people across Europe currently out of work.

Even Germany, which has the strongest economy in Europe, is suffering from joblessness as unemployment in the country increased four times above expert expectations this May.  

Education director at the Institute of Economic Affairs, Dr. Stephen Davies, believes that the set measures to cope with record unemployment in the EU won’t require a lot of funding, but only the desire to reform from the European politicians.  

RT: Nearly one in four youngsters in the EU is unemployed. Why are European leaders only addressing this now?

Stephen Davies: That’s a very good question. You quoted the overall average, but in Greece it’s a catastrophic 65 per cent. It’s 50 per cent in Spain. And it’s actually a minor miracle that this hasn’t led to a more serious social and political unrest that it has already. It’s quite surprising that it’s taken [the EU leaders] to do it. I think it’s because they thought that the problem would sort itself out, but it’s become obvious that it won’t.

RT:  With unemployment hitting record levels across the bloc, are EU authorities actually able to control the situation?

SD: Well, there are some things they can do immediately. The really big cause for the very high rates of unemployment in general and amongst young people, in particular, is the catastrophic effect of the euro and of the attempts being made – the desperate attempts that are being made – to keep it going. This has led to really severe deflation in the peripheral economies of Europe and this has affected the least able members of the workforce, which means typically the unskilled and the young more severely. So they could change that policy immediately and that would have, at least, some effect. 

An Alcoa Inc. worker protests against their dismissals from employment in front of the Ministry of Employment building in Rome. (Reuters / Alessandro Bianchi)

RT: Youth unemployment is more than double than that of adults, why is it the young that’s suffering the most?

SD: As I said what really needs to be done is to reverse the major macroeconomic policies being followed, which is essentially to bring about a reduction of the price level in the peripheral countries of Europe – to bring their price levels into line with those of Germany. Now, if you don’t have your own currency, you can’t do that by devaluation. Have to do it by an internal deflation, which means, essentially, an induced slump. And in such situations it’s the least skilled part of the work force, which disproportionally means the young - because the young, they haven’t got any work experience and therefore haven’t got the required skills - who are going to suffer most.

So reversing this macroeconomic policy is the biggest thing they could do. They could also undertake supply-side reform, particularly in the UK case, to for example reform education at high-school level to ensure that young people enter the jobs market with the kind of skills that employers want, which will make them more productive.   

RT: Tackling youth unemployment would require billions of euro. Does the debt-stricken bloc have enough resources for that? Is it even a priority for them?

SD: It’s a priority – it certainly should be because of the pretty serious political consequences. I mean that one of the things that history tells us is that [having] lots of unemployed young men is a very, very dangerous situation. That’s a kind of thing that historically can lead to really serious trouble – not just in terms of, saying for example, rising crime, but also serious civil disorder of political problems of one kind or another. However, I would challenge your assumption there. This doesn’t necessarily involve spending large amounts of money.

Essentially, it involves the states of Europe improving the quality of their education system, which doesn’t necessarily involve more money. It simply means in many cases the government getting out of the way. And also changing labor market regulations in Europe, which are making it very difficult and very expensive to employ young people. Supply-side reforms of that kind won’t cost a penny, but they would bring about significantly improved chances for young people.