Euro turning Greece and Spain into failed states

Jobless rates in Spain and Greece have reached staggering proportions. And as long as these countries retain the euro, the prospects of recovery are slim

Southern Europe is on fire
Robin Shepherd, Owner / Publisher
On 9 January 2013 08:27

Barely had European Commission President Jose Manuel Barroso declared yesterday that the worst of the eurozone crisis was behind us than the European statistical office, Eurostat, released the kind of unemployment data that could make your hair stand up on end.

Greece and Spain, the figures showed, now have jobless rates of 26 and 26.6 percent respectively.

The more you look into it the worse it gets. Since November 2011, the Spanish unemployment rate has risen by 3.6 percentage points while Greece's unemployment rate has soared by 7.1 percentage points.

The trend, in other words, is emphatically upwards. Few could be surprised if either or both of these countries passed the 30 percent mark by the end of this year.

Delving deeper, it gets worse still. Youth unemployment in Greece is a jaw dropping 57.6 percent. In Spain it's 56.5 percent. Again the trend is sharply up. In November of 2011, Greek youth unemployment was 50.3 percent. In Spain, it was 48.8 percent.

In human terms, what this means is that if you go into a schoolroom full of 16 year olds in Madrid or Athens, half of those eager-faced, bright and enthusiastic children face the certain prospect of languishing on the scrap heap until they're well into their mid 20s. 

Unless there is a radical change of direction in their countries' economic management, a quarter of them can expect to stay there. All of them will enter adult life in countries experiencing the bleakest socio-economic problems since the 1930s.

Whatever deluded fantasies the European Commission President has persuaded himself to believe in, the crisis in the Eurozone is far from over. Indeed, it is set to get worse. If jobless rates keep on rising at their current pace in Greece and Spain, they will soon start to look like failed states.

The tragedy is that it doesn't have to be this way. There is a clear and logical policy option that could transform both countries' prospects -- abandoning the euro. It shouldn't take a genius to see that lumbering relatively poor southern European countries such as Greece and Spain with a currency suited to the economic fundamentals of the Franco-German core is going to ruin their competitiveness.

This doesn't mean that the euro is responsible for all of their woes, though there is a clear cause and effect relationship in Spain where (in the 2000s) eurozone interest rates that were far too low for the country's rapidly growing economy caused a huge, artificial housing boom which subsequently led to bust and has all but bankrupted the country's banking system.

But that is all in the past. Even if the euro hadn't played such a significant role in causing the economic crisis, it has made it considerably worse than it needed to be, and it continues to hamper the prospects of recovery.

Most economists believe that pulling out of the euro would allow for effective devaluations of somewhere between 30 and 50 percent. That could provide the kind of boost that both countries so desperately need.

But don't hold your breath. The European project, of which the euro is now considered a vital pillar, is worshipped with an almost religious fervour by decision makers across the continent, including the governments of Greece and Spain. Rational discussion is not in vogue.

Until the whole thing collapses (which it inevitably will) under the weight of its own contradictions, the most likely short and medium term scenario is for Greece and Spain to keep taking the pain and to retain the single currency.

As a consequence, the suffering of the Greek and Spanish people is unlikely to be alleviated any time soon.

Robin Shepherd is the owner/publisher of @TheCommentator. Follow him on Twitter @RobinShepherd1

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