From an economic and social perspective, unemployment represents one of the greatest evils besetting the Irish economy and indeed many other international economies at the moment.
It results in a loss of economic potential; puts increased pressure on government expenditure as calls on unemployment benefit and other allowances given to those out of work rise; it damages self-esteem for those who become unemployed; it results in forced emigration and a consequent loss of skills; and gives rise to serious social problems. The latest data released by the EU statistical agency, Eurostat, shows the extent of the jobless crisis currently besetting the EU economy. The unemployment rate in the eurozone averaged 11.2% of the labour force in June 2012, which is a record high for the Euro area. This is equivalent to 17.8m people out of work, with 3.4m of those under 25. Spain’s unemployment rate stood at 24.8% in June, with the unemployment rate for the under 25s a frightening 52.7%. The Portuguese overall rate of unemployment stood at 15.4%, and the Greek rate in April stood at 22.5%. Ireland’s rate stood at 14.8% in July, with the rate for the under 25s at 29.2%.
These statistics are frighteningly high and one would have to have serious concerns about the social and political implications of the jobless situation. Wars and revolution are generally caused by unemployment as those who are forced to the fringes of society justifiably feel they have a lot less to lose than those who are in employment.
Policymakers in Europe really need to identify and rectify the reasons why the eurozone has a marked inability to generate employment. The basic lack of demand is obviously a key factor, but other issues such as regulation, social welfare systems, trade union powers, and the taxation of labour will all have to be looked at. There is no obvious solution, but it is imperative for policymakers to address in a serious way the jobless crisis, and sooner rather than later.
Unfortunately the eurozone sovereign debt crisis, which continues to seriously threaten the viability of the euro, is and has been dominating all things in Europe for the past couple of years and a solution is still proving pretty elusive.
The latest comments from the ECB that it stands ready to do whatever is necessary to save the euro — which in effect means massive buying of European government debt in the near term — does mark further progress in its thought process. However, it faces massive opposition to such an approach from Germany and Finland in particular, and it still remains to be seen how significant and how effective its response will be.
Here in Ireland the Central Bank has revised up its growth forecast for this year marginally, bringing it into line with the Department of Finance, and has revised marginally downwards its growth forecast for next year. The bottom line is that it correctly expects the Irish economy to continue to grow well below potential over the remainder of this year and next. This means the labour market situation will remain very difficult.
Of course one of the big issues here is the continued dysfunctional nature of the banking system. In June lending to households rose by just €55m, but lending to business fell by €399m, and the growth rate is a negative 2.9%.
Granted the dire nature of the economy is dampening demand for credit, but all anecdotal evidence is still suggesting that the supply of credit is still a major issue. Until we get a resumption of more normal credit flow into business, it is ridiculous to talk about economic recovery. I am unclear as to what happened to the commitment made by the incoming Government to create a state investment bank. Ireland badly needs a new bank without any legacy issues that is prepared to lend to business.
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