Why the Euro is bad for jobs, admits EU Commissioner

By Neil Patrick

Yesterday I read something I thought I’d never see. Lazlo Andor, the Hungarian economist and EU Commissioner for Employment and Social Affairs has admitted that Europe’s single currency has created ‘increased unemployment and social hardship’.

Back in November 2012 here, I criticised Mr Andor for failing to acknowledge the social impact of the EU’s policies on employment. Essentially, I felt the EU policies he was presenting then would result in a deterioration of employment opportunities, particularly in the weaker EU member states, since most people cannot easily move freely around the EU for work.

Yes there may be few legal migration barriers, and a minority of young and educated people have moved to find jobs. But is a 50 year old Greek shopkeeper with a failing business really going to up sticks and set up business in say Helsinki? I doubt it.

In an astonishing turnaround, Mr Andor has published a 496-page report this week, entitled ‘Employment and social developments in Europe 2013’. It argues that the surrender of national sovereignty and local currencies has led to a lack of flexibility in tackling the economic and jobs crisis.

This will be viewed as heresy by his peers

He has thus turned heretic in EU circles, but it is refreshing to see such an admission of policy failure coming from the heart of the European Commission itself.

Essentially, the problem admitted to in the report is that with the loss of the ability to devalue national currencies, the poorer Eurozone members in particular have been forced to drive down living standards. For example in Greece, average incomes have reduced by more than 30%. This collapse is unprecedented in Europe since the great depression of the 1930’s.

The report concludes, “In the absence of the currency evaluation option, euro area countries attempting to regain cost competitiveness have to rely on internal devaluation (wage and price containment). This policy, however has its limitations and downsides, not least in terms of increased unemployment and social hardship.”

Worse, the single currency is impeding recovery

The criticism of the European Central Bank and the Commission’s own policies continues in the report, stating that internal devaluation isn’t working and indeed has fueled a continuation of the recession in the Eurozone, which has fallen seriously behind Britain and the US in terms of economic growth.

(In a more or less simultaneous announcement this week, the IMF upgraded the UK's growth forecast from 1.9% this year to 2.4%, whilst UK unemployment levels were reported with glee by the government to have fallen faster than expected to 7.1%).

Martin Callahan, leader of the European Conservative and Reform Group of MEPs said, “Wage compression and weakened economic stabilisers in individual member states spilled over into others in the form of weaker external demand.”

The report charts a gulf emerging between north and south in the Eurozone. The average unemployment is 17% in southern countries compared with 7% in the northern countries.

Mr Andor has urged the EU to reform its policies to deliver “…a fairer distribution of costs and benefits among the participating member states”.

The recession is far from over in the southern Eurozone, but if this report is acted upon, instead of rubbished, perhaps we'll see some more sense coming out of the EU and ECB. Mr Andor is to be congratulated I think for having the courage to speak out against the idiotic policies created by his own employer.  I take back every criticism I laid at his feet and hope that his stand gains support rather than a backlash from his peers.

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