Problems With Jobs Growth Bode Ill for the Euro

And EU leaders are finding that unemployment stubbornly resists legislation.
Author:
Publish date:

The euro, recovering against the dollar, seems to be winning back some confidence in the currency market.

But that's only half the battle: A fledgling currency dreamed up by politicians also needs the support of ordinary people. And without healthy jobs growth in the

European Union

, popular support for the euro is almost certain to wane over time.

Consequently, currency traders should always keep one eye on the region's employment statistics -- and they'd do even better to check out some recent groundbreaking research that meticulously recounts the EU's amazing ability to undermine job creation.

European leaders have relied heavily on state action to boost employment. This has been an expensive failure, according to Keith Marsden of the London-based

Center for Policy Studies

.

German

Chancellor Gerhard Schroeder

and British

Prime Minister Tony Blair

in May presented a joint document that said: "The state must become an active agent for employment." In January, the French and German finance ministers wrote: "The obsessive insistence of the neo-liberals on the deregulation of labor markets has contributed more to the blocking of reforms than to the creation of jobs."

In a pamphlet released this week, Marsden refutes such claims point by point. He attacks the current French and German policy of legislating to reduce the weekly working hours -- France is to introduce a 35-hour week by 2002 -- in the hope that this will make employers hire more people to make up the difference. This policy is a classic product of the mistaken view that the economy is a fixed cake that the government can divide up more equitably than the market.

But working hours have already fallen by 10% in Germany and by 3% in France over the last 15 years. During this period, unemployment has risen by 3 to 4 percentage points in both Germany and France to 10.8% and 11.5%, respectively. Conversely, working hours have increased in the U.S. by 4% and have remained constant in Britain -- and unemployment in both countries is well under 5%.

Marsden also demonstrates the inverse correlation between the percentage of

GDP

consumed by the state (54.1% in France, 47.7% in Germany, 39.7% in Britain and 32% in the U.S.) and the employment rate (58.8% in France, 63.5% in Germany, 70.8% in Britain and 73.5% in the U.S.).

Government training programs are a favorite initiative among European politicians. But Marsden shows that government spending on training, job search and counseling, employment subsidies and other labor-market programs has been anywhere between five to eight times higher in Germany than in the U.S. and between 50% and 80% higher in France than in Britain. Although aimed at the young, the percentage of youths actually working has dropped from 29% to 20% in France and from 56% to 47% in Germany between 1990 and 1997, while the numbers unable to find work rose from 19% in 1990 to 28% in 1997 in France and from 6% to 10% in Germany. By contrast, in Britain and the U.S., youth employment reached 60% and 58% respectively in 1997.

Overall, substantially higher percentages of workers received training from their employers rather than from the government in Britain (14.4%) than in Germany (4.9%) or France (2.6%). There are now more than 1,600 corporate universities run by private companies in the U.S.

One after the other, Marden topples other elements of European social theory like nine-pins. He denies governments should lower the retirement age (early retirement programs increase taxes on those employed) or increase public investment (two or three times higher in France and Germany than in Britain and the U.S.).

He even shows that the lower interest rates that exist in the EU are insufficient to combat the structural unemployment levels of continental Europe. The conclusion is simple: "It is wrong to say that Franco-German policies provide 'social protection.'" All they do is drive people out of work.

Marsden's conclusions were confirmed Monday when the president of the

Federal Union of German Employers' Associations

, Dieter Hundt, pointed out that the 45 billion marks the government spent this year on job creation had given jobs to only 200,000 people -- an annual state spending of over 200,000 marks (over $100,000) per worker.

That's a lot of money to most, but it's no doubt small change for a government eager to pacify a people that is quickly falling out of love with the sickly replacement for their beloved mark.

John Laughland is a commentator on European political and economic affairs. He has written for several British national dailies and published two books, The Death of Politics: France Under Mitterand and, most recently, The Tainted Source: The Undemocratic Origins of the European Idea.