The EU has still not managed to overcome the crisis in Cyprus, and yet another seemingly more important crisis is rising. Last week, Eurostat, the statistical agency of the European Union, published a report on the worryingly high unemployment level in the Euro zone which reached 12% in the first two months of 2013. Furthermore, the main endangered category of citizens is the youth. If not solved promptly and in an effective manner, this may lead to serious problems for the EU, its economic growth, and finally, its very survival.
At this point, it becomes apparent that the European austerity measures have not worked as well as it was planned. The failure of the austerity project resulted in many wrong directions to be taken in order to obtain or save some funds, such as a proposed cut of the funds for Erasmus, a student exchange program. EU leaders have tried to distinguish main priorities for the future, and from that the Europe 2020 strategy followed. This is strategy aimed at delivering growth that is smart, through effective investments in education, research, and innovation. It is sustainable and inclusive, with a strong emphasis on job creation and poverty reduction. However, at this moment, the chances for the success of the strategy are slim.
The high unemployment level in Europe, especially among the youth, will create unprecedented problems for the old continent, possibly leading into hysteresis – a term that economists use to refer to the periods of high unemployment that tends to disarray the natural equilibrium of supply and demand on the job market. In the European case, the long and continued time frame of the crisis, might as well create a lost generation of young unemployed people that will never recover from this shock in the job market. When negative shock reduces employment in the economy, which is happening in the EU at the moment, there are fewer employees who are more likely to negotiate better working conditions for themselves. This leads to higher salaries, while the unemployment level continues to rise above the equilibrium level. This has hysteresis as a result — an unemployment level that is higher than it is naturally supposed to be. Furthermore, those young people who are without a chance to find a job will face the problem of losing their skills due to long periods of unemployment which would stop them from making significant progress in their future careers, if they manage to start one at all.
Presently, it is striking to compare the differences with the U.S. and the EU in terms of crisis management. The unemployment levels in the U.S. are at a record low since 2008, reaching only 7.7%. Due to its stimulative policies, it can be argued that there is a common discourse in the U.S. that the crisis is coming to an end and that the economy is recovering. However, while the stats are true, they are just numbers. Lower unemployment rates do not necessarily mean brighter future for the American youth. The same reason that endangers European competitiveness — strong market regulations — also guarantees more rights to the European workers, higher salaries, and more benefits from the welfare state system that is present in Europe. Moreover, the European workforce has higher education levels in general which results in lower inequalities. The United States has been underproducing college-educated workers since 1980. Supply has failed to keep pace with growing demand, and as a result, income inequality has grown swiftly.
Even though the situation in Europe is grim, and there is a low chance that courageous moves will be taken before the elections in Germany in the fall, there is still hope for improvement. The European Union and the Euro zone especially have to centralize their fiscal policies in order to balance out the inequalities created within the system. Furthermore, implementation and success of the Europe 2020 strategy is today more than crucial and might as well be the final kick to the crisis and the key to European recovery. On the other side of the Atlantic in the U.S., it is important to continue to support the economy, as a perceived end to the crisis may bring legislators to think about possible new fiscal cliffs and some austerity measures in order to achieve budgets savings and lower the deficit. This must not happen in the near future, as the crisis is far from being over.