Europe's Economic Prospects Still Look Bleak
There’s a palpable longing for the good old days and little hope of their return.
Over the past 12 months, worry that the European Union would break apart has subsided. Turmoil in Egypt, demonstrations in Turkey and civil war in Syria are commanding attention instead. But, out of the spotlight, Europe’s economic woes remain severe and are, in fact, a bit worse than they were a year ago.
Traveling in Spain recently, I had the opportunity for some firsthand observations. Street rallies are a common sight, as the country remains mired in a deep recession that has seen the unemployment rate rise to 25%. For young people under 30, the jobless rate is close to a staggering 60%.
So far, there seems to be more resignation than rage. Manny, the night desk clerk at an upscale hotel in Barcelona tells a visitor: “Some of my friends have been out of work for two years. They get interviews. No work. That’s why I get up every morning and say, ‘Thank you.’”
Official data back Manny’s sense of good fortune. When Spain’s economic crisis began in 2007, about 200,000 people had been out of work for three years. Five years later the number of individuals who haven’t been able to find work for three yeas or more has swelled to 1 million. Spain is in its second year of recession, with GDP likely to shrink by 1.7% this year. Housing prices have dropped by almost 30% over the past five years. Seeing no improvement, the EU has eased its requirement that Spain’s government exercise austerity, giving Spain two additional years to lower its deficit to 3% of GDP from about 7%. But odds are slim that the extra time will be enough for Spain to find a path to growth.
There are some bright spots. Tourism is on pace to set a record. Wealthy Russians and Chinese are buying empty homes along the sandy beaches of Spain’s attractive coasts. Posh restaurants, such as Ten Con Ten in Madrid, continue to fill tables, with waiting times of a half hour or more even during the middle of the week.
But more is needed than crowded restaurants and sales of distressed houses. There’s a sense in Spain and elsewhere in Europe of a growing divide between haves and used-to-haves. In Madrid and Barcelona, men in their 40s board subway trains and start playing an accordion, a clarinet, a violin, busking for a few extra bucks. Eerily, they often play the same plaintive song: “Those were the days, my friend, we thought they’d never end….”
Walk the streets of the working-class Madrid neighborhood of Lavapiés and you see groups of young men from Senegal, Pakistan, Bangladesh and elsewhere, standing around, talking, in the late afternoon. These aren’t clerks on their traditional siesta waiting for shops to reopen at 4. These are immigrants, who along with young native Spaniards, are the growing ranks of the long-term unemployed. They are what former Secretary of State Hillary Clinton calls “the disconnected.”
Whether Spain and the other very weak economies in Europe (Portugal, Ireland, Italy) will rip apart the fabric of unity that binds them with wealthier members of the EU -- notably France and Germany -- remains an open question. Euro zone unemployment hit 12.2% in April. It is likely to reach 12.5% by year-end and could continue to rise in 2014. The rate is much higher in Greece (27%), Spain (26.8%) and Portugal (17.8%). It’s 12% in Italy and remains a healthy 5.4% in Germany -- another case of haves and used-to-haves.
To U.S. businesses, Europe’s economic woes spell critical changes in currency exchange rates and export prospects. But to most Americans, what’s happening in Europe may seem to have little impact on our lives. We smugly view Europe as less innovative and less dynamic than America, and conclude that Europeans are getting what they deserve.
But it’s worth noting that the situation there isn’t so far removed from what some economists and policymakers see developing on our own shores. About 20% of the U.S. workforce under the age of 25 is unemployed. Some 4.3 million workers in the U.S. have been unemployed for more than 27 weeks. Though that’s down from 5.4 million a year ago, the number of long-term unemployed remains painfully high. More than 8 million people, unable to find full-time employment, are trying to eke out a living with part-time positions.
In short, we have large numbers of our own disconnected, and if economic growth remains sluggish and job gains less than robust -- their ranks will not diminish. As we contemplate GDP growth this year of only about 2%, we can look back with longing at the 3%-4% annual growth in GDP experienced during much of the 1980s and 1990s. For us, too, it appears that those were the days and we thought they’d never end.