Even today in 2014, the job market is likely to remain Europe’s number one problem child. Five years after the outbreak of the euro crisis and two years after Mario Draghi pledged to do “whatever it takes” to rescue the common currency, Europe’s unemployed are still waiting to hear a similar promise when it comes to safeguarding and creating jobs. In fact, the exact opposite is happening. Following a short glimmer of hope at the start of the year, the economic perspectives for the Eurozone has taken a downturn over the last months, which buried all hopes that a return to pre-crisis employment levels might be imminent.

With few exceptions, unemployment rates in most EU member countries have stabilized at a level far higher than before the crisis. A striking example of this is Spain, where unemployment figures have doubled and where every fourth person is on the dole. Even countries like the Netherlands and non-euro member states like Denmark, which once excelled at keeping unemployment low, are witnessing a sharp increase in joblessness. Only Germany and Austria have managed to keep mass unemployment at bay and to actually decrease the number of job seekers.

Counterproductive reforms



Following the credit crunch, many companies became reluctant to invest money and preferred to save. But reducing unemployment will require strong investment rates. However, there is little evidence suggesting that investment will soar in the months to come – quite the contrary! Most companies, fearing an unknown economic future, remain cautious and reluctant to invest, which in turn keeps them from hiring. What is missing and is badly needed to reverse this trend is a rapid and strong increase in demand that would give businesses the incentive to expand again.

European fiscal policy is helping a lot to push things into this direction. But the austerity apostles in European ministries of finance are still putting the brakes on new investments by propagating restrictive fiscal policies to stay within the confines set out in the Maastricht Treaty. The obsessive adherence to these criteria springs partly from the European debt crisis that plunged even fiscally sound countries like Ireland and Spain, which had to rescue systemic banks, into deep recessions. The easiest and most promising solution, the establishment of a European banking union that would have allowed the euro zone to quickly and collectively recapitalize struggling banks, was discarded because of national interests. Instead, member states were left alone to find solutions to rescue failing banks. Faced with this prospect, member states started to curb spending and cut budgets – all in the knowledge that this could reduce demand even further.

Advocates of such restrictive fiscal policies often propagate and introduce structural reforms to fix the European job markets. Labor law reforms and greater flexibility in wage negotiations at company level are seen as essential to the revival of the employment market. But apart from the fact that OECD prognoses predict that even such measures are unlikely to yield big results in most member states and would probably still leave millions looking for work, it is often concealed that such measures would in all likeliness drive wages down. This downward pressure on wages would also curb the demand for goods and services depended upon by most smaller and middle-sized enterprises in the states hit hardest by the crisis. The drastic adjustments to the development of the wages that most of these countries have already undertaken have remained fruitless. This shows that such structural reforms are neither necessary nor able to cure the domestic job markets.

Duty to invest



The reforms we need to kick-start employment must aim at boosting demand within the European Union. This will require three things:

• First, there must be a rethinking of fiscal politics. Countries blessed with a certain amount of fiscal room to maneuver should use it to make the necessary public investments. Such spending will not only increase short-term growth prognoses but will also help to modernize European economies – an indispensable asset with regards to the EU’s ambitious goals.

• Second, public spending needs to be restructured so as to serve those who are sill looking for work – especially unemployed youth. The initiatives taken so far (the youth employment guarantee, for example) are all heading in the right direction but need to be broadened, strengthened, and coordinated on a wider European scale.

• Third, and lastly, barriers to pan-European mobility need to be reduced even further. Job seekers are still facing too many obstacles when they search for work in a foreign country. It is the task of the European Commission to correct this problem by introducing a truly European job placement service that can provide the necessary information to those looking for employment possibilities.

_Translated from German_