Europe’s Wishful Recovery Thinking

Sometimes it is easy to gauge the level of desperation over the crisis in Europe. The EU Observer provides two good examples, the first on unemployment:

Unemployment in the eurozone fell for the first time since February 2011, according to figures released on Friday (29 November). The jobless rate fell to 12.1 percent in October 2013, according to EU statistical agency Eurostat, down from 12.2 percent in September, leaving 19.3 million people out of work.

That sounds good until you start looking at the actual numbers from Eurostat. The truth is this:

2013M01 2013M02 2013M03 2013M04 2013M05 2013M06 2013M07 2013M08 2013M09 2013M10
EU-28 11.0 11.0 10.9 11.0 11.0 10.9 10.9 10.9 10.9 10.9
Euro-17 12.0 12.0 12.0 12.1 12.1 12.1 12.1 12.1 12.2 12.1
USA 7.9 7.7 7.6 7.5 7.6 7.6 7.4 7.3 7.2 7.3
Japan 4.2 4.3 4.1 4.1 4.1 3.9 3.8 4.1 4.0 4.0

As these seasonally adjusted monthly figures show, the American unemployment rate has come down 0.6 percentage points since the beginning of the year. During that time the EU has been practically stalled at eleven percent. The Euro area is not going anywhere either from its 12-percent level.

What the EU Observer elevates to a “fall” in unemployment is literally the reversal of the euro zone’s temporary uptick in September. To call this a fall in unemployment is about as honest as to use the warm weather at noon as a sign of global warming.

As always, we should also check in on youth unemployment:

2013M01 2013M02 2013M03 2013M04 2013M05 2013M06 2013M07 2013M08 2013M09 2013M10
EU-28 23.7 23.6 23.4 23.5 23.5 23.6 23.6 23.6 23.7 23.7
Euro-17 24.1 24.0 23.9 23.9 23.8 24.0 24.0 24.1 24.3 24.4
United States 16.8 16.3 16.2 16.1 16.3 16.3 15.6 15.6 15.2 15.1
Japan 7.3 6.6 6.5 8.1 7.1 6.4 6.0 7.0 7.3 6.5

Again, the U.S. economy handily beats Europe with a decline by 1.7 percentage points since January. If there is any trend in the European numbers, it is for the worse, a very good reason for Europe’s political leaders to not let themselves be blinded by the non-fall in total euro-zone unemployment.

As for the worst performers in this division, Greece has not reported youth unemployment since August (artificially holding down the euro number) when their rate was 58 percent. The October number from Spain is 57.4, the highest monthly Spanish rate thus far this year. Croatia reported a rate of 52.4 percent in September, also the highest for the year. Let us pray that when their October rate comes in, it bucks the trend.

Now for the second example of desperately promoted “good” news in the EU Observer story:

Meanwhile, on a mixed day for the eurozone economies, the Netherlands became the latest eurozone country to lose its triple-A credit rating from rating agency Standard and Poor’s. Germany, Finland and Luxembourg are now the only remaining countries to hold the top-rating. However, there was better news for Spain and Cyprus. Standard and Poor’s uprated Spain’s economic outlook to “stable” after data showed that its economy grew in the third quarter of 2013 after more than two years of recession.

That growth was over the previous quarter, and not in seasonally adjusted numbers. In short, it says nothing about what is happening on the ground. To find that out we have to compare the third quarter of 2013 to the third quarter of 2012, which gives us a Spanish GDP growth rate of -0.7 percent. In other words, it is still shrinking. It is the “best” figure in two years, but until we see an actual growth number in year-over-year quarter numbers there is no reason to believe the economy has turned a corner. Furthermore, with unemployment in general stuck at its high level and youth unemployment still climbing it is pointless to even think about an economic recovery.

I understand perfectly well that the Europeans want to get out of their deep, endless economic recession. But you do not get out of it by clinging to superficial economic data. You get out of it by turning a real macroeconomic corner. That, in turn, requires substantial reforms to the role that government plays in the European economy.