SOUTHERN EUROPE’S economic depression deepens. In Spain, 6.2 million people — a record 27 percent of the labor force — can’t find a job. Greece’s unemployment rate is even higher, 27.2 percent; in Italy, it’s 11.6 percent. For young people, the jobless rates are double or, in the case of Italy, triplethat. Clearly, economic growth is urgently needed, lest a generation of Europeans be forced either to emigrate or to waste their prime earning years — to say nothing of a prolonged slump’s implications for democracy and political stability.
Yet in a recent visit to Washington, German Finance Minister Wolfgang Schaeuble, whose government pretty much calls the shots in Europe, defended the current policy — which he described as “force member states, oblige member states, to stick to European rules, to reduce deficits in a, of course, balanced way, to enhance their competitiveness by structural reforms,” until “European mechanisms” buy enough time for them to regain access to financial markets. Mr. Schaeuble added, in words that must chill the heart of every young job-seeker from Bilbao to the Balkans, “No one should expect that Europe will deliver high growth rates in the coming years.”
This is a recipe for trouble. No doubt Mr. Schaeuble meant to state a grim fact, not to celebrate it. And his government is right to insist that Europe’s less competitive economies reform their tax codes, labor markets and regulations in exchange for (mostly) German financial support.
But with such unemployment, it’s counterproductive to press for dramatic deficit reduction in the short run. This is especially true given that Germany and other wealthy Northern European economies are themselves cutting deficits, which tends to curtail their demand for goods — including products from the south.
Mr. Schaeuble argued, “If you promise to deliver immediately growth, you will only create the next bubble. That’s what we are decided not to do. Therefore, we need time.” Easy for him to say: Germany’s unemployment rate is only a fifth that of Spain. It is achieving this by outcompeting its European neighbors for export markets. Germany’s trade surplus in 2012 was more than 6 percent of its gross domestic product — a far higher ratio than that of any other major economy, including Asian export powerhouses like China.
In short, Europe’s predicament is not simply due to Mediterranean profligacy. It results from a profound imbalance between uncompetitive Italy, Spain and Greece on the one hand and hypercompetitive Germany on the other — within a currency union that denies the less competitive the traditional remedy of devaluation.
Both sides need to change. Germany has taken some steps to boost real wages and consumer demand recently; its unit-labor costs have actually risen at the same rate as Italy’s over the past five years. But it needs to do much more; no matter how much Southern Europe restructures, it can’t maximize job creation if Germany, the largest neighboring market, doesn’t buy its products. Exports to the United States certainly helped Latin America escape its debt crisis in the 1980s.
As U.S. Treasury Secretary Jack Lewsaid in Berlin this month: “Policies that would help to encourage consumer demand, in countries that would have the capacity, would be helpful.” This was sound advice, which Mr. Schaeuble would be wise to reconsider.