5 Reasons the European Crisis Is Far From Over
French President Francois Hollande is pretty optimistic about the European Union. Despite IMF and European Commission urgings to reform outdated pension systems and inflexible labor markets within his country, the French President has been touting a bullish view on the euro zone. Speaking a trip to the Far East, Hollande told Japanese business leaders that the crisis in Europe was over.
“I believe that the crisis, far from weakening the euro zone, will strengthen it,” he said. “Now, we have all the instruments of stability and solidarity. There was an improvement in the economic governance of the euro zone, we set up a banking union, we have rules on budgetary matters that allow us to be better coordinated and have a form of convergence.”
However, the socialist president may be a bit too gung-ho on the prospects of Europe at the moment. Here are five reasons Europe isn’t out of the woods just yet:
1. Gross Domestic Decline
Europe experienced an overall decline in GDP for the sixth quarter in a row, a record for the EU, and surely one it would rather not have set. Here’s a quick look at how GDP has fared in the euro zone compared to the U.S. since 2005:
2. Forecast: Slowdown With a Bit of Recession
Germany, the EU’s economic leader, is feeling the strain of European recession. The IMF recently cut the growth forecast for one of Europe’s sole sources of growth. April estimates predicted that Germany would grow by 0.6 percent in 2013, but that number has since been halved to a paltry 0.3 percent. Moreover, contraction in Europe is expected to continue this year. The European Central Bank is forecasting 0.6 percent contraction throughout Europe as a whole, slightly worse than the previous estimate of 0.5 percent.
ECB president Mario Draghi told reporters that barriers to growth in the EU “include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries.”
3. A New Record for Unemployment
April saw the highest level of unemployment since the EU’s inception, with 12.2 percent of people out of work. Countries such as Spain and Greece continue to slog through recession and battle rampant unemployment, dragging down the EU’s jobs picture.
Here’s what unemployment looks like throughout Europe by country at the moment:
4. The Lost Generation
Europe’s young people are experiencing their own record fight with unemployment, and despite Hollande’s optimism, if they don’t acquire the skills needed to produce in the workforce, their long-term employment opportunities will remain bleak. Over 20 percent of Europe’s youth are out of work, and the window of opportunity for them to become educated, learn a vocation, or start a business further dwindles while Europe’s economy is stuck in reverse. In Greece, 63.5 percent of youth are out of work. While the EU is now focused on addressing the problem, time is of the essence to save Europe’s potentially ‘lost generation.’
5. Economic Discontent
Perhaps most fundamentally, citizens of the EU are not satisfied with the economic system they are afforded. About 77 percent of Europeans feel the current system favors the wealthy, and 85 percent feel that the gap between the rich and the poor has increased. Another 60 percent feel that such a gap is a ‘very big problem’. The trend in negative sentiments doesn’t bode well for the EU, especially as stagnation seems to be the norm for the foreseeable future.
This chart shows the breakdown of attitudes by countries, along with the median results: