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European Woes Get Worse With New Economic Numbers

Obviously policymakers in this country have a lot to answer for the bad jobs report and our continuing jobs crisis. But you must acknowledge that, for all these faults, policymakers here are somehow exceeding the performance of those in Europe. The picture of Greece right now is just harrowing, all bread lines and suffering and despair. There are no customers in the shops, hungry children fainting in class, prisons running out of food for the inmates. The political uncertainty there could lead to a disruption in their bailout terms even before the June 17 elections. The anti-bailout Syriza party revealed some of their platform, with the nationalizing of industries, “including telecommunications and energy companies, as well as airports and ports.” But they have been outflanked by a meddling European leadership, threatening chaos and an exit from the Eurozone if Syriza comes to power. Syriza’s Alexis Tsipras calls it “extortion,” but it has sadly worked; the center-right New Democracy party has slipped back into a lead in the polls.

Meanwhile, Greece is mostly the main event to the much larger problem happening on the continent. Slow-motion “bank jogs” are removing capital from the most troubled countries, with banks and institutions approaching a lack of liquidity that could spark a greater crisis. Central banks in the countries with excess deposits are lending to the European Central Bank, which in turn lends to the banks in the more troubled countries. But these Target 2 loans are getting bigger and bigger; Spain revealed €100 billion in net capital flows out of the country in just the last quarter. At some point that will be impossible to manage.

Meanwhile, the big problem concerns the economic crisis borne by self-defeating austerity measures.

Euro zone unemployment has hit a record high, and job losses are likely to keep climbing as the bloc’s devastating debt crisis eats away at businesses’ ability to hire workers while indebted governments continue to cut staff.

Around 17.4 million people were out of work in the 17-nation euro zone in April, or 11 percent of the working population, the highest level since records began in 1995, the EU’s statistics office Eurostat said on Friday.

“This 11 percent level is going to continue edging up in the coming months and probably until the end of the year,” said Francois Cabau, an economist at Barclays Capital who sees the euro zone’s economy contracting 0.1 percent this year.

“The economic activity situation tells you the story of the labor market. There’s been basically no economic growth since the fourth quarter of last year and indicators are pointing to very weak growth momentum for the second quarter,” he said.

This extends even to countries close to Europe but outside the Eurozone, like Britain. Everyone is simultaneously focused on paying down debt, and the predictable outcome is that everyone’s income drops. This makes the debt problem worse and also crushes the economy. There’s also the ulterior motive of using a debt crisis to dismantle social programs and move wealth upwards.

The Spanish crisis in particular probably accelerates the ultimate outcome in Europe, because as the fourth-largest economy in the Eurozone, it cannot break free without a demolition of the currency. So we’re near the reckoning stage. Spain cannot recapitalize its banks without help, and Germany doesn’t want to offer that kind of help without strings. But France and others want a real fiscal integration with transfers and the like to keep the euro project alive. Germany is resisting this for now, but they don’t have much time.

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David Dayen

David Dayen

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