Sunday 12 February 2012

The spread of Redundantitus

There is currently a deadly disease running rampant across Europe. It has affected millions of people and left them feeling hurt, isolated and worthless. We do know its origins however; it in fact began across the Atlantic by a few groups of self interested men but let us remember that its development and advancement has occurred due to several other man made errors along the way. It is only now that we seem to be deeply concerned and are striving to find a cure to stop it before it gets even worse. The disease that I am describing is unemployment.

The old continent is currently been ravaged by the disease that has been partly caused due to the experimental cure. Austerity. The results thus far are frightful. The rate of people unemployed has now reads at 9.3% with a staggering 26.8 million out of work. It is even worse when we just observe the euro zone by itself. The unemployment amongst the 17 member state is still at the record high of 10.3%, a rate at which 16.4 million are jobless. The decision by the powers at be in Europe to implement fiscal constraint to try and achieve growth has failed on several economic growth markers i.e. GDP growth, total exports. Unemployment is just another which demonstrates that Europe needs to change fiscal paths and quickly.

The most severely infected country in Europe so far is Spain. The total number has now gone above 5 million and the unemployment rate is a towering 22.9%, a rate which many did not think was possible to witness for a developed country to ever have again. The youth are even more vulnerable to the infection with an unthinkable 51.4%, which is more than double the European Union average. Another country that has been badly contaminated is that of Greece. With the debt crisis still raging on and the squeeze on the government’s coffers getting even tighter, the public sector is suffering and suffering bad. The deal currently being thrashed out in Athens would lead to a further 150,000 people in the sector being made redundant along with a 20% in the minimum wage. With all this on top of an unemployment rate of 19.2%, the prospect for the country looks even bleaker then before (if that is even possible).

Why you may ask I am saying unemployment is like a disease? Well they are ways in which they are in fact similar; let me talk you through what I mean. Say if country X has a large amount of people unemployed (i.e. Spain) then it isn’t utilising one of its factors of production (the others being capital, land and entrepreneurship) thus it is producing less goods and services than it possibly could. This in turn would lead to less demand for goods and services by country X from country Y as the former is not producing as much as it once was*. With less demand for its goods, country Y would reduce production thus reducing the amount of people needed to work. So the unemployment rate in country Y would rise due to forced redundancies and the process would continue so on and so forth. While I accept that this is a quite simple explanation for ‘spread’ of unemployment, I do believe it can explain certain countries predicaments, with some in the euro zone being some of them. However I am not claiming that this is the only reason for Europe’s mass working decline, as it is not.

The costs of unemployment are not only economical but also social and these potential costs are very dangerous to society. Social unrest throughout the single currency zone has already been warned by the IMF and many other analysts. Rioting, striking and civil disobedience could all become seen as the norm across several countries and this needs to be prevented at all costs. However as I have said the outlook does look bleak due to the path that has been chosen by the leaders in Europe. To kill this disease, we need to find a suitable cure and from the facts so far austerity is not that cure.



*Note: The dependency of the two countries would have to be taken into account. In the euro zone the countries are very dependent on each other as they share the same currency.

Author: Thomas Viegas

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