The eurozone crisis is being caused by factors that are not helped by a macro view or politics. The countries that show the most stress also have relatively high unemployment rates. The author believes that fixing the issues that are causing the high unemployment is key to helping the stressed countries.
The author believes that the eurozone crisis stems from the high unemployment in individual stressed countries, such as Cyprus, Greece, Ireland, Portugal, Spain, France, and Italy, rather than an overall problem in the eurozone. Countries in the eurozone that are not stressed have relatively low unemployment rates. He believes that the only way to address these problems is at the microeconomic or the individual stressed country level and not at the broader macroeconomic level, which has been the traditional approach. He delves into the reasons for the differences among stressed countries and why the traditional macroeconomic approach has failed to address these issues. He concludes with solutions that might address these problems.
How Is This Research Useful to Practitioners?
The author states that the eurozone crisis is the result of certain individual stressed countries having high unemployment compared with other nonstressed countries. The differences in unemployment can be attributed to high labor costs relative to productivity as well as structural barriers making job creation more of a challenge. Although many economists and politicians believe that these problems can only be solved at the individual country level, there has been very little progress made. Instead, the focus has been at the macro level with elected politicians and heads of state rather than at the microeconomic level with technocrats. The author believes that this “economic political overlay” has been counterproductive.
These gaps between labor costs and productivity have been growing throughout the past decade. As these issues go unaddressed, many individual companies and countries cannot compete on a global basis. As a result, many stressed eurozone countries face high unemployment and ultimately social unrest. Practitioners would find it useful to focus on solving the core of the problem, which the author believes is within the individual countries themselves, rather than focus on broad economic and monetary policy.
Along with this trend in lower competiveness, the author states that many countries face structural impediments to growth. The World Economic Forum has been compiling a set of Global Competitiveness Indicators for more than 30 years. And although the average eurozone countries are ranked at an unimpressive 33rd in the world, Spain, Italy, Portugal, and Greece rank among the lowest of the developed world. These structural barriers measure complexity, cost burden, and uncertainty generated by the regulatory, institutional, and bureaucratic framework in each country. Eurozone countries rank especially low on labor market efficiency, with problems in difficult labor–employer relations, adverse effects of taxation on incentives to work, hiring and dismissal practices, the ability to retain talent, and the participation of females in the workforce. Again, practitioners would find it more productive to address these unique structural barriers in the troubled countries.
The author did point out that fixing these problems will not be an easy task because the eurozone was originally set up with the idea of allowing each country a great deal of autonomy with respect to how it would run and govern its economy. Attempting to set standards on individual countries has been a challenge, and the author believes it will continue to remain a challenge, but one that needs to be addressed quickly.
How Did the Author Conduct This Research?
The author examines trends in employment, labor costs, and productivity across individual countries in the eurozone. He finds gaps from both a competitive perspective and structural perspective throughout the different countries. He also examines the institutional setup in Europe and how the country problems have historically been addressed, which he believes needs to be done at the microeconomic level rather than on a macro level.
The author makes very valid points about how each stressed country must deal with its own unique circumstances. Overall, committees could be set up to help guide these countries, but the ultimate decisions should rest with the technocrats within those countries and not with the elected politicians in the eurozone.