The Eurozone is in crisis. Since the onset of the sovereign debt debacle in 2008, economic conditions in nearly all of its member states have grown worse as pro-austerity economic policies have all but silenced prospects for renewed growth. Of the seventeen nations that use the Euro, the economies of five are in danger of defaulting on their debts and two have already had their financial sectors bailed out at least once already. Seven have seen their sovereign credit ratings lowered to near non-investment grade and eleven have unemployment rates at or near 10 percent.
As the economic landscape grows more perilous, so does the political one. Governments in Ireland, Greece and the Netherlands have capitulated at least once since 2008 over debt concerns, not to mention the tens of thousands in Spain demonstrating against more bailouts of its troubled financial sector. And at the heart of it lies the European Central Bank, chief regulatory and policy authority for the Euro, whose indecision over entering the fray has cost the Eurozone billions. If anything, the crisis has exposed the weakness of the ECB’s, necessitating an overhaul to the structure of Europe’s national banks. It is more than clear that the severity of current economic conditions throughout the Eurozone lies in the failure of European monetary authorities to counteract rising unemployment, rising national borrowing costs and near-zero economic growth. To kickstart a recovery, European leaders must enact policies that are directed towards reforming the role and purpose of its central banks (both the ECB and NCBs) to allow new capital to be invested into the non-financial sectors of Europe’s economies.
The health of any given economy can be measured by looking at its unemployment rates, debt-to-GDP ratio, and its credit rating. The following chart shows an overview of these metrics for each member state in the Eurozone and the average for the union as a whole.
Looking at the data, unemployment rates are a clear point of concern. In general, high unemployment has a negative impact on economic productivity and leads to increases in deficit spending. High numbers of unemployed persons come from national governments and private firms reducing their expenditure on labor in order to pay out less in wages.
As the unemployed pool increases, the number of benefit assistance recipients increases, inciting accelerated government spending since workers laid off from both government and private industry are often eligible. The capital the government puts towards assistance programs only serves to keep consumer spending on staple products consistent; it slows a general economic recovery by diverting new capital away from further investment in projects that could create new jobs or growth. In the private sector, increased layoffs hamper economic productivity, because fewer workers are available to complete the same amount of work. As workflow inefficiency grows, profitability decreases. In the Eurozone, Estonia, Greece, Ireland, Portugual, Slovakia and Spain have acute unemployment problems, especially Greece and Spain whose rates are above 20 percent. Cyprus, Slovenia, Italy and France are also on the radar with rates between 8.5 and 10 percent. Keep in mind that names like Italy, Spain, and France are big players in the Eurozone, representing 35 percent of the Euro’s economic strength and as conditions worsen, an increase in unemployment in these three nations poses a great threat to the viability of the Euro.
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