European imbalances were there for all to see last night with the release of the European employment figures.
Unemployment in the 17 euro countries reached 10.4 per cent in December, with the November’s data revised up to the same level. As with the PMI, and pretty much everything else lately, Germany outperformed at the expense of everyone else. European unemployment now sits at 23.8 million people with youth unemployment in the periphery being far too highly represented.
While German unemployment fell to 6.7%, the lowest since 1991, Spain’s rate hit 22.9% and Greece recorded 19.2%. Both of those figures are the highest since the birth of the Euro. Ireland also recorded 14.5% while Portugal ticked up to 13.6%.
As MacroBusiness readers would know, much of Europe’s problem are due to imbalances between nations under the single currency. What you would hope to see in order to begin to resolve that problem is an increase in exports from weaker nations towards the strong. Obviously for this to occur you would need greater consumption by the stronger nations of goods and services produced by the weaker. The problem is this isn’t what we are seeing from Germany:
German retail sales unexpectedly declined in December as consumers’ Christmas-shopping frenzy was damped by uncertainty about the economic outlook.
Sales, adjusted for inflation and seasonal swings, declined 1.4 percent from November, when they fell 1 percent, the Federal Statistics Office in Wiesbaden said today.
The focus of Monday’s EU summit was supposed to be about “jobs and growth” in the periphery, but as I said yesterday there is nothing in the current European policies to actually support that premise and the macroeconomics of these countries is not conducive to jobs creation. The latest unemployment figures make it very clear that something needs to change.
As I have stated previously, one of my greatest concerns is that there are now literally millions of bored, unemployed and socially disenfranchised youths across southern Europe. These numbers will continue to grow as the mix of government austerity and deflating private sector economics pushes down periphery GDP and the chart below clearly shows, once again, the separation of the European periphery from the core:
Obviously this is an economic disaster and I have been at the front of the queue screaming about misguided economic ideologies in Europe that have led, and continue to lead, to this situation. However, it doesn’t take much of an imagination to realise that this has the potential to become something much more sinister than just ugly looking charts and that is my real concern. If you are able to access FT, then you can use this interactive tool to see the change in youth unemployment over the last decade.
Overnight we also had some updates on the perpetually “almost there” Greek PSI+ deal with yet another announcement from the Greek finance minister:
Greece’s private sector creditors could take a loss of more than 70 percent in a planned debt swap, Finance Minister Evangelos Venizelos said on Tuesday.
“There is a very serious discussion based on new facts. We are talking about a PSI much greater than the original,” he told lawmakers, referring to private sector involvement in the deal.
“We are talking about a haircut on the net present value exceeding 70 percent,” he said.
That certainly doesn’t sound realistic to me, in fact it sounds pretty desperate, but you never know, so as usual we will just have to wait and see. According to the UK Guardian Greece’s other negotiations, that is with the Troika, also appears to be under strain:
Greek officials launched a vociferous behind the scenes attack on European Union and International Monetary Fund negotiators as talks in Athens over the country’s mounting debts appeared to stall.
Prime minister Lucas Papademos told aides that a crisis meeting of party leaders would be called as early as Thursday to thrash out a response to an increasingly intransigent negotiating team sent by Brussels, which is demanding severe austerity measures before sanctioning a further €130bn (£109bn) of bailout funds.
… finance minister Evangelos Venizelos put on a brave face publicly and said that he believed an agreement on the debt swap was close. “We are one step [away]. I would say it is a formality away from finalising (the debt relief agreement),” Venizelos told a news conference. “The next few days will determine what happens over the coming decade.”
On the negotiations over the bailout funds, Greek MPs have objected to demands by the troika for further wage cuts and reductions in the minimum wage.
“The troika doesn’t appear to be willing to accept any concessions whatsoever on reducing the minimum wage and scrapping bonuses,” said the government aide. “No political party is willing to move either, saying wage cuts are a red line they are simply not going to cross. You tell me how this is going to be resolved. We have no idea and we’re very worried.”
I really don’t see how Greece has a choice but to say they will meet every demand the Troika makes at this point and that is absolutely my base case. That, however, doesn’t mean I can’t see a Greek black swan circling in the sky above.