Brussels, 03/05/2012 (Agence Europe) - The International Labour Organisation (ILO) makes no bones about it - the deterioration of the EU's economy is a reflection of the austerity trap. In its most recent report on labour in the world in 2012, published on Monday 30 April, the ILO does not mince its words when it comes to Europe. The jobs situation is getting worse, unemployment keeps on rising and the short and medium-term growth prospects are poor. The confidence member states are trying to achieve on the money markets by introducing austerity measures do not translate into economic growth or job creation, causing the economy to shrink instead.
The ILO therefore describes the situation as an “austerity trap”, which is under increasing discussion in Brussels. It has been mentioned by the head of the European Central Bank (ECB), Mario Draghi, and the president of the European Council, Herman Van Rompuy, who both called on Thursday for the introduction of a wise combination of spending cuts and growth-stimulus measures. EU Employment and Social Affairs Commissioner Laszlo Andor said this was an alternative approach, rather than a revolution. Describing the ILO report, he told the European Parliament's employment committee on Tuesday 2 May that the current deterioration in the situation was partly the reflection of focusing for two years on budget consolidation, which has a negative impact on global demand. He said that Europe is at a genuine crossroads.
Is there a solution? The ILO report does not give a clear answer. On the one hand, it describes publication of the European Commission's jobs package (see EUROPE 10597) as a suitable strategy for promoting decent jobs and stronger labour market governance with the full participation of the social partners (employers and trade unions), while, on the other hand, the strategy is not binding on the member states and the current pursuit of spending cuts is likely to continue, which will lead to low job creation and a deterioration in the budget in the medium-term due to weaker global demand.
The ILO suggests a number of solutions which are quite similar to the Commission's suggestions, such as measures to encourage decent jobs (which will reduce unemployment and increase household income), encouraging lending (corporate investment and job creation), while introducing “socially responsible spending cuts”. Such measures are unlikely, however, to be abe to counteract a trend that stretches beyond the EU's borders, warns the ILO. Over the next two years, global growth will be too low to restore jobs lost since 2008 and create new jobs as well for new arrivals on the labour market.
The ILO says this poses a new challenge. Four years of economic slowdown and a raft of crises have caused profound instability in the labour market and the problems are now built-in. With unemployment hovering around the 11% mark in the eurozone in March 2012 and as high as 22.6% for young people, there is the danger that some people will never find a job, even though economic recovery is potentially on the cards. Those most at risk of never working are women and young people aged between 18 and 25. Quite aside from the unemployment question, the impact of this situation can already be seen in the form of deregulation of the labour market (particularly in southern Europe), as shown by the mushrooming of MacJobs and new types of contract, part-time work (more than 42 million Europeans work part-time), temporary work (particularly in central and Eastern Europe) and poverty, which afflicts nearly 16.4% of individuals in the EU (and 21.1% of young people). The ILO points out that there is no evidence that labour market deregulation leads to job creation.
Another aspect of the problem is the built-in instability on the money markets, as seen in the credit crunch for small businesses. The investment to GDP ratio is less than 16% of its historic average in the European Union and this applies to both small and large businesses. Large businesses are able to raise capital without problem, but prefer to hang on to cash rather than invest it. From 2007 to 2011, the liquidity kept by large businesses in their war chests (rather than investing it) rose by a massive 77% and it rose by 33% alone in the year from 2010 to 2011. (JK/transl.fl)