A practical way to save Europe

June 22, 2012

By Kathleen Brooks. The opinions expressed are her own.

The bulk of reporting and analysis on the current state of the euro zone sovereign debt crisis has focused on the structural changes that Europe needs to make to survive. Closer fiscal ties, euro bonds, pooled tax revenues and a centralised spending authority have been bandied about.

A lot of people think that these changes are the only way to bring down credit risk and pull Spain and Italy back from the cliff edge they currently find themselves on.

But will creating a United States of Europe really solve the problems of the currency bloc? It could go some way to calm bond investors, but it won’t get to the heart of the problem that threatens to rip the currency bloc apart: unemployment.

The euro zone was created to heal the wounds created during the Second World War, the sovereign debt crisis threatens to re-open those wounds as disenchanted people across Europe’s periphery vote against the status quo and try to find something that doesn’t mean more economic pain, sacrifice and even more job losses. This is particularly acute for young people. In Spain 50 percent of people under the age of 24 are out of work, a similar number in Greece. Hence the dramatic rise of the Syriza Party, with its charismatic young leader Alexis Tsipras, who has promised to be a formidable opposition force in Greek politics.

The wave of support for Syriza in the recent elections, which must be one of the fastest-growing political parties in the euro zone, could still break up the currency bloc. If Tsipras had been elected he would have flatly refused to adhere to the bailout terms the Pasok and New Democracy parties agreed to earlier this year. If these parties cannot create a stable coalition government then Syriza is waiting in the wings to grab the reins of power.

So how can the euro zone avoid imploding? Everyone seems to be looking for a political solution. However, politics and the public sector need to shrink in Europe, thus the solution may lie with Europe’s business leaders, who can target the enormous challenge of job creation.

A discussion with Wolfgang Eder, the CEO of Voestalpine Group, an Austrian steel company, suggests that important business men like Eder are not immune to concerns in their own back yard even if they run multi-national businesses.  In the past year Voestalpine generated 12 billion euroes in revenue and has 46,500 employees. It is companies like these hold the key to re-booting growth in Europe.

However, it’s not as simple as merely flicking on the growth switch.  CEOs like Eder are caught between a rock and a hard place: provide value for, in Eder’s case, private stakeholders (but for listed companies their shareholders) at the same time as providing ethical and moral support during Europe’s time of need. So what is the solution to the unemployment crisis, in particular the youth unemployment crisis?

Firstly, the region-wide labour force needs to be more mobile, which means similar standards of education, common language skills etc. Secondly, it requires the right skill set. Interestingly, Eder thought the skills part was easier to solve than the educational and language barriers. Voestalpine already runs successful intern and apprentice programmes including some in the UK, however, Eder argues these should be more wide spread and given special status. If company A spends time and money training a graduate or school leaver then company B could come along and poach them without incurring the training costs. That puts some companies off investing in young people in the first place: what is the point of training up people who in the future could work for the competition? One way of tackling this could be mandating companies of a certain size to run apprentice programmes and fining companies who poach trained individuals without offering similar programmes themselves.

Eder argues that investing in Spain, for example, can be a risky business. If you establish a factory in a place that desperately needs investment but you can’t find the staff then the chances are you will lose money for your business. To make countries like Spain more attractive, educational reforms need to be enacted quickly and so do language standards. In some parts of Spain the rates of English-speakers are incredibly low. As an English-only speaker I can hardly complain about others’ inability to speak my language; however English is a common language that is used from ECB press conferences to the BMW board meetings. Hence if peripheral economies want to attract investment from their rich peers then they need to speak English.

A large portion of the market is concerning itself with banking unions and closer fiscal ties. Eder is going back to the grass roots. He doesn’t think pumping more money into the system is the answer; instead he thinks that an EU Commission for language skills could dramatically alter the future trajectory of Europe’s weakest members.

Rather than concentrate on euro bonds, surely the priority should be to boost growth rather than bail out countries with suspect solvency?  Eder prefers a robust re-capitalisation of the European Investment Bank, however he thinks this would take less money to fund (he thinks the fund could make a difference with a starting capital injection of 50 billion euros), and it could have more bang for its buck than the bailout funds dispensed so far.

Since Greece has had to write off debt even after receiving three bailouts and Spanish borrowing costs have surged to unsustainable levels after it was offered 100 billion euros of funds to recapitalise its beleaguered banking sector, maybe European authorities should think in terms of smaller sums directed towards investment as Voestalpine’s Eder suggests?

This may be a radical idea in Brussels, but perhaps the survival of the euro zone relies on less politics and on more support for businesses to drag Europe’s periphery out of this mess.

Image — A demonstrator wearing a mask depicting Italian Prime Minister Mario Monti poses as he simulates playing a soccer match to protest against the euro zone debt crisis, in front of the Chigi palace in Rome, June 22, 2012. REUTERS/Remo Casilli


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No soft-footing around, but these view still miss what IS the REAL problem in America, I suspect in Europe and around the globe–The old forms and norms (paradigms) of the way we do almost everything needs to change. One example, healthcare in the US–easy to solve, put a “First Care” clinic attached to every grocery store or supermarket store that has a pharmacy. Staff it with “Nurse-Practitioners” or PA’s Physician Assistants. Fees can be much lower than the $60 I pay to see my doctor about a “sore throat?” I’ve been going to the same doctor for 20 years, I know what he will say and the medicines he will prescribe, but to get the medicines, I have to see him “first.” How absurd for a physician who has been to college and medical school, then residency in a hospital 12 years of education, just to diagnose a “sore throat.” Should they not be using all that “fire-power” of learning on the really serious issues? Then I pay another $60 for medicines. Or, if a suitable “generic” is on the $4 list (older drugs) I can escape without a big bill at the pharmacy. So, have the private sector, investors, be limited to the number of these “First Care” clinics they can own in a given area (this assures competition and thus lower prices) and make the cost of a visit a sliding scale based on income. The lowest fee might be $4 and then medicine just $4. But, the entire “Medical Industrial Complex” of America stands firmly against such a thing–“horrors!” doctors might not make as much money as they now do?? The AMA would lobby (and they’re RICH, so their lobbying would succeed) so the issues we face now will continue, until a global depression takes ALL of us down, and then things will change, when the HAVE TO CHANGE rather than make a sensible transition. And, medicine is just one HUGE EXPENSIVE BEAST waiting to be broken up into smaller and less expensive units. It could work, it would be all too easy, but the one thing the article here does clearly set forth, it’s the “political unwillingness” not practicalities that stand in the way. We ought to be “enlightened” enough to break-up the “Medical Industrial Complex,” the “Educational Industrial Complex,” the Military Industrial Complex,” the Agribusiness Industrial Complex, the “Legal Industrial Complex,” the “Petroleum Industrial Complex,” (alternative fuels) on and on ad infinitum! THE ISSUES and potential solutions so clearly surround us and yet the matter that gets in the way–“We’ve never done it that way before!” “We have standards and practices which have to be followed!” Etc., etc., puke!!!

Posted by WouldChuk | Report as abusive

Follow-Up … we are still throwing hard earned money (one of economic’s fundamental “scarce” resources–land, labor and capital), at very expensive “old” ways of doing things. The sooner we wake up to realities of the world today, the sooner we can provide more “things” and “services” to people, and thus create new jobs for people who will be making, packing, shipping and selling said “goods” and “services.”

Posted by WouldChuk | Report as abusive