Although break-up speculation has lessened, stock prices have risen and credit spreads have narrowed, Europe must do more to encourage the economic recovery, say four of the world’s top business leaders and an eminent US economist at the 44th World Economic Forum Annual Meeting in Davos-Klosters, Switzerland.
Despite all this encouraging news coming out of Europe, “the economic recovery is not something to be excited about,” they say.
Axel A. Weber, Chairman of the Board of Directors of UBS, and a former president of the Deutsche Bundesbank, Germany’s central bank, said:
“Things feel better in Europe, but policy-makers should not be complacent.”
“Two events this year may bring new risks: eurosceptics winning seats in European Parliament elections and the stress-testing of Europe’s banks, which will almost certainly hand some institutions a failing grade.”
Youth unemployment in Europe is “horrific”
Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics, Harvard University, USA, said:
“Europe has become much more stable, which is not a small political achievement.”
“On the other hand, the youth unemployment situation is horrific. Only the German economy has come back to where it was before the 2008 financial crisis.”
“It could take at least five years for the rest of Europe to reach the same point.”
Both Sir Martin Sorrell, CEO of WPP, UK, and Pierre Nanterme, CEO of Accenture, France, expect a much better 2014 compared to 2012 or 2013 for their respective businesses.
Europe must do more to tackle labor inflexibility
However, businesses are still meeting obstacles. Sorrel said “We asked 80 of our clients what the critical issues in Europe are in terms of their expansion. The answer was labor market inflexibility.”
If the **structural unemployment problem in Europe is not solved, the region risks losing a generation of employees.
** Structural unemployed refers to joblessness that is not linked to the economic cycle – it is not caused by a fall in demand. When unemployed workers cannot find jobs because employers are seeking people with skills that they do not have, there is structural unemployment.
Giuseppe Recchi, Chairman, Eni, Italy, explained that all could be lost if people cannot find employment within two to three years of graduation. “It is difficult for a company to hire a 30-year-old person without work experience.”
The panelists urge European leaders to deal with the unemployment crisis more aggressively by, among other things:
- allowing labor mobility
- making sure schools teach skills businesses require
- investing more in education, technology and innovation.
Rogoff said “Europe has tremendous advantages that are not going away overnight. The region has high education levels, rule of law, and technological innovations.”
However, those advantages can gradually be lost if Europe does not push ahead with business and economic reforms to create flexible labor markets, improve competitiveness, and make it easier and less costly to do business.
On January 8th, Eurostat, the statistical office of the European Union announced that November Eurozone unemployment was 12.1%, the same as the month before. Economists and media sources throughout the world describe Europe’s unemployment as “stubbornly high”.
Unemployment in the Eurozone and the wider European Union is extremely high in the “peripheral countries”, such as Greece, Spain, Italy, Portugal, and now France, while fairly low in the northern countries such as Germany, the UK, Austria and Scandinavia.