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Wednesday, May 29, 2013

Merkel's medicine is unlikely to cure Europe's disease of youth unemployment

Despite the rhetoric about a lost generation, it will take more than €6bn to bring meaningful results

Europe's biggest country has no minimum wage and some of the lowest unemployment in the EU at a time of soaring jobless rates across the continent.

But Chancellor Angela Merkel of Germany, best known in Greece or Ireland for taking the axe to public services, budgets and jobs in response to the euro crisis, has suddenly discovered a penchant for job creation.

On Tuesday in Paris, in a rare recent demonstration of Franco-German affection, both countries' finance ministers joined forces to put Europe's youth back to work.

The tone has shifted from austerity, a word that Merkel hates, to handwringing about Europe's lost generation. But that the rhetorical shift reflects a major policy shift is improbable.

One might suspect there was an election looming somewhere. Merkel is indeed seeking a third term and looks assured of winning it in September. There will be more such cuddly gestures in the months ahead.

As well as the party in Paris, Merkel is summoning labour ministers, labour market experts and unit labour cost analysts from all over the EU to bang heads about jobs for youth. She wants to keep Brussels out of it, seeing no role for the European commission because Berlin says it has no expertise whatsoever in this area. But the money, €6bn (£5.1bn) – a pittance given the scale of the challenge – comes from the Brussels-administered budget. The other funds foreseen are old wine in new bottles: EU structural funds.

Merkel's remedy looks singularly ill-adapted to treating the disease. It may sound like Keynesian social democratic job creation scheming of the kind usually frowned upon in Berlin and Frankfurt. But it will take more than €6bn to bring meaningful results. It will not, however, damage her re-election prospects.


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