These deeply worrying jobless figures show that Europe is now locked into a double-dip recession that risks political extremism and the death of the social market ideal
Europe has a dark history when it comes to unemployment. Before the Wall Street Crash of 1929, unemployment in Germany was around 5%. By 1930 it was 15%. By 1932 it was 30%. We all know what happened in 1933.
The weaker countries of the eurozone today have yet to reach those levels of joblessness but the latest data shows they not all that far away. Spain and Greece both have more than a quarter of the workforce kicking their heels, with youth unemployment rates well above 50%. These are staggering and deeply worrying figures. And they are going to get worse.
When the financial crisis erupted more than five years ago, Europe prided itself that the problem had originated in the deregulated American economy, and took pride in contrasting its social market economy with the devil-take-the-hindmost approach favoured on the other side of the Atlantic.
In reality, Europe's banks were loaded up with the derivatives that collapsed in price when the bubble burst in the US real estate market. Europe now has a network of zombie banks kept afloat only thanks to the efforts of the European Central Bank and the network of individual national banks. A sharp contraction in bank lending has led to weaker activity, putting pressure on public finances and leading to higher debt levels.
America faced similar pressures but has responded in a quite different way. The champions of laissez-faire have pulled every lever, tried experimental policies when conventional approaches have struggled to gain traction, and made it clear that they will continue intervening until unemployment comes down to a more acceptable level. A big drive to reduce the US budget deficit is due to kick in next year but few doubt that the Americans will step back from the so-called fiscal cliff until recovery is well embedded.
Europe by contrast has played it by the book, with disastrous results. It has fretted too much about an imaginary inflation threat. It has failed to comprehend that the sovereign debt problem is the symptom of a banking crisis. And most bone-headedly of all, it has insisted on sucking even more demand out of the single-currency area through pro-cyclical austerity programmes. The co-ordinated nature of these budget cuts has resulted in the impact on growth and jobs being magnified. Bizarrely, while the allegedly laissez-faire Americans have been acting like devotees of the social market, the Europeans have been acting as if Keynes never lived.
So here's the position. Europe is now locked into a double-dip recession that is affecting the core countries as well as the weak nations on the periphery. Unemployment is on the rise in both Germany and France; eurozone joblessness rose for a 17th month in September and the rate is now at 11.6%, a monetary union record. Growth prospects are being strangled by a combination of rising unemployment, rock-bottom consumer and business confidence, and budget cuts. The giant sucking sound is of Europe disappearing down its own self-imposed deflationary plughole.
Is there an alternative? Of course there is, although it means European policymakers starting to act like the terrible Anglo-Saxons in Washington. It means the ECB adopting a much more expansionary monetary policy. It means delaying co-ordinated fiscal tightening. And it means using the European Investment Bank as the vehicle for an infrastructure-led stimulus policy.
The question is whether Europe's policymakers have the flexibility and the imagination to change course. If they haven't, the risk is of deepening economic distress, the fostering of political extremism and the replacement of the social market ideal with something far, far nastier.
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