The European debt crisis, which over and over again seemed close to some kind of resolution, today looks as intractable as ever. Spain, Italy, and Greece now have governments committed to do everything possible to prevent the dissolution of the euro. Yet a series of stories today illuminates just how elusive a debt crisis solution can be.
In Greece, voters narrowly chose Antonis Samaras’s New Democracy and its austerity platform over left wing Syriza. Now Samaras is faced with a general strike, and Syriza is rising in polls. In Spain, Mariano Rajoy’s center right is proving reluctant to seek European aid with it attendant conditions. Same goes for Mario Monti in Italy.
What’s happening here? From the outside it looks like these countries are faced with a debt crisis. From the inside it looks a lot more like a jobs crisis. Check out the map of European unemployment rates below, taken from Bloomberg’s debt crisis data page.
The unemployment numbers for Spain and Greece aren’t exactly comparable with U.S. data, but they give a good idea of the crisis. Just as important, unemployment is rising sharply: according the international data from the U.S. Bureau of Labor Statistics, in the last year it has risen more than two points in Italy, more than three points in Spain, and more than five percentage points in Greece.
That means hundreds of thousands more unemployed in each country. This is what’s at the top of the domestic political agenda. That’s true even in relatively prosperous regions of Italy, where Fiat is pilloried for failing to come through on jobs commitments.
The European solution to the debt crisis is a bailout deal that would have the E.U. guarantee debts in return for cuts in spending, benefits and pensions. If you look at what’s happening in those countries as a debt crisis mainly this makes sense. From the viewpoint of protesters on the street, it doesn’t. The number they are looking at is the unemployment rate, not the bond yield.
From the perspective of bankers and investors, European Union looks like it’s on the verge of debt solution. The caveat is that the the bailout terms that make the debt crisis better could make the jobs crisis worse. For any political leader, that deal sounds a lot like political suicide. No wonder no one is eager to take it.
A version of this post appeared earlier in the Market Now newsletter and on Bloomberg’s Euro Crisis blog. Click here to register at Bloomberg.com and subscribe to The Market Now daily email.