The April data on Italian unemployment are out, and they look no good. Not at all. The overall rate (10.2%) is at its maximum since the beginning of monthly data series (2004), and youth unemployment is above 35%. The rest of Europe is not doing any better, with more than 17 millions people looking for a job in the eurozone alone.
We already knew. The latest data just add to the bleak picture. We also know (I discussed it) what the consensus diagnosis is: Too many rigidities, excessively high labour costs, both because of wages and of taxes on labour (the so-called tax wedge). Therefore, let’s have lower wages, and all will be well! Unemployment will disappear, growth will resume. Mario Draghi said it rather nicely:
Policies aimed at enhancing competition in product markets and increasing the wage and employment adjustment capacity of firms will foster innovation, promote job creation and boost longer-term growth prospects. Reforms in these areas are particularly important for countries which have suffered significant losses in cost competitiveness and need to stimulate productivity and improve trade performance.
An interesting article (in French) written by André Grjebine on imbalances within the eurozone. I plan to write on this as well, in the next days.
I think it is useful to list, and assess, the main arguments advanced against an enhanced role of the ECB as a lender/buyer of last resort. I can think of four of them: credibility, inflation, irrelevance, ineffectiveness.
Not surprisingly, the deal reached last week failed to put the EMU economies back on track. I have always looked with suspicion, if not with outright fear, to policy agendas dictated by financial markets. But the fact that a simple attempt by the Greek Prime Minister to involve his fellow citizens in crucial decisions is creating a panic attack, shows how fragile the agreement was. With André Grjebine I wrote a piece for the French daily Liberation last week, in which we argued that all the crucial weaknesses of the Eurozone were not addressed.
- Address current account imbalances symmetrically, along the lines already outlined by Keynes before Bretton Woods.
- Focus more on quality of public spending, and not on quantitative targets. We mention the golden rule in its original meaning, i.e. the exclusion of public investment from numerical deficit targets. A study (working paper here) I made with some colleagues a while ago hinted that it worked for the UK.
- Finally, we insisted on debt monetization by the ECB, the only possible strategy to defuse speculation against sovereign debt of a currency union.
He has been my first teacher. It is thanks to him that I understood, very young, that the Keynesian principle of effective demand is not a simple special case of the neoclassical theory. Just a few weeks ago I went back to his 1979 CJE controversy on effective demand with Joan Robinson that is surprisingly actual.
But, above all, he taught me rigour, attention to the internal consistency of an argument, and love for economic theory, meant as a conceptual lens to make sense of a complex reality. I had lost him of sight, for a number of reasons of no interest. But his lesson has been invaluable along all my career, and will continue to be. A Maestro…
It is a sad day.