By John Richardson
IF the above chart applied to China then China would be in the midst of its biggest political, social and economic upheaval since the 1949 revolution, with the Communist Party quite probably out of office.
But luckily for the global economy, unemployment in China is nowhere as bad as in the EU.
Crucially, also, China will do whatever it takes to maintain employment because of the long-standing political consensus that jobs remain the No1 priority. So, even if the jobless rate in China edges up over the next few years as major economic reforms continue, there is no way that it will be allowed to come anywhere close to EU levels.
The contrast with Europe is that some politicians, despite this quite shocking latest unemployment data from Eurostat, seem to think that the worst of the region’s economic problems are over.
Take Spain’s Prime Minister, Mariano Rajoy, as an example. Last month he went as far as declaring that his country’s crisis was over despite 4.5 million Spaniards who are still searching for jobs – and with no less than half of economically active under-25s out of work.
Rajoy based his claim on finance ministry forecasts that Spain’s GDP growth would be as high as 3% per annum over the next five years.
And last week, the Bank of Spain forecast a 2.8% rise in 2015 GDP, which would be double last year’s figure. It would also make Spain the fourth fastest-growing economy in Europe, behind Ireland, Latvia, Lithuania and Malta.
But with a general election due to take place in Spain on or before 20 December 2015, the bad news for Rajoy and his governing party is that the people don’t seem to share this optimism.
“The economic situation is perceived by most Spaniards as being so bad that even when Rajoy says it’s getting better it pushes down his ratings because people don’t believe it,” said economist Edward Hugh.
“Spain has in the past few years attracted investment but these people have been buying equities and bonds and distressed real estate.”
Exactly! And the EU’s misguided quantitative easing programme will only make the supposed recovery even more lopsided by further inflating asset prices. It will also make global deflation worse as the Euro falls in value, thus forcing other countries to further devalue their own currencies.
There is no way that Europe can enjoy a sustainable recovery with unemployment at these very disturbing levels as, of course, until this problem is addressed, total demand can never recover to its pre-2008 level.
And as China has long realised, high unemployment equals political instability and so further damage to the economy. What might happen to the EU if, for instance, Marine Le Pen wins the 2017 French presidential election?
How can Europe tackle its jobs crisis?
The first step might well be to compare and contrast its policies with those of China. I will let you replace the question marks on the chart below – from my presentation at last week’s 4th ICIS Global Polyolefins Conference in Amsterdam – with some answers.
Addressing these policy shortfalls would be a heck of a lot easier if the EU achieved political as well as economic union.
“The lesson from history is that status quo we have now [in the EU] is not a tenable structure,” said Andrew Bosomworth, manager of the PIMCO, the world’s biggest bond fund.
“There’s no historical precedent that this sort of structure, which is a centralised monetary policy and decentralised fiscal policy, can last over multiple decades,” he added.
Hopeless? Only if politicians and business leaders, including business leaders in the chemicals industry, continue to sit back and allow this slow train wreck to continue.