1. What does the latest information show on unemployment in the European Union?

Sadly, the latest figures still show the European Union as a whole to be suffering far worse from unemployment than anywhere else in the developed world, especially in the euro-zone where the overall average is 8.3%. In Germany the percentage of the labour force which is out of work is 7.8%, and on a rising trend while in France the figure is 8.5%. In Spain, it is 12.8%. Even more concerning are the figures for youth unemployment. The overall percentage is 16.4%, with particular problems in Belgium with 17.3%, Finland with 18.8%, and Spain with 24.3%. The unemployment percentages are worse, on average, for countries within the euro zone than for those outside it. British unemployment is now 5.1%, measured on the standardised EU basis. In the USA it is 4.3% and in Japan 5.0%. Furthermore, the overall picture for unemployment in the EU is much more acute than the standard statistics indicate. More detailed figures provided by the International Labour Organisation indicate that the total number of people in the EU who would like to work if reasonable jobs were available is about 50% higher than the number registered as unemployed.


2. Why is unemployment in the European Union so high?

We are often told that the main reason why unemployment is so high, especially within the euro zone, is because of regulation of the labour market, protection for existing labour forces, and so forth. It is hard to believe, however, that there is more regulation now than there was in the 1950s and 1960s, when there was almost no unemployment in Western Europe at all. In fact, the real reason why so many people are out of work has little to do with the labour market. On the contrary, it is almost entirely to do with EU macro-economic policy. The problem is that there simply is not enough demand in the EU economies to keep everyone in work, and the main explanation for this is the obsession among EU policy makers, especially those involved with the unaccountable European Central Bank, about trying to keep inflation down to no more than 2% per annum. As long as this very low figure remains the target, the ECB dares not take off the brakes by lowering interest rates and expanding the money supply to anything like a significant extent. As a result, all the economies within the euro zone languish with low growth and high unemployment. Not that even the inflation goal is being reached. The current rate at which prices are rising on average within the EU - at 3.1% - is now well above the 2% target level.

3. What are the future prospects for jobs within the Single Currency area?

Because the European Central Bank is so powerful, and because inflation is now running at well above its target level, job prospects in the euro-zone are unfortunately not likely to improve significantly within the foreseeable future. Instead we are likely to see continuing stagnation within the job market. International figures bear out the scale of the lost opportunities. In the USA, during the last 25 years, the number of jobs has gone up by 20% in relation to the size of the population, whereas in the EU the increase has been virtually zero. Poor job prospects in the EU are made worse by declining levels of investment. In most of the EU economies, capital expenditure now accounts for only about 20% of national income, compared to ratios up to twice this height in Pacific Rim countries.

4. Would joining the euro improve British job prospects?

Although unemployment overall in Britain is much lower than it is in the euro zone, there are still sectors of the UK where the job market is weak, and people are losing their jobs. This is particularly the case in manufacturing, which is unquestionably suffering from the weak Single Currency. Should we therefore join the euro, whose value has gone down against the dollar by about one third since its launch at the beginning of 1999? It would surely make no sense at all to go in with the pound at its present value against the Single Currency. This would simply lock us into an uncompetitive exchange rate for the duration. If we want to get the pound down, however, to make our exports more competitive, we can do that anyway without joining the euro to do this. We just need lower interest rates, a more accommodating monetary policy, and the Bank of England making it clear that it is determined to achieve a lower exchange rate. Leaving aside all the highly important constitutional and fiscal issues about giving up the pound sterling, therefore, joining the euro is, at best, not going to improve job prospects, and at worst - if we joined at too high an exchange rate - would be completely disastrous.


5. Is the Social Chapter the answer?

When the Single Market was established, freeing up capital movements and encouraging yet more liberalisation of trade within the EU, we were told that compensating policies would be introduced in the social field, to provide a countervailing force to the increasingly powerful role of international business. So far, however, the results have been pathetically inadequate. The only changes which have been made effective have been to increase paternity leave and to introduce relatively ineffective works councils for companies over a certain size. Changes like this are nothing like sufficient to produce a tolerable balance of power within the work place between capital and labour. Meanwhile, the proportion of the working population in trades unions - a much better guide to the ability of working people to stand up for themselves - has sunk dramatically. An even more telling example of developing attitudes was a recent lengthy EU publication on Employment in Europe, containing "An employment agenda for the year 2000" which never mentions trades unions once in 142 pages of text. On the contrary, we should not forget that - provided we retain our independence - a determined Labour government could pass any social legislation it wanted without the EU being involved at all.


6. What is happening to living standards for working people in the EU?

Inevitably, in the light of the relatively poor growth performance of the EU economies, especially those in the euro-zone, living standards for most working people in the EU are growing slowly, if at all. Generally, the standard of living of blue collar workers has roughly kept pace with the growth in national income over the last 25 years, while those who are no longer working in full time jobs tend to be much worse off than they were before, relative to the rest of the population. The big gainers have been those at the top of the income earning spectrum, whose take home pay, especially net of tax, has risen much faster than the average. The result has been that the distribution of income - and wealth - is now much more uneven in the EU than it was in the 1970s. Indeed, the rate of social polarisation appears to have been faster in the last two decades of the twentieth century than at any other time in recorded history. This has occurred because wages and labour markets have been deregulated, progressive taxation reduced, means testing of benefits extended, social insurance weakened, and publicly owned industries and services substantially privatised.


7. What is happening to manufacturing in the European Union?

Many, though not all, of the problems with the EU employment market stem from the progressive decline in manufacturing as a proportion of national income, and the disappearance of high quality manual jobs which have gone with it. It is far easier to achieve productivity increases in manufacturing than it is in the service sector of the economy, and therefore the smaller the proportion of manufacturing in total output, the weaker the growth rate of the economy as a whole tends to be, and the worse the job prospects for blue collar workers. The reason why more and more manufacturing is now done in the Far East - generating the much higher growth rates common in the Pacific Rim - is that the cost base in the EU is far higher than it is in places such as China, or in relatively advanced economies such as Singapore, South Korea and Taiwan. This is not an accident. It is an entirely predictable result of the macro-economic policies which the EU pursues. Maintaining high real interest rates and tight control over the money supply, to drive down inflation, has had a devastating effect on raising the costs of producing almost any relatively simple product in the EU, compared to other parts of the world. The consequence has been the decline of many important industries, and the loss of large numbers of good, previously secure jobs as a direct result.


8. What are the prospects for pensions?

Another alarming prospect for the future in many EU countries concerns pensions. In Britain, a high proportion of pension entitlements is funded by saving schemes, so that the source of money for future pensions is clearly identifiable. In many other EU countries, pensions are mostly funded out of current revenues. As people live longer and the number of people working goes down, so the strain on the tax and financial systems to fund these pensions is becoming alarmingly high. In Germany, unfunded pension liabilities now amount to 139% of the national income, and in Italy 113%, compared to 19% in the UK. A major problem is looming where the cost of pensions in a number of EU countries is becoming so great that default is an increasingly likely possibility. Although in theory this is not supposed to happen, in practice, if there is a Single Currency, it is very difficult to see how a pensions crisis is not going to suck in all countries in the euro-zone to help to bail out the countries which cannot pay.

9. What is best for British working people?

In all these circumstances, what is the best approach for the future for British working people? The first objective, surely, is to keep the future under our own control as much as possible. This means preserving our democracy and our ways of running our own affairs. A vital safeguard in this respect is the retention of our own currency. Secondly, we need to keep ourselves aligned as much as we can with the success of those parts of the world economy which are growing fastest, and doing best. This means keeping our options and our links with the whole world - and not just the other Member States in the EU - in good repair. Thirdly, we need to make sure that we use the power to run our economy - provided we retain it - in ways which will best serve the interests of all our working population. This means being able to adopt economic policies which will keep our economy growing, and maintain conditions as close to full employment as can reasonably be achieved. One size fits all policies on a continent wide scale in Europe are not the answer. We need to be able to tailor our strategies to suit our own circumstances.


Published by the Labour Euro-Safeguards Campaign

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