Growth without jobs: is monetary policy hurting the youth everywhere?

This has been a decade of the Monetarists. 

In the name of taming inflation and invoking fears of 'crowding out', the  focus shifted early on with the advent of the 21st century to managing economies through monetary inducements and averments. The fiscal spending had to contract as a ratio of fisc deficit to GDP was fixed by policy makers. The ratio of government borrowings was fixed too. The withering away of the fiscal state is almost there.  The policy setters are the central bankers. Finance ministry then is a broad brush institution. 

The monetary transmission mechanisms run through banks and they all look vulnerable as the cost of capital mobilization is high (capital decided by central bankers' forum and by individual central banks)  ; the monetary ease has added to the quantum of NPAs. So the efficiency of the private sector is hurt by lumps of non performing assets and the transmission mechanisms look more clogged as regulatory prescriptions go up. Less jobs are created as growth slows down. Add to that the fact as technology intervenes, there are more machines than men needed. Skill reorientation acts with a lag. In the overall, unemployment increases and it hits the youth most adversely and painfully.  

Euro area looks among the hardest hit among the advanced countries. The MENA region seems so fragile; the political instability is perhaps explained by economic reasons. There  might be under -reporting / disguised unemployment in the emerging economies. 

Growth without jobs is not just income discriminatory; it affects purchasing power and so lack of effective demand for goods. 

Source of Data 

World Development Indicators 2015, THE WORLD BANK

	Unemployment				Youth unemployment
	Male		Female		Male		Female
	% of male labor force		% of female labor force		% of male labor force ages 15-24		% of female labor force ages 15-24
		2011-14		2011-14		2011-14		2011-14
Australia		6		6		14		12
Brazil		5		9		12		19
Canada		7		7		15		12
China		5		4		12		9
Hong Kong SAR, China		4		3		10		7
Germany		5		5		8		7
Greece		23		31		49		60
India		4		4		10		11
Japan		4		3		7		6
Russian Federation		5		5		12		14
Switzerland		4		5		9		8
United Kingdom		7		6		19		14
United States		6		6		15		13
World		6		6		13		16
Low income		5		7		9		11
Middle income		5		6		13		16
Lower middle income		5		6		13		16
Upper middle income		6		6		14		16
Low & middle income		5		6		13		15
East Asia & Pacific		5		4		13		11
Europe & Central Asia		9		9		19		20
Latin America & Caribbean		5		8		11		16
Middle East & North Africa		10		23		27		49
South Asia		4		5		10		11
Sub-Saharan Africa		7		9		13		15
High income		7		7		17		18
Euro area		11		12		28		28

OECD Economic Outlook - November 2015

Real GDP growth (%)Summary of OECD projections for G20 c

Year	World	India	China	Usa	Euro area
2014	2.3	7.3	7.3	2.4	0.9
2015	2.9	7,2	6.8	2.4	1.5
2016	3.3	7.3	6.5	2.5	1.8
2017	3.6	7.4	6.2	2.4	1.9

 OECD Views

• Harbinger of further slowing of global GDP growth
•  China’s role at centre via commodity prices and global value chains
•  Real investment continues to disappoint
• Financial exposures in emerging markets could create stress
• Resume momentum for structural reforms, especially financial sector and network services in Europe 
•  Take advantage of low interest rates to increase public infrastructure investment, including to tackle climate change  

This blog recommends no investment 

Greece either way, Europe is a loser

Greece voting is under way; either way the result has already weakened Europe. The current imbroglio  has set back the concept of a federal Europe.

It also indicates that Europe has been unsuccessful in throwing up a pan European leader. There are German and French and British and Greek leaders ; but no European leaders. The last European was perhaps Willy Brandt...With low cost economies in Asia, and with strong leaders like Modi  and Xi Jinping and Abe and Obama , Europe has none to match. Had there been a Charles De Gaulle today, may be... But seldom have European leaders risen above national interests. Nationalism is at the centre of the Greek referendum. Nationalism will resurge with the German domination sensed.

If China and India join in economic infrastructure building, that action  may set Europe's clock by several centuries. Centuries ago, Europe had the fire power and  mapping abilities. Then they could colonize. Now at most they can emigrate to Australia or Canada.

Innovation has virtually ceased to emerge out of Europe. Science, which was so prosperous in Europe, is caught up in this turmoil. British Universities, for example suffer research funding constraints.
Whatever little happens towards this direction of innovative thinking these days,  seems to emerge out of Nordic areas or Germany. The rest have become cost heavy.

Has Europe ceased to deliver value? Value is benefits minus costs. It has few benefits to give and has become too cost heavy. Companies may have to migrate to more successful locations. Just like jobless driven Greeks.


Without any risk or responsibility....

Europe is frozen in the past....

Why Europeans have a reason to be afraid of things...

Europe is in the throes of anxiety, nay fear. Fear of the future.  "Fear creates its own fears which are more fearsome than fear itself."(Author unknown) 

• ·         Saturday evening , Germans marched in Berlin, Munich and other cities, protesting the US -EU Free Trade pact - Transatlantic Trade and Investment Partnership (TTIP).
• ·         Last week a lady showered confetti at Draghi, the ECB President protesting ECB policies.
• ·         On the day ECB's new premises was to open in March 18, Europeans took out protest processions decrying austerity measures.
• ·         In Greece, as in the more afflicted parts of Europe, the leftists seem to be on the ascent and the masses have been quite restive.
• ·         All these are indicators of resentment among the masses. Rising anxieties at the future of Europe among the youth is spilling on to the streets.
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Europe today appears steadily moving into shades of oblivion. Europe's big companies like Ericsson and Nokia are no more the  great  brands they once used to be.  Italians, (remember Ariston?) once reputed for their industrial prowess is faltering between scandalous politicians and declining growth. Europe's big airlines, representative of the services industry,  have faltered; Qatar, Emirates and Etihad Airlines with their latest big spaced aircraft have given British Air, Lufthansa  and Air France a run for their money. The Japanese cars have taken over the mid-size segment threatening to leave Fiat in to probable memories of another period. The European brands that are most reputed are targeted at high net worth customers ( Mercedes Benz, BMW Louis Vuitton).  China by contrast, has become the world's workshop supplying cheap goods to an aspirant middle class. 

Europe's educational system has been unable to attract talent as US or even Canadian universities do. Except perhaps UK Universities and some European Universities like Sorbonne or Erasmus, international students do not see these academic places as first choice destinations. The 'auslander' (outsider) fear among students is real both on language and cultural divergence in Germany for example. The American Universities, by contrast are seen by the international student as great place of learning and freedom of academic thinking.

The digital era seems to have a follower not a leader in Europe. The Europeans have been unable to re-create the industrial revolution era in this age of the digitalization. Its IT companies are largely less known for break through innovation.  Countries like India had seized the opportunity while Europe which really has time zone advantage has not been so swift.

Europe has been rather non receptive and patronizing to immigration. USA has , on the contrary been a net recipient of talent. Its Universities have always welcomed innovative brains. US immigration policies have been supportive of retention of talent to assist economic growth. Parts of Europe , on the other hand, have earned a reputation of shades of 'Teutonische Arroganz' in its approach to outsiders. At best,  there is an element of patronage of the less fortunate. Having earlier been great mechanical engineers and ship builders,  Europeans had been reputed to be innovative and  many several countries have prospered as colonialists in the bygone, prosperous days. Some of the economies have built the edifice of their economies on the drain of wealth from the colonies. These colonial flow sources have been dry for over 60 years now.  Old colonies like India have risen from the embers of colonialism to take up commanding heights of the global economy while Europe has to live on past glory.

Spearheaded by China and India, the fulcrum of the World growth has now largely shifted to Asia. The central banks of Asia hold trillions of dollars and Europe in their kitty. Given the lack of cohesion in thinking and the delayed decision taking seen in Europe, Europe is no more so dominant a power on the world scene. From Iceland to Ireland to Italy there are pronounced weaknesses. Fears of a Japan like fall into prolonged recession haunts even as there is dithering over Greece for nearly three years!. To be Quantitative easing or not to be took several months to arrive at a decision. It cannot arrive at any consensus or  alternatively, a bold decision over Greece. All Europe does is to contribute to market volatility over several years! The world needs to move beyond Greece even if Europe is inefficient. Greece is too small to matter.  

Europe needs to rethink its approach to men and machines.  It can survive, like UK,  only with transatlantic support. US remains a leader who is far ahead in innovative breakthrough technology. From Coca Cola to Google to Facebook to Twitter to Intel it is US brands all the way in relevant consumer markets. The Americans are affording an opportunity to Europe to still retain relevance. Europe is still frozen in the past. Like the ostrich it has its head in the sands.

Without any risk or responsibility....

A brutally frank view of the weaknesses of the Italian economy

Salvatore Rossi: Knowledge, innovation and relaunching the economy

Speech   by Mr. Salvatore Rossi, Senior Deputy Governor of the Bank of Italy, at the Almo Collegio Borromeo, Pavia, 17 March 2015.

Extract Only

" We now produce almost a tenth less than we did seven years ago:

 in manufacturing, 17 per cent less;

in construction, more than 30 per cent.

It is estimated that manufacturing lost one sixth of its productive capacity in this period. 

Net job destruction reached almost one million.

Last year, Italian firms invested overall a third less than seven years earlier.

As a whole, households spent 8 per cent less in real terms.

Exports have struggled to stay on an even keel.

The global financial crisis of 2007-08, followed by the European sovereign debt crisis of 2010-11, inflicted far greater damage on Italy's economy than on those of the other main advanced countries."

Without any risk or responsibility 

Draghi challenges Euro area Governments to reform...

Mario Draghi: Excerpts from Speech by the President at SZ Finance Day 2015

Speech by Mr Mario Draghi, President of the European Central Bank, at SZ (Süddeutsche Zeitung) Finance Day 2015, Frankfurt am Main, 16 March 2015.

18 Mar 2015

" Still, what adds fragility to our union is the fact that, despite the crucial importance of structural reforms, they remain almost entirely a national responsibility. From the moment countries enter monetary union there is no way to guarantee that they will stay fit enough to thrive within it. In my view this has to change.

Because the cohesion of the euro area depends on all countries prospering, what happens within each one is not just a national interest, it is a collective interest.  

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But we have not yet advanced far enough to put all questions about our future to bed. We need to remove those lingering doubts that resurface whenever a shock hits. And to do so we have to accelerate both our economic and institutional convergence.

Our monetary policy is helping to make this possible by creating an improving cyclical environment. But it is now up to governments to seize on this opportunity and make those improvements permanent."

Without any risk or responsibility