Europe’s Idle Kids — And Policymakers

Youth unemployment is a scourge that needs far more dramatic action from EU leaders

German Finance Minister Wolfgang Schäuble wasn’t exaggerating when he called youth unemployment a “catastrophe” for the European Union. As of March, 56 percent of Spaniards, 59 percent of Greeks, and 38 percent of Italians and Portuguese ages 16 to 24 were unemployed. Schäuble and French counterpart Pierre Moscovici are working on a “New Deal for Europe,” but it’s clear that Europe’s youth program is no such thing.

The core of the effort is €6 billion ($7.7 billion) carved out of the EU’s budget. Some of that (it’s unclear how much) would go to the European Investment Bank, which would back loans to small and midsize enterprises in exchange for commitments to hire and train young people. Some would go to helping young people move to find training and jobs; Germany and other countries have 30,000 unfilled apprenticeships. Banks in Spain, Greece, and elsewhere aren’t lending, so this kind of subsidy makes sense. Yet the scale is far too small. Millions of new jobs are needed, and the initiative falls short.

Youth unemployment has been rising faster than overall unemployment for decades. Dealing with it will require multiple approaches — German-style apprenticeships, Danish-style retraining, British-style deregulation, and, most important, addressing lending inequality. A small or midsize business in Northern Italy pays 2.5 percentage points more for a loan than a rival across the border in Austria, says EIB President Werner Hoyer. Only a banking union can address this problem in the long term.

The issue is complex. A recent paper by economists David Blanchflower and Andrew Oswald suggests, for example, that Spain’s 80 percent homeownership rate is a factor: Lack of rental accommodation forces young people to live with their parents rather than move to where the jobs are. Tax incentives for Spaniards to rent out their spare rooms might provide a quick remedy.

Better labor market policies are all to the good, but it’ll take more demand and faster growth to reduce youth joblessness. If Schäuble really wants a fix, the main thing he should do hasn’t changed: Reflate Germany’s economy to create demand for exports from the periphery and form a true banking union.

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