Monday, December 19, 2011

Euro Fatigue

Although the news from Europe continues to be mixed at best, the markets seem to have accepted that the worst is over - for now.

Interest rates on Italian and Spanish debt have fallen significantly over the past week, for example, as the combination of European Central Bank intervention and the latest euro block decisions seem to have beaten back the bears.

What is not clear is whether the public at large is willing to accept austerity for the next several years in return for saving the euro.

This is one of the crucial questions, in my opinion: it is all very well and good for leaders to sit in a large ballroom and agree that cutbacks and tax increases should be imposed on the profligate countries like Spain, Italy, Portugal, et. al.

It is a far different matter to ask ordinary citizens to accept unemployment rates of 20% and a reduction in basic government benefit payments that had been already promised.

Yesterday's New York Times discussed the challenges facing most Europeans as a result of the euro crisis.

Written by an Italian commentator, here's an excerpt:

{Italian Prime Minister} Monti, a former university president, should be worrying less about defenders of old privileges and more about young people, who will bear the brunt of economic stagnation. Instead, his emergency package does little to end monopolies, shrink bureaucracies and reduce systemic corruption, reforms that would increase competition and spur growth.

Youth unemployment is already at nearly 30 percent. Mr. Monti is offering tax incentives to employers who create new full-time jobs for young people, and for women, who are underrepresented in the labor market. But with his package reducing demand, and older workers required to stay on the job longer to draw full pensions, it isn’t clear where those new jobs will be found. For years, young Italians have moved around Europe in search of jobs, and that outlet is closing as the Continent moves toward recession.

Just as in this country, there seems to be a growing sentiment in Europe that the burden of economic readjustment will be falling mostly on those least able to make sacrifices.

But for now at least it is nice to have a pause in the euro zone drama.