The crisis has settled in to the coziest couch in the house and does not plan on sharing the remote. After three years of economic woe, employment figures have not improved. Yesterday, both Spain and the United States presented a desolate labor outlook. What is preventing the natural adjustments that typically right the balance of labor markets?
Various factors could explain this failure: improved competence of emerging economies, lack of credit throughout the economy, reduced profits necessitating payroll cuts, banks not having liquidity for making loans, low expectations held by entrepreneurs (especially when the threat of tax increases is imminent). Risk averse behavior is dominating the markets. The situation will worsen as the Spanish federal government has to cut back in light of reduced revenues, which could also translate into more job losses.
In Spain, we are looking at an artificial job market supported by unsustainable taxes, especially in the public and construction sectors. Before the crisis, many people were able to find jobs without formal training, and now their chances for being re-hired are not as high. Others are qualified for jobs that do not have much of a future and could become less important in years ahead. Still, all the solutions that we have proposed, such as Plan-E, were focused on spending. Few have targeted how to increase Spain's ability to compete globally. The Arab Spring boosted summer employment slightly, but the improvements are unique to the summer tourism season and not sustainable for the broader year-round economy.
In the United States, Obama does not know what to do with the housing market. So many Americans are trapped in bad mortgages that they cannot afford. The American president is facing a dilemma about whether he should provide debt relief and do a favor for the banks or let the problem keep affecting domestic consumption. Bond yields are hitting historic lows, which could be an indicator of deflationary conditions. Likewise, volatile stock market continues to drop. Yesterday, the IMF issued a report on the five biggest economies in the world, which indicated that if lack of confidence in the peripheral countries is no longer affecting Euro Zone banks, then the crisis that would be unleashed would be similar to what happened after the fall of Lehman. If it happens, the visiting crisis will become the man of the house.
And what can we do in the European Union before this happens? Berlusconi assured that he would continue with his austerity plan and putting a stop to tax evasion. Is it really practical that they could make a quick 6 billion by persecuting fraud? We have already watched Greece fail to achieve results through plans like this. And European solidarity broke down once again in Greece. Finland could demand more money from Athens as a guarantee on their loans, a request that the IMF would oppose in order to keep preferred rights at the hour of sale, which would demand the Finnish to decapitalize the Greeks. All of this continues to weight on the European financial system. Authorities have chosen to deny the common man and provide clemency and favorable conditions for the banking system, leaving it time to clean up the situation. Because who else is going to pump money into the economy at this point? Does a bank that pumps money where it is needed a kind of recovery fund? Or do we allow amnesty between the states and do what was done in Ireland and Iceland? It is important to distinguish the artificial from the real so that the big can fail and the small rise up to take their places.
