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May 25, 2017

The ECB is concerned about eurozone unemployment

The ECB's latest economic bulletin contains two articles on unemployment in the eurozone, one on youth unemployment and another on assessing the labour market slack, which make for sobering reading if one feels that the eurozone is on a track of steady economic recovery.

As the bulletin stresses, long-term unemployment has a scarring effect on workers, but this is especially severe when it happens at the start of one's career. This is why youth unemployment should be a particular cause for concern. Youth unemployment peaked in 2013, and has been declining since while the ratio of the youth unemployment rate to overall unemployment has remained stable. Commenting on these observations Bill Mitchell notes that the stable ratio of youth to overall unemployment implies that the problem is not with the youth jobseekers, but that there is a systemic shortage of jobs that affects younger and older workers alike.

On labour market slack, the bulletin notes that restrained wage growth would be a prima facie indicator of substantial unutilised labour resources, even as unemployment is on the decline. The focus on wage growth links this with Mario Draghi's comments at a recent ECB monetary policy press conference that in order for inflation to be sustainably on target wages need to grow more strongly. The bulletin argues that to understand the observed wage moderation one has to look at broader measures of underemployment rather than just at the headline measure of unemployment, which is rather narrowly defined. Over 3% of the eurozone working age population is "marginally attached", meaning they are categorised as inactive, while in reality they are seeking work but not with sufficient intensity to be classified statistically as part of the active population. Another 3% of the population is underemployed in the sense that they are working fewer hours that they would like, for instance because they have a part-time job when they would prefer a full-time job. Combining these estimates with the headline unemployment rate of under 10% results in an estimate of broad unemployment at about 18% of the labour force. 

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May 25, 2017

The eurogroup’s failure to act

What exactly happened at the eurogroup on Monday, and who is responsible for the stalemate, is not really important. What is important is that the eurogroup once again failed to settle what they promised in 2012 when they first suggested that Greek debt relief could be considered if necessary, writes Nick Malkoutzis. Despite all the talks and preparations, the parties were unable to reach an agreement on Monday. This will weigh on Greek politics and discredits Alexis Tsipras. Further procrastination will also weigh on the Greek economy. Tsipras pushed through parliament a package of measures in the understanding that it cleared the way for debt relief. If this does not happen, or even if it is postponed for a few of months, the Greeks will be right to feel duped. This is his sober conclusion:

"It would mean Greece being sold short again in the latest discussions about restoring some normality. Once more, its future would fall victim to domestic political reservations, conservative economic thinking, flawed crisis management, institutional inertia and lenders shirking. This would be a deeply demoralising blow after the labours of the last decade."

As things stand it looks like they will go back to the eurogroup in three weeks' time, discussing the same proposal Euclid Tsakalotos refused. Greece will then face this dilemma: accept a compromise that involves a loan disbursement but no debt relief proposals for now, or run the risk of defaulting in July. Greece entering into a negotiation with its back against the wall happened so many times, one may start to wonder why this keeps happening again and again.

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May 25, 2017

Some thoughts on UK election math

We reported recently on the rise in opinion poll support for Labour, but Matt Singh notes in the Financial Times that this is not really a close election even if more events intrude. He has compiled an index that takes in the polls, adjusts for historical bias and a number of other factors, and comes up with a Tory lead in the mid-teens. He points out that opinion polls have traditionally underestimated support for the Tories, except in 1983 (which was another period when the Labour Party turned to the left). But he says important cross-checks are the leaders' political ratings and the recent local election results, all of which support the Conservatives.

A question not debated openly in the UK is whether the Manchester terror attack will have an impact on the election. Theresa May was interior minister before she became what she is today, and her immediate response to the attacks was to raise the terror threat to critical - the highest level - and put troops on the streets. Presumably, the intent is to increase her self-declared qualities of being "strong and stable", which has become the main catchphrase in this election.

We are wondering, however, whether her macho response to the attack might backfire. 

Simon Jenkins noted a truly tough response to terrorism would be not to overreact. 

“True toughness would downplay it, avoid the grandstanding and empty rhetoric, the machismo of soldiers and gunships. It would avoid the easy slither into a bruised and weakened liberty that is now the most menacing threat.”

Jonathan Freedland also notes that troops are being deployed in the middle of an election campaign, and wonders whether May is doing this for political reasons. 

Matt Singh is probably right that the Tories will win big, but we disagree with one of his assertions that the lead is now so big that events cannot intrude. The lesson of the elections and referendums over the last 12 months shows that they can and they do. The main lesson is not the populists always win, but that electorates have become less stable - and thus less prone to act in a predictable way.

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May 25, 2017

So who is the next most likely US ambassador to the EU?

We really had to laugh out loud when we read this story in the Wall Street Journal this morning. The US state department and the White House have now confirmed that a certain Ted Malloch has never been in the running for the job of US ambassador to the EU. He was not even a candidate. The story reminds us of The Captain of Köpenick by Carl Zuckmeier - a hilarious reality-based drama of a self-declared captain who got everyone to follow his orders in a district of Berlin.

This story is in many respect the modern-day counterpart. Malloch is a eurosceptic US academic, who declared himself to be the next US ambassador, and gets treated as such by the media and by governments as though this were a fact. The WSJ reports that he was greeted as Mr Ambassador on a visit to Poland. At a recent conference in Brussels, he was referred to as the possible next US ambassador. The article quotes a number of Polish politicians expressing a firm belief that he is Donald Trump's true mouthpiece. Malloch himself, when confronted with the question of why he has not even been nominated, reaffirmed that he had been interviewed for the position twice, and that an announcement would be forthcoming soon. You couldn't make this up.

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