Official figures of the European Commission’s Directorate General for Economic and Financial Affairs reveal: Those responsible carelessly neglect the relationship between economic growth and employment. It can´t be explained in any other way, that no political party and no institution draw attention to the following results and spur the people in power into action.
Economic growth in the Eurozone is insufficient to bring down unemployment
Eurozone: Sufficient and insufficient economic growth, 2000-2012 (click to enlarge chart)
Since 2009 real growth in gross domestic product (GDP) is below growth in potential GDP. Under these circumstances unemployment has to rise (explanatory remark see * in the chart).
How much economic growth is necessary to bring down unemployment
Taking the average annual growth rate in potential GDP (unemployed persons+employed persons*labour productivity per employed person) in the years 2000 to 2007 as a basis, real GDP has to grow anually around 3 per cent to bring down the present unemployment rate of 12 per cent to 4 per cent in 2016. An unemployment rate of 3 per cent generally qualifies as full employment.
Eurozone: Necessary economic growth to bring down the unemployment rate 2 percentage points per year (click to enlarge chart)
Three per cent real growth does not threaten price stability
Taking the approximate inflation target (“below, but close to, 2%”) of the European central bank (ECB) into consideration, 3 per cent real growth corresponds with around 5 per cent nominal growth. This growth rate should be welcomed by those, too, who pay attention mainly or solely to price stability, since 5 per cent nominal growth is the precondition, too, to comply with the Maastricht criteria of a debt to GDP ratio of 60 per cent and a budget deficit of three per cent of GDP.
European Commission accepts insufficient growth
In her annual macro-economic database the European Commission’s Directorate General for Economic and Financial Affairs present a forecast that real GDP growth this year in the Eurozone will be 0,1 per cent. This zero growth will defenitely lead to a further increase in unemployment. The European Commission as well as the German government and other national governments ignore this and by doing so they consciously accept a further decline of the economic and social situation in the Eurozone. It is quite amazing, that no political party and no economist face those responsible with this issue and demand an employment target.
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