What goes up must come down...

The Sunday Indian - India's Greatest News weekly

European Union should ignore the labour market’s problems at its own risk

It’s said that what goes up must come down. Well, Europeans (Euro Area members) seems to have taken it really seriously and the euro area is up to making itself a brilliant case study of some frighteningly hasty rise & fall. It’s unbelievable how oft en the euro area’s economic growth figures make one believe that it has still a long way to go.

The growth in the 13-nation euro area seems to be coming to a screeching halt as the economy expanded only by 0.3% during the second quarter of 2007. It follows the first quarter growth of 0.7% as compared to 0.9 % during the last quarter of 2006. This dip in growth goes on to wash off the stupendous economic recovery that it had in 2006. From a strengthening euro to a flat industrial production across the major economies in the euro area, there’s a litany of problems that have put a drag on growth. But then these are temporary problems as pointed by Nick Matthews, Director, European Economics, Barclays Capital, explains to B&E, “The dip in Q2 ’07 has been mainly because of temporary factors such as the impact of bridging day holidays on industrial sector growth, which we expect to bounce back in the future given current levels of industrial sector confidence”

A much deeper problem exists which is simply not letting the euro area generate sustainable economic growth. Across the euro area, whether it’s France or Italy, there’s a general inflexibility of the labour market, which is hampering productivity and efficiency, thereby undermining growth. As Nick Matthews opines, “While structural reforms have already been initiated in this area and labour market conditions have continued to improve in recent quarters, the euro area unemployment rate remains high and employment rate low by international standards, which is a critical challenge going forward.” Till the time flexibility in the labour markets is ensured by the European Union policy makers, growth in the region will continue to falter every now and then…

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Source : IIPM Editorial, 2007

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