Spain looks to Vienna and Berlin for answers to jobs crisis

Ian Traynor in Toledo
guardian.co.uk, Wednesday 30 May 2012 13.30 EDT

http://www.guardian.co.uk/world/2012/may/30/europa-jobs-crisis-spain-austria-germany


All her professional life, Lola Santillana has been trying to help Spain's unemployed. Now the 45-year-old is joining their ranks. The former school careers officer and social worker has been running the local government department in Toledo, wrestling with the problems thrown up by the ancient town's immigrants and its swelling army of jobless. She's seldom been busier.

"We've never seen anything like this. The jobs are going so fast," she says. "Usually at this time of year the jobs market grows. Not now. In the past year in the region we've lost 50,000 jobs."

With unemployment in the Castilla-La Mancha region, south of Madrid, at 28% and the jobless rate among young people 54%, Santillana's department of 60 staff has its work cut out.

Mired in recession, burdened by a mountain of private debt, its banks in freefall, Spain is being touted as the new Greece. The rightwing government of Mariano Rajoy is committed to slashing spending to make the country fit to remain in the euro.

Not so long ago, Spain seemed the epitome of European cool. From football to food, Bilbao to Barcelona, fashion to breathtaking architecture or sleek high speed rail, the country oozed style and self-confidence. Those good times are gone.

"We were living a fantasy," says Valeriano Gómez, until late last year the country's labour minister. "It was absurd. Now we have to face reality."

In Castilla-La Mancha, under a regional prime minister viewed as a rightwing radical, the axe is falling on education and health spending. And on Santillana's department. "In June 80 jobs are to go, in December another 100. I'm gonna get fired," she murmurs. "I'm thinking of going to Nicaragua."

In Toledo, the impact of austerity Europe is plain to see. A half-built hospital has been abandoned. Romanian migrant workers are going home. In a reversal of the migratory flows of the past decade, some local building workers are heading to the Balkans in search of jobs. Men in their 30s are moving back in with their parents.

"I know that my work is over. I'll either have to change trades or emigrate," said Jesús Felix, a 33-year-old building engineer. "Everything has stopped here. There's nothing. I had my own place with a mortgage, but the bank repossessed it. I've moved home to my mother's."

Toledo's troubles are but a fragment of the tragedy hitting Spain, where anyone under 25 is more likely to be out of work than in a job.

The same can be said of Greece, in the throes of the greatest social upheavals of the democratic era. Portugal is similarly afflicted.

And in Ireland, where the unemployment rate is 15% – and more than double that for the young – figures last week showed a 7% increase in the numbers of 19- to 24-year-olds returning home to live with their parents.

With more than 25 million people without a job in the EU and the unemployment rate in the eurozone nudging 11%, it is apparent that Europe isn't working. Or large parts of it, at least.

In year three of the euro crisis, the overall picture for unemployment is one of acute imbalance, as with almost all key social and economic indicators from the cost of borrowing to current account balances, from debt and deficit levels to unit labour costs.

While Spain has the highest jobless rate in the EU, at more than 24%, Austria is effectively enjoying full employment. Eurozone unemployment is the highest since 1997 but in Germany, it is the lowest over the same period.

Thirteen years into the life of the distressed single currency, the opposite of what was supposed to happen has come to pass. The euro's architects believed that the same money, the same interest rate and the same inflation levels would bring the convergence of economies. The outcome, though, is acute divergence.

Vienna has become a place of pilgrimage for politicians, diplomats, academics and labour market experts seeking the secret to banishing mass unemployment. "Delegations are arriving from all over Europe to ask us how we do it," says Johannes Kopf of Austria's public employment service or AMS.

One clue is to be found in the Top-Lokal on Vienna's tourist trail. It looks like a restaurant and tastes like a restaurant, but the Top-Lokal is a publicly funded social project returning long-term unemployed people to work. A kind of Jamie Oliver project without the celebrity.

Waiting at tables, serving drinks and scrubbing pots are 70 staff who might otherwise be viewed as hopeless cases: ex-convicts, drug addicts and drifters likely to be rejected for openings in the private sector. In the city of Sigmund Freud, there's also a psychiatrist on the staff to help with employees' personal and psychological problems.

"It's a restaurant, but it's effectively a charity," says Elisabeth Schügerl-Kiener, who is in charge. "It's basically social work, but you're not allowed to say that."

"I love it," said Nicoletta Kerojevic, a Romanian in Vienna for 20 years who worked in a quarry until she was fired a year ago. "I'm allowed to stay here for six months, then I hope I can find more work in catering. I love working in the kitchens."

There are dozens such publicly funded projects across Austria, where the 4% jobless rate is the lowest in Europe. Only 2.5% of university graduates are out of work, according to the AMS. On average, anyone on the dole is back at work within three months, compared with about two years in Spain.

"Austria is still a blessed island," says Schügerl-Kiener. "Anyone who wants a job can get one."

There is an endless array of explanations for Austria's success and Spain's failure – geography, culture, economic strength, ease of hiring and firing, unit labour costs, wages policies, education, apprenticeship schemes. The list goes on.

The single biggest reason for Spain's plight is the collapse of its building sector after the euro-era boom, costing 1.6m jobs and littering the country with 800,000 unsold properties owned by banks sitting on billions in toxic assets.

"Our economy was totally dependent on the construction sector, which was twice the size of the EU average," said Ignacio Toxo, the head of CCOO, one of the two big trade union federations.

"We've got five million unemployed. This year it will rise to six million. The roots of the crisis are Spanish. It's our fault. But it's also two years of austerity policies in Europe pushing Spain too far, too fast, to get our budget deficit to 3% [of GDP] by next year [from almost 9% last year]. That's impossible."

With the Rajoy government in Madrid pushing through laws to open up a rigid labour market that has condemned the young to mass unemployment, Toxo negotiated a deal with employers this year which is likely to result in real pay cuts for his members.

The opposite is happening in Germany, by far Europe's biggest economy, which is often held up as a model for successful labour policies and low unemployment – now about 5.7%. The big IG Metall union has just won 4.3% increases in the latest pay round, the biggest raise in 20 years.

Analysts and economists say this is long overdue, since the low jobless rate follows a decade of deflationary pay policy in Germany, where wages failed to keep up with productivity, boosting competitiveness relative to the rest of the eurozone – an imbalance central to the debt and currency crisis.

Experts on the European economy reckon that labour in Germany is roughly 10% undervalued – that German workers are only earning nine-tenths of what they should – while Spanish and Portuguese workers are paid up to 20% too much and Greeks and Italians are 30% and 10% overpaid, respectively.

This helps explain Germany's vaunted "jobs miracle".

Radical welfare and benefits cuts and labour market reforms almost a decade ago under a centre-left chancellor, Gerhard Schröder, combined with the downward pressure on wages from cheap labour competition in central Europe have kept pay relatively low and employment high.

But European commission officials note that there are plenty of downsides to German success.

There is no minimum wage, relatively low female participation in the workforce and plenty of "working poor" as a result of the boom in "McJobs", known as "mini-" or "midi-jobs".

A recent survey showed that half of the female workforce in Germany were in the part-time, low-paid sector – one third were happy that way, another third could not find anything else and the rest hoped to climb the career ladder.

But government policy matters hugely. During the 2008-9 financial crash, Germany, Austria and Belgium used part of their fiscal stimulus to stop dole queues lengthening. They paid firms to put staff on short time rather than laying them off, and topped up salaries to compensate for some of the lost income. When things picked up in 2010, the workers returned to full-time employment at companies well-placed to benefit quickly from the recovery.

Even in the worst recession year of 2008-9, when the German and Austrian economies shrank by 5% and 4%, there were minimal increases in unemployment (0.3% and 1%). In the same year Spanish and Irish jobless rates soared by almost 7% and 6%.

If the overall situation is grim, the problem for those entering the labour market is disastrous in the worst-hit countries. For 16- to 24-year-olds, unemployment rates are more than 50% in Spain and Greece, 35% in Portugal, and 32% in Italy and Ireland. In Germany and Austria, the pattern persists of even greater disparities, with youth unemployment of around 8%.

"Look what happened to Greece and Ireland and now it's going to happen here," said Ryan, a 15-year-old protesting in Madrid. "We're always having rows about it at the dinner table every evening. More and more kids are asking their parents if they can go abroad to study. There's no future here."

In a recent study, the International Labour Organisation in Geneva said Europe was rearing a "lost generation"; others speak of the "jinxed generation".

"I say to the young people, it's very hard. You can't even enter the labour market. And this is the best educated generation Spain has ever had," said Francisco Utrera Mora, a senator for the governing centre-right Popular party. "The conditions are so rigid here that companies won't even take on young people when they need them."

The ILO predicted it would be at least 2016 before things took a turn for the better for Europe's youth.

With banks reluctant to lend, public purses closed, austerity universal and investment lagging, there will clearly be no quick improvement.

Despite constant complaints from politicians and employers about skills shortages, a survey of 500 companies in April found that 86% of companies in Europe had cut or frozen investment in training over the past year.

"Anything over 20% for youth unemployment and it becomes a huge social problem. That's when you get car-burning and stone-throwing," said Kopf. "This is one of the most burning problems in Europe."

The chaos in Greece and a throw-the-bums-out mood among Europe's voters are symptoms of a popular reaction to Europe's time of troubles. There are smaller, less-noticed omens. In April, for example, when Portugal celebrated the military coup of 1974 that took the country from dictatorship to democracy, a group of army officers refused for the first time to go to parliament to mark the event amid mutterings about "foreign occupation" – a reference to the eurozone's imposition of austerity in return for a bailout.

Another little-noticed ideological shift came when the European commission tried last month to come up with pan-European employment policies, such as introducing differentiated minimum wages.

The commission performed a policy U-turn by switching from its traditional backing for more rightwing "supply-side" measures, where the onus is on the individual to make themselves more employable, to neo-Keynesian "demand-led action" urging governments to use the tax system, minimum wages and other instruments to spur job creation. It was a recognition that there are no jobs, rather than the usual urging of people to go out and find them.

Unlike Greece, there has been little unrest in, say, Spain or Ireland.

"People here have always taken the view that Spain is the problem and Europe the solution," said Gómez. "But that's changing right now. We're entering a period of political risk. People are getting frustrated. They're getting fed up with Europe."