Philip Arestis and Malcolm Sawyer
Since the euro was adopted as a virtual currency in 1999 (and the exchange rates between the currencies of the then 11 countries fixed en route to adopting the euro), growth among the euro-area countries has been lacklustre. The euro-area annual growth rate was just under 2% in 2002 to 2007, followed by 0.3% in 2008, -4.5% in 2009, then 2% in 2010, and an average of 0.8% 2011 to 2016. Over the period 1999 to 2016, the average was 1.1%. Unemployment declined through to 2007 down to 7.5%, then rose in the aftermath of the financial crises and the effects of fiscal austerity programmes to 12% in 2013, and has gently declined since to 10% in 2016 and likely to come close to 9% at the end of October 2017. There are notable disparities between different countries’ experiences, with Italy’s growth 1998 to 2016 being an annual average rate of 0.2%, and unemployment in Greece over 23% and Spain close to 20% in 2016.
The economic difficulties of many of the now euro-area counties had been noted in the early 1990s. In the late 1980s, all the talk was of the “single market” and the removal of non-tariff barriers to boost trade between member countries and to stimulate economic activity. The EC forecast a 6% boost to GDP following the single market. The launch of the single currency had a whole range of political forces behind it, but was viewed as enhancing economic integration and giving some boost to trade between member countries. “Structural reforms” of labour and product markets (for which read de-regulation and liberalisation) have been frequently promoted as lowering unemployment and improving economic performance. Writing in 2008, the European Commission (2008, p. 6) claimed that “the bulk of these improvements [in the reduction of unemployment] reflect reforms of both labour markets and social security systems carried out under the Lisbon Strategy for Growth and Jobs and the coordination and surveillance framework of EMU, as well as the wage moderation that has characterised most euro area countries.” The ECB amongst others has been consistent in its calls for “structural reforms,” and the promotion of “structural reforms” have become as a significant part of the “fiscal compact.”