Why Europe Really Must Pursue ‘Structural Reform’

by Clive Crook

Bloomberg
February 1, 2012

While Europe’s governments struggle to contain their debt meltdown, a big part of what’s gone wrong is easy to forget.

Through force of repetition, starting not just with this emergency but before the single-currency experiment even began, calls for “structural reform” in the European Union have become an empty incantation. It’s worth pausing to understand just how badly parts of the EU still need it.

We’ll get to what structural reform actually means in a second. First, consider Spain. Last week its unemployment rate rose to 22.9 percent. Think about that. In the U.S., unemployment of 8 percent is rightly seen as a national disaster. Joblessness in Spain is nearly triple that. Spain has 14 percent of the euro area’s population and a third of its unemployed. Among young people, one in two is without work. And Spain, like many other EU countries, expects to fall back into recession this year, so those numbers are going higher.

Let’s acknowledge that the now familiar cycle of credit- driven boom and bust is mostly what lies behind this social and economic catastrophe. Spain’s euro membership drove interest rates too low and optimism too high; borrowing and asset prices soared; housing and construction boomed; then the bubble burst, and the economy collapsed.

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