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Widened Economic Inequality between North and South EU

March 8, 2015
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A recent study conducted by France Strategie, a research center under the authority of the French Prime Minister, brings attention to one of the consequences of the ongoing European debt crisis: the gap between rich and poor EU Member States has widened since the crisis began in 2009, with poor countries of the EU South becoming even poorer than the countries of central and northern EU.

During this period, the employment rate in Germany (for the working-age population aged 20 to 64 years) increased from 74 percent to 77 percent. The same is the case for Austria and Luxembourg. However, on the other side of the continent, the situation is reversed. In Greece, the employment rate fell from 66 to 53 percent, in Spain from 68.5 to 58.6 percent. At the end of 2014, the unemployment rate in the EU ranged from 5 percent in Germany to 25.7 percent in Greece.*

The number of poor has also dramatically increased in the EU South during this period. In Greece, the number of poor has increased from 3 to 3.9 million people (30 percent of the population), in Spain from 11.1 million to 12.6 million, and in Italy from 15 million to 17.3 million.

Eastern Europe, a region that managed to avoid the debt crisis, is doing better in recent years. In most of the member states of the Eastern EU, the unemployment rate has stagnated and poverty has been reduced. Namely, in the period from 2008 to 2013, the number of poor in Poland was reduced from 11.5 to 9.7 million people and in Romania from 9.4 to 8.6 million.

France is the “golden mean”. The employment rate has increased, but only from 69.6 to 70.4 percent, while the number of poor increased slightly, from 11.1 to 11.2 million.

The study suggests that reducing the level of economic inequality between the EU North and South, which was recorded between 2000 and 2008, was not viable. In particular, during this period, wages and social expenditure increased in Spain, Portugal and Greece without a simultaneous increase in productivity. The competitiveness of these countries has been degraded, which was one of the main triggers for the development of the crisis.

So far, the solution for the crisis was sought through a combination of austerity measures and structural reforms (mostly in the labor market and pension insurance). However, austerity policies seemed to be aggravating already bad economic conditions. Also, the expenditure cuts that were made in health and education from 2008 to 2012 resulted in expenses per child in Greece falling by 7 percent and in Spain by 4 percent. At the same time, the number of Greeks who needed medical treatment or exams and did not have health insurance went up from 5.4 percent to 8 percent. In addition, the countries of the EU South have also been exposed to a large outflow of labor and human capital, which also prevents significant economic recovery.

Overall, the EU objectives adopted in 2010 for the period until 2020 in terms of poverty reduction and employment growth are very unlikely to be achieved, which is disappointing, given that the rise of the standard of living and economic convergence was one of the main objectives of the EU creation.

*Unemployment rate is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. Employment rate is calculated in this example as a share of the entire working population and not only of the labor force.

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