Unemployment remains a significant drag on the economies. Italian unemployment is over 12%, with youth unemployment as high as 44%. French unemployment is above 10%, with youth unemployment at more than 25% – unemployment in France also touched a record high of 3.55 million people in May, according to Dow Jones Business News.
Consequently, the two countries’ problems are more structural in nature, and the governments have not intervened with any type of meaningful reforms to remedy the situation. For instance, the two are struggling with high wages, inflexible labor markets, high welfare benefits, large public sectors and restrictive trade practices.
Moreover, the two countries are losing their competitive edge. For instance, in the World Economic Forum’s competitiveness rankings, France and Italy ranked 23rd and 49th, respectively, compared to Germany at fourth and Britain at 10th. Pressuring the two countries’ competitiveness, the single currency has made Italian and French goods more expensive on the global market – prior to the Eurozone, the two governments would have loosened monetary policies to depreciate their local currencies.
As a result, both countries have increased debt funding to maintain activity and living standards. However, the increased debt load is unsustainable without significant economic growth. Otherwise, the two countries would have to enact austerity measures, which would be counterproductive to economic growth, as a way to diminish their debt burdens.
For more information on the Eurozone, visit our Europe category.
Max Chen contributed to this article.