Will Euro Zone Reforms Be Stymied By High Unemployment?

Standard & Poor’s had some harsh words for Europe on Monday.

“The high unemployment in Spain, Italy and France is socially explosive,” Torsten Hinrichs, the head of Standard & Poor’s Ratings Services’ German unit, told the newspaper Neue Osnabrücker Zeitung.

With the number of unemployed continuing to remain at stubbornly high levels in the European Union — the most recently reported figures set the unemployment rate at 11.9 percent for the 17-nation bloc — Standard and Poor’s believes there is a significant possibility that Spain, Italy, Portugal, and France will be unable to implement the necessary reforms to place their economies on more stable footing.

Hinrichs told the publication that the citizens of Spain and Portugal have shown they are willing to bear the austerity measures that came as conditions of their bailout packages, but “this cannot continue forever.”

The entire region has already suffered deeply over the past few years. If the ranks of the unemployed do not begin to shrink, there is an increasing risk that those without work will become less willing to put up with the austerity measures, he explained. “There has to be a social consensus for saving measures,” he added. “High unemployment … does not help.”

Italy has an additional risk factor; there is the danger that “a new government may not be strong enough for the still necessary reforms to strengthen growth,” according to Hinrichs.

But, as usual, Germany appears to be the only bright point in the assessment. Hinrichs said that the S&P still rated Germany as a triple A with a stable outlook, and the agency has little reason for concern. “It is one of the few AAA and stable countries that we still have in Europe,” he said.

Source: EuroStat

Copyright Wall St. Cheat Street. All rights reserved.