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What price now for monetary union?.

What price now for monetary union?

Half of young people in Spain and Greece are out of work. Many of those in employment have taken jobs well below the level and pay grade they could normally expect to achieve with the qualifications they have gained - partly because they have stayed on at university or in training precisely because there are so few jobs available.

A couple of years ago, the talk in Spain was of mileuristas [mil-ur-IS-tas]- people earning a salary of only €1,000 a month. Since then, pressure on earnings has steadily increased. Today, some 60% of workers in Spain are estimated to earn less €1,000 a month.

Meanwhile, the right-wing government of premier Mariano Rajoy [pronounced Ra-hoy], elected last November, has passed legislation enabling companies to cut employees' pay 'if there are proven economic, technical, organizational or productive reasons' to do so.

The new law also makes it cheaper to fire employees. Instead of pay-out packages amounting to 45 days per year worked up to a maximum of 3.5 years, workers are now entitled to only 20 days per year of service, up to a maximum of one year - a cut of almost three-quarters.

Finally, by extending employees' probationary period to a year, the Spanish government has made it possible for employers to terminate contracts for no reason and with no right to notice or pay-out during the first 12 months of employment.

David E. Bloom in the March 2012 issue of Finance & Development explains that the economic and financial crisis and recession threaten to spawn a lost generation of people who have no stake in society and may find it hard ever to recover. Politicians worldwide are recognizing that the prolonged crisis is shattering the hopes of young people, while building tensions and fostering protests.

For the moment, these are largely peaceful gatherings where people exchange ideas and seek to get their voices heard. But it is not hard to imagine that these protests may eventually turn violent, as los indignados (Spanish for 'the indignant ones') become ever more desperate for change.

Monetary union in Europe has played a significant part in the problems of countries like Greece, Italy, Spain, Portugal and Ireland. The eurozone's 'one size fits all' interest rate enabled them to borrow large amounts of money cheaply during the boom years that followed the euro's introduction, based on the fiction that lending to them carried a similar risk as lending to Germany. They racked up enormous debts that, with the arrival of the inevitable economic downturn, became almost impossible to service. Moreover, without the possibility of adjusting their exchange rates, these countries developed serious problems of economic competitiveness.

In the March 2012 issue of Financial World Roberts et al. point out that there are no examples in history of lasting currency unions being established without the backing of a political union. The European Central Bank lacks the firepower and authority to underpin the continent's financial system. There are too few measures enabling governments to correct economic imbalances or help regions in trouble.

Most importantly, it was never clear how budgetary rules that were supposed to guide euro member states' taxing and spending decisions were to be enforced - particularly the key rule that governments' budget deficits should never be allowed to exceed 3% of gross domestic product. When Germany and France overstepped these limits, the smaller member states saw it as granting them the authority to follow suit.

In the words of UK foreign secretary William Hague, the debt crisis facing the eurozone became 'like a burning building with no exit', with only the European leaders able to take the action necessary to 'put out the flames'.

Roberts et al. agree. They conclude that, in the light of history, the eurozone faces a stark choice: to fuse entirely, or to split up completely.