Are surging youth unemployment rates in Europe a ticking time-bomb, just waiting to detonate?
Three crucial stabilizing factors have de-fused the risk of an imminent social explosion in Europe.
- First, in the powder keg that ignites major social unrest one vital ingredient is missing: inflation. An INSEAD study of social upheaval shows that the young can tolerate unemployment so long as prices are stable, and they expect a brighter future when they eventually find jobs. The good news is that inflation in Europe’s troubled economies is well contained, and coming down.
- The second stabilizing factor is the role of the family as a vital shock absorber. For example, note that the countries with the highest youth unemployment rates are also the ones with the highest proportion of young adults living with their parents. Effective transfers at the family level are providing the young jobless with essential economic and social support.
- Third and probably most important the official unemployment numbers in some European countries are a fiction. It is an open secret that many of the officially jobless in countries like Greece and Spain are actually working in the shadow economy which encapsulates activity that is unrecorded, unregulated, and untaxed.
Bottom Line: The social, political and economic stability of Europe is much greater than widely believed. Hence, any sell-off on renewed social or political tensions in the coming weeks or months is a possible opportunity to shift into euro area assets.
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