The peripheral countries of Europe could face another “Winter of Discontent” due to high rise of unemployment rate, said Goldman Sachs analysts. According to a report by Goldman Sachs released on Friday, “The recent sharp rise in unemployment rates in the periphery is partly a consequence of a rise in labor shares during the first decade of monetary union.”
Investment opportunity in the four countries within the euro zone, Portugal, Ireland, Greece and Spain (PIGS) increased radically during early years of the currency union. With huge inflow of foreign investment, these four countries saw remarkable growth in employment opportunities and improvement in real wage rates at that time. But after the influx of financial crisis in Euro zone, these four peripheral countries of Europe had to make a “painful labor share adjustment” to lower wages and higher unemployment. The scenario is quite similar to the ‘Winter of Discontent’ in the U.K. in 1980’s.
The Goldman Sachs analysts said, “This resembles the adjustments made in the U.K. and elsewhere during the 1980s.”
As of November 2012, unemployment rate in the euro zone climbed at 11.8 percent, the highest since the euro was introduced in 1999. Graeme Wearden, the business reporter on guardian.co.uk writes, “Today’s unemployment data rather takes the shine off recent claims that the euro zone crisis is over. The immediate threat to the single currency has receded, but politicians and policymakers still face an ailing economy. Initiatives such as a banking union or the ECB’s bond-buying programme may hold the eurozone together, but they don’t deliver the hope of immediate growth.”
Statistics from Eurostat, the statistical office of the European Union, also revealed that some peripheral countries in the euro zone had higher unemployment rate than that of others. For example, Spain and Greece had unemployment rate of more than 25 percent.