The euro crisis, despite the optimistic rhetoric one often sees, never really went away. There has been a certain tendency to hinge that optimism on falling bond yields, especially in the peripheral eurozone countries. To the ordinary man on the street, however, the cost of debt is not forefront of their minds. The level of unemployment is something way more palpable, and one statistic that has been going in the opposite direction to the one on which capital markets seem to focus.
Portugal (not quite the poster child of austerity; Ireland bears that unfortunate mantel) this morning saw its ten-year bond yields rise through 8%. This has seen the word ‘crisis’ rear its ugly head, even though Portugal has been in crisis for quite some time. Its youth employment is growing, with joblessness pushing to 42% and the overall unemployment figure at a staggering 17.8%. This is the third highest rate in the OECD, just behind Spain and Greece.
Now the political upheaval, arising from what can only be described as austerity fatigue, has resulted in a breakdown in the current coalition government. This is a country that was slowing starting to wean itself off bailout funding by raising €3 billion in debt at a yield of 5.67% back in May; I suppose this duped everyone into thinking that all was well.
ECB president Mario Draghi may have to make good on his promise that he will do everything it takes to save the eurozone. But, as he so often says himself, unless the political will is there, no outright monetary transactions (OMT) programme will change the fact that austerity begets neither growth, hope, nor employment. It is not the solution to what is fundamentally not only a debt crisis but a failed project that we call the eurozone.