Why U.S. Unemployment Is Sky-High and Europe’s Isn’t

Here is today’s Foreign Policy brief: Early unemployment numbers spell more trouble for the U.S. economy, Netanyahu cleared to form a government, and Iraq approves a new prime minister.

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A new estimate by the payroll software company ADP has grim news for an already battered U.S. economy. On Wednesday, ADP—whose database covers almost a fifth of U.S. businesses—estimated that 20,236,000 U.S. residents lost their jobs in the private sector from March 12 to April 12.

A poll of economists by MarketWatch estimated that 22 million jobs were lost in April and that the unemployment rate could hit 15 percent. The U.S. Bureau of Labor Statistics will release its monthly report on the U.S. employment situation on Friday, with similar numbers expected.

A tale of two policies. The U.S. unemployment rate is growing at a much higher rate than Europe’s, despite the multi-billion dollar Paycheck Protection Program enacted by the federal government—offering forgivable loans to businesses if they retain their employees. Roughly $670 billion has been committed to the fund and, so far, the growing unemployment figures show the results.

“It has been a disastrous program,” Joseph Stiglitz, a Nobel-winning economist at Columbia University told Foreign Policy on April 24. “The money is not going to where it’s needed most. The most vulnerable are not getting the money. The second point is that it was designed to encourage businesses to keep their workers, but no one trusted the Trump administration on debt forgiveness.”

Stiglitz thinks the money is going in the wrong direction. “We’ve estimated the cost of just giving money to workers directly. It’s a fraction of what we’re now spending,” he said.

Most European countries have opted for Stiglitz’s preferred policy, with governments offering to pay workers a high proportion of their wages rather than have them lose their jobs entirely. FP’s Keith Johnson and Michael Hirsh explored the differences between the two approaches in an April 24 article. “To get an idea of the difference between German and U.S. labor market convulsions, one top German economist warned that unemployment could “skyrocket” to 5.9 percent this year due to the economic paralysis. The U.S. unemployment rate is already approaching 20 percent,” they wrote.

But Europe is not out of the woods. Along with the debt likely to accumulate as a result of governments underwriting workers’ salaries during the pandemic, it’s possible Europe could see a repeat of the 2008 crisis. Then, the United States acted aggressively and relatively generously while the EU’s response was disjointed and guided by the ideology of austerity.

On Wednesday, the EU’s economy commissioner Paolo Gentiloni warned that poor national coordination and limited EU action would produce “serious distortions to the single market and our economic and monetary union.” Speaking during the release of the EU’s spring economic forecast, he predicted the EU’s unemployment rate would reach as high as 9 percent, with the effects felt unevenly across member states.

The EU has already seen the same factionalism between north and south that marred rescue efforts during the 2008 financial crisis: The so-called Frugal Four—Germany, Austria, the Netherlands, and Finland—have already tried to block a so-called eurobond program, suggesting such moves are fiscally irresponsible. On Tuesday, a German constitutional court threatened Germany’s participation in a bloc-wide bond buying program if the European Central Bank couldn’t show such maneuvers were within its remit.

Where’s Europe’s Alexander Hamilton? Writing in Foreign Policy last month, Dalibor Rohac of the American Enterprise Institute urged fellow European conservatives to abandon such hawkish views and embrace mutual debt. “The concern about fiscally prudent nations endlessly subsidizing the less disciplined ones, which I then shared, guided the choices of European leaders in the last financial crisis,” he wrote. But today’s crisis calls for different measures—and a bolder policy. “Compared with the potential for economic destruction from the current deep freeze of the global economy,” Rohac argued, “the prospect of financial mismanagement in some European countries, subsidized by taxpayers in other countries, may be vexing but is trivial.”

Netanyahu cleared to form government. Israeli Prime Minister Benjamin Netanyahu surmounted the latest hurdle in his bid to retain power, as the Israeli Supreme Court ruled that his corruption charges should not get in the way of forming a government. Netanyahu and his political rival, Benny Gantz, agreed a power-sharing deal in April after almost a year of deadlock and multiple elections. The new coalition partners expect their government to be sworn in next week.

While the Supreme Court has allowed Netanyahu to continue in government, it pointed out that the ruling was not a preemptive absolution from his impending corruption trial. “The legal conclusion we reached does not diminish the severity of the pending charges against MK Netanyahu for violations of moral integrity and the difficulty derived from the tenure of a prime minister accused of criminal activity,” the court said.

Captured American appears on Venezuelan state television. One of the two Americans detained in Venezuela as part of an alleged invasion attempt has appeared on Venezuelan state television, two days after his arrest. Luke Denman, a former U.S. special operations forces member, said that their plan involved capturing Venezuelan President Nicolás Maduro and flying him to the United States.

The U.S. State Department has been at pains to point out that U.S. authorities were not involved in the botched raid. “There was no U.S. government direct involvement in this operation,” Pompeo said. “[If] we’d have been involved, it would have gone differently.” Pompeo did not confirm whether the Americans were detained in Venezuela but said that if they were, the U.S. would work at securing their release. “If the Maduro regime decides to hold them, we will use every tool that we have available to try and get them back,” he said.

Scientists find more coronavirus origin clues. A genetic study by scientists at University College London’s Genetics Institute has estimated the coronavirus pandemic began sometime between Oct. 6 and Dec. 11 of last year. This tracks with a recent discovery by a physician in France that a patient diagnosed with suspected pneumonia on Dec. 27 was already infected with the coronavirus.

Francois Balloux, the UCL study’s co-leader, said that although the virus has mutated over time, he is not convinced that is cause for further alarm. “All viruses naturally mutate. Mutations in themselves are not a bad thing and there is nothing to suggest SARS-CoV-2 is mutating faster or slower than expected,” he said, using the name for the virus that causes COVID-19. “So far, we cannot say whether SARS-CoV-2 is becoming more or less lethal and contagious.”

Poland postpones presidential election. A controversial presidential election in Poland, due to take place on Sunday, has now been postponed. The ruling Law and Justice party had pushed for the election to go ahead, but a dispute over how to enact postal voting on short notice derailed their plan. Writing in Foreign Policy on May 4, Zselyke Csaky and Sarah Repucci of Freedom House warned of the serious risk that a May 10 election would be “neither free nor fair,” as the rush to enact new laws opened the door to ballot tampering. The government plans to hold the election “on the first possible date,” but has yet to give any specifics.

Coming soon, to the EU? The 27 member states of the European Union declared their “unequivocal support” for the six Balkan nations of Albania, Bosnia, Kosovo, Montenegro, North Macedonia, and Serbia to eventually join the bloc. “The Western Balkans belong in the EU. There is no question for us about this,” European Commission President Ursula von der Leyen said in a statement. The comments came after a summit between the EU and the Balkan states held via video conference.

The declaration of support comes as Freedom House released its annual “Nations in Transit” report, showing a decline in democratic norms globally. Freedom House no longer considers EU member Hungary a democracy, instead demoting it to the level of a “hybrid regime.” Serbia and Montenegro, two of the Balkan countries feted on Wednesday, were also demoted to that level.

Iraq’s new government. Mustafa al-Kadhimi has been designated as the next prime minister of Iraq after Iraqi lawmakers approved a new government on Wednesday. He begins his tenure without a full cabinet, as Iraq’s parliament rejected his nominations for the trade, agriculture, and justice ministries. Votes on who will head the oil and foreign ministries have been delayed as a candidate has yet to be agreed upon. Kadhimi said his first priority would be dealing with the country’s coronavirus epidemic.

More than 80 rental cars have been recovered after a major car heist in New Zealand. The thieves took advantage of strict coronavirus lockdown measures during a national holiday weekend. They made off with 97 cars after breaking into an Auckland car rental lot belonging to the company Jucy, opting for Hondas and Mazdas rather than Jucy’s well-known bright-green camper vans. “It’s disappointing—this is the biggest car theft I’ve ever seen,” Matt Srhoj, a local police inspector, said.

The criminals apparently did not consider that the stolen cars might be conspicuous on the country’s nearly empty roads; police realized something was afoot when several drivers refused to stop for police and the cars involved were traced to Jucy. Once the public found out about the theft, they helped police locate the cars as several vehicles were advertised for sale online at cut-rate prices. Jucy was even given free billboard advertising to spread awareness. The campaign was successful, and almost all of the cars have now been recovered. “We got 85 back so far and there’s no reason why we shouldn’t get the other 12 as well,” Srhoj said.

That’s it for today. 

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