Over-indebted Youth: Unemployment and Deleveraging in the Euro Zone

This paper looks at the Euro-zone crisis from the point of view of the Euro-zone youth. Young people in many Euro-zone countries are today confronted with high and persistent unemployment with potentially long-lasting “scarring effects” compromising their present and future well-being. While lower and sustainable public debts are desirable from the point of view of inter-generational justice, it is argued that this objective cannot be achieved by means of front-loaded austerity policies. With long-term negative consequences of short-term austerity it is shown that not only social consideration but also the underlying public debt dynamics in the presence of scarring and other hysteresis effects make a strong case for a gradual growth-oriented approach to deleveraging that carefully aims at balancing short- and long-term costs and benefits while protecting vulnerable young people.