Supply-side thinking now dominates European economic policy. Most governments, and the European Commission, argue that attempts to boost demand would be counterproductive, achieving little but a delay to the necessary consolidation of public finances. With close to unanimity, they believe that structural reforms offer the only hope for depressed European economies: these reforms will improve competitiveness and confidence, leading to stronger growth, a rebalancing of trade between European countries and sustainable public finances. But are policy-makers and the Commission putting excessive faith in the power of structural reforms? Is there a risk that a strategy weighted so heavily towards supply-side measures could actually end up further eroding Europe’s growth potential? And is it right to argue that structural reforms will help bring about sustainable rebalancing?

Few doubt the need for structural reforms in Europe. The region needs faster productivity growth and this requires, among other things, more flexible and competitive markets: labour and capital must be freer to move from slow growing sectors to faster-growing ones. But structural reforms alone will not achieve this. Indeed, in the short to medium term such reforms will further depress demand. Only in the long-term could they have the desired effect and only then if businesses invest in new organisational structures and new products, and if workers (especially young ones) have the right skills and experience. But business investment is at historic lows in Europe as firms worry about the lack of demand.

Youth unemployment rates in some EU countries are scandalously high. Many EU countries are hoping to copy the success of the German apprenticeship system. Although countries should be encouraged to learn from each other, there is no one-size-fits-all solution to the job crisis. And many measures will not bite until growth returns.

Unemployment among young people has always been higher than general joblessness but the economic crisis has widened the gap further. According to Eurostat, 22 per cent of 15-24 year-olds in the EU are unemployed. In those countries hardest hit by the crisis, such as Greece and Spain, the rate is 50 per cent.

Such figures are shocking but also somewhat misleading. Just like general unemployment statistics, youth unemployment is measured as the share of job-seeking youngsters in all youngsters who are either working or looking for work. But many young people do neither. Millions are in education. Many have simply given up looking for a job. These groups are not captured in youth unemployment statistics, which pushes up the youth unemployment rate.

A more accurate indicator of the youth employment crisis is the NEET concept: the total of young people not in employment, education or training. Last year, Europe had 7.5 million NEETs aged 15 to 24. Extend the age bracket to 29 and the number swells to 14 million – the equivalent of 15 per cent of all young people in the EU.

NEET rates are highest among the South and East European EU countries and lowest in the Nordics, Germany and the Netherlands. In Greece and Bulgaria, almost a quarter of all under 30s are NEET, in Austria and the Netherlands it is only 5-8 per cent. The UK – unusually for a country with a flexible labour market and decent education – has one million NEETs, roughly the same as Italy and Spain (because of its bigger, younger population, the British NEET rate, at around 16 per cent, is still below those of Italy and Spain, at just over 20 per cent).

NEETs are a big burden for European countries. According to Eurofound (an EU research agency that looks at work and welfare), they cost the EU countries €153 billion in social benefits and lost output in 2011. That is more than the entire EU budget. More importantly, a prolonged inactive period can scar youngsters for life: many a NEET’s earnings will never catch up with their peers; many face long-term unemployment and social problems. Some economists already talk of a “lost generation”.

What should, what can, European countries do to help their young people find work?

Growth is obviously important: those countries that have suffered the sharpest downturns in the crisis  – Greece, Ireland, Portugal and Spain – have also seen the most pronounced rise in youth unemployment rates.  Germany, Austria and the Netherlands have been doing better economically and have also so far escaped the youth job crisis. Demographics also matter: because of persistently low birth rates, fewer young Germans are entering the labour market. France and the UK, with better demographics, have more young people to look after.

However, the persistence of youth unemployment in many EU countries implies that growth alone will not fix the problem. And a country such as Italy has a shrinking population and yet young people cannot find jobs. Deeper reforms are needed.

A good education is in many cases the best unemployment insurance. In France, for example, over 80 per cent of those with a university degree have a job but only 55 per cent of those with basic education do. A university degree is not a job guarantee: in Spain, the share of those getting a degree is roughly the same as in in the Netherlands. Yet Spanish students struggle much harder to find a job (and did so even before the current crisis) than Dutch ones. Governments must ensure that universities teach the kind of skills that employers are looking for.

Often employers prefer a well-trained apprentice to a graduate with an unsuitable degree. Countries with well-functioning dual education systems – that combine on-the-job training with schooling – tend to have lower NEET rates. Germany, Austria and the Netherlands are good examples.

These dual systems make it easier for youngsters to move from education into the world of work, reducing drop-out rates. They are also a good feedback mechanism to show school leavers what companies need and want.

The UK is only one of several EU countries that have been trying to emulate the benefits of the German apprenticeship system. Success has been mixed. Only about 8 per cent of British companies train apprentices, compared with over 30 per cent in Germany.

As Hilary Steedman from the London School of Economics points out, Britain tends to play politics with its apprenticeship system. Labour sought to get youngsters off the street so it focused on training that is short and easy. The average duration of a British apprenticeship is only one year (three in Germany), theoretical training can be as little as one hour a week (at least one day a week in Germany) and the proliferation of vocational qualifications leaves potential employers confused and unenthusiastic. The Conservative party is focused more on higher skill levels and so prefers training that is longer and more sophisticated. The current coalition government has promised to help pay for an extra 250,000 apprenticeships. The result is a huge increase of older apprentices as cash-strapped companies re-classify their retraining schemes as ‘apprenticeships’ in order to qualify for government support.

Although the UK and other countries are right to study the German success, there are many features that are not easily replicated and others that are not worth copying. For example, while the British labour market is rather flexible, in Germany over 300 professions are accessible only for people with formal qualifications. In other words: no apprenticeship, no job. Such entry regulations have some benefits as they push up general skill levels, which in turn makes it easier for young workers to switch jobs later. But they also make labour markets more rigid and prevent innovation. 

Improving education and building functioning dual education systems will at least take a long time. In the meantime, EU countries might use so-called active labour market policies (ALMPs) to get people working again. Currently, less than a fifth of those taking part in such retraining and make-work programmes in the euro countries are under 25. But many EU countries are now designing ALMPs specifically for young people.

Sweden, Finland and Norway pioneered the idea of ‘youth guarantees’ in the 1980s and 1990s. The employment services there work out a personalised plan for every youngster who is at a loose end and then quickly pack him or her off into either education, work experience or a job. Low NEET rates in all Nordic countries suggest that these programmes are working. However, despite low unemployment rates, the Nordics spend lots of money on such schemes (1-2 per cent of their GDP for all ALMPs). And even their efficient employment services were overwhelmed when youth unemployment rose as a result of the crisis. South European countries with millions of unemployed youngsters would struggle to replicate the Nordic youth guarantees, especially at a time when they are forced to cut budgets and sack civil servants.  The EU has made some money available to help EU countries set up ALMPs for youngsters, encourage them to start businesses and to improve apprenticeship systems. But the sums (€8.3 million for 27 countries in 2012-13) are tiny compared with the scale of the challenge.

Another – potentially cheaper – way of helping young people to find jobs is to make labour markets more flexible. Eurofound presents evidence that strict regulations, such as job protection laws, hurt young job-seekers disproportionately. A company will not hire young inexperienced workers if it cannot get rid of them in case they turn out to be useless or the business outlook deteriorates. Measures that are on the surface designed to benefit young workers – such as stronger rights for temporary and part-time workers or minimum wages – can push up NEET rates. However, although politicians regularly deplore Europe’s high youth unemployment rates, the steps to improve the situation are often timid.

Employment specialists at a recent World Economic Forum workshop in Rome agreed that successful labour market reforms are not usually imposed by governments. They are haggled out between trade unions and employers. However, Europe’s trade unions tend to represent older workers with full-time, permanent positions. They fight less fiercely for the interest of young workers, those in part-time or temp jobs or those looking for work. Only 10 per cent of young workers are members of trade unions in the UK. In the Netherlands, roughly two-thirds of trade union members are over 45. The average age of officials in Germany’s powerful engineering union is almost 50.

The result is that the needs of young people are not properly represented in debates about how to change labour markets. Hence another – perhaps somewhat surprising – solution to the youth unemployment problem is for more young men and women to join trade unions and make their voices heard.

Europe’s young people are suffering disproportionately in the current crisis. European countries, and the EU, must do more to prevent them becoming a lost generation. Although many structural reforms will only really yield results when economic growth returns, the time to put them in place is now.

Katinka Barysch is deputy director of the Centre for European Reform.