Youth Unemployment Could Tear Europe Apart Warns World Economic Forum

Crime rates will soar, economies will stagnate and Europe's social fabric will deteriorate if policymakers do not act to address youth unemployment, World Economic Forum report warns

A lost generation of jobless youth in the eurozone could tear the single currency apart if nothing is done to address chronic levels of unemployment, the World Economic Forum (WEF) has warned.

"There is a growing consensus on the fact that unless we address chronic joblessness we will see an escalation in social unrest," said S. D. Shibulal , chief executive oof Infosys, who contributed to the WEF's Global Agenda Report.

"People, particularly the youth, need to be productively employed, or we will witness rising crime rates, stagnating economies and the deterioration of our social fabric," he added.

John Lipsky, who served as acting managing director of the International Monetary Fund during the height of the Greek crisis in 2011, said the problem was likely to get worse before it got better.

He told the Telegraph: "Right now it's hard to see any decisive move back the other way at a time in which everyone feels their circumstances are under threat and are worried about their economic future."

Mr Lipsky, who contributed to the WEF report, said rigid labour laws meant existing workers were offered more attractive employment rights than their younger counterparts.

"We all know it's true that if it's easier to dismiss a worker when things don't work out, that makes you more willing to take a chance on hiring somebody," he said.

"I myself have had the experience of finding that restrictive practices make you very reluctant to take on the burden of an employee unless you're absolutely sure that you can sustain them."

He said that while it was viewed as "cruel and heartless" to make it easier for employers to dismiss unproductive workers, relaxing labour laws and fostering greater labour mobility was essential if young workers were to get a "toehold in the economy".

He said the rigidity of current laws meant many younger workers were hired on temporary contracts, without the same privileges and job security as permanent employees.

The WEF report, which examined ten key issues that would shape the world in 2014, called on governments to work together to tackle the crisis and resist moving towards a protectionist agenda.

Mr Shibulal called on governments to equip young people with the skills and training needed to cope with evolving labour market demands.

The financial crisis has seen unemployment soar to record highs in some parts of Europe. The jobless rate is currently 26.6pc in Spain, while in Greece, the rate is 27.6pc. However, the youth unemployment rate is as high as 75pc in some parts of Greece.

"A generation that starts its career in complete hopelessness will be more prone to populist politics and will lack the fundamental skills that one develops early on in their career," the report said.

"This can undermine the future of European integration as the countries with the highest youth unemployment rate are on the periphery."

Meanwhile, the WEF report also warned of a rising lack of confidence in economic policies, caused by the impact of the financial crisis.

A survey by the Pew Research Center found that 99pc of Greek respondents to its attitudes survey felt the situation in their country was bad.

This compares to 83pc of UK respondents and just 10pc in China. Meanwhile, 95pc of Greeks said the economics system in their country favoured the wealthy, compared with 60pc of Americans and 44pc of Australians.

"People put too much belief in policymakers' ability to heal the crisis," said Mr Lipsky, who currently works at the Johns Hopkins School of Advanced International Studies. "The weakness of the recovery suggested that policymakers were either feckless or powerless."

The report also said tensions in the Middle East and North Africa (MENA) would be high on the global agenda next year. Cyber threats and Asia's growing middle class were also cited among the ten trends, as was widening income disparities.