Is Greece headed for eurozone exit?

Greeks have had enough.

Battered by more than five years of "austerity" measures that have deepened the country's economic woes, voters in Greece on Sunday forcefully rejected the latest bailout offer from the country's creditors (a bailout that had technically already been withdrawn, it's worth noting).

Greek Prime Minister Alexis Tsipras, who campaigned against the rescue package after his left-wing Syriza party was swept into office in April on a tide of public dissent over the government spending cuts and tax hikes, described the vote as a "victory of democracy."

Greek voters send shockwaves through Europe with "no" vote

As Tsipras no doubt understands, though, democracy is messy. While Greek voters resoundingly said "no" to austerity, polls also show overwhelming support for remaining within the eurozone. Those goals may be incompatible, given European leaders' dislike for Tsipras and resistance within the trading bloc to negotiating another bailout.

As a result, Greece is now considerably closer to exiting the eurozone. A "Grexit," as it is called, would make Greece the first state to leave the 19-member currency union since the euro was formally created in 1999. That would cause domestic economic chaos in the short-term and, more worryingly for Europe, raise fundamental questions about the viability of the eurozone.

The immediate question: How will the European Union, which under the stewardship of German Chancellor Angela Merkel has insisted on austerity for Greece, respond now?

"Syriza's gamble that a 'no' will force EU leaders to 'respect' Greek democracy is a bold one," said Claus Vistesen chief eurozone economist with Pantheon Macroeconomics, in a note. "If the German government considers its mandate to stand firm, a Grexit is the only option we can see with Syriza at the helm in Athens."

If Greeks have had enough of Europe, in short, they are about to learn whether Europe has had enough of them. -- Alain Sherter

Labor force dropouts

Federal Reserve Chair Janet Yellen will have a chance to address the drama in Europe on Friday, when she gives a speech on the U.S. economic outlook. Financial markets will be listening for any hints on whether the Greece situation could affect the central bank's timing for raising short-term interest rates, with many forecasters having predicted a September hike.

But with the U.S. not directly threatened by Greek debt crisis, the bigger issue for the recovery remains jobs, jobs, jobs. At first glance, last week's June employment report, which showed yet another drop in the unemployment rate to 5.3 percent, might seem to suggest that the nation's recovery has sufficient legs to amble on without the zero interest rate crutch it has relied on since 2008.

But the nation's jobless rate, while important, doesn't tell the whole story. The latest figures also showed 432,000 people leaving the workforce and that the labor force participation rate had dropped to 62.6 percent. The Labor Department arrives at that figure by determining the percentage of the population 16 years or older who are either employed or actively looking for work. You'd have to go back to the 1970s for a time when participation was so low.

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In many ways that work force participation number is a better indicator of the nation's current and future economic health then the headline unemployment rate. If more folks aren't working, but are still eligible for the entitlements that comes with our current social contract, the burden to pay for keeping those commitments falls on a smaller base of active workers.

To be fair, this slippery slide away from full employment has been underway for a while and pre-dates President Obama's tenure and the Great Recession. As pointed out in a recent Factcheck.org post, in a 2006 report the Labor Department had pinpointed the start of the workforce contraction as early as 2000 and "predicted the decline would continue for four decades."

Experts point to a number of factors for Americas workforce shrinkage:

  • Demographics: The decline in labor force participation owes partly to the aging of the baby boomers, with Pew Research estimating that 10,000 Americans will be turning 65 every day for the next 19 years.
  • Fewer women: After taking on many traditional male occupations during World War II, women went back home and gave birth to the baby boom. By 1950 the labor participation rate for women was an "Ozzie and Harriet" 34 percent. By 1999 it had topped out at 60 percent. It's now around 46 percent.
  • Greater college attendance: In 1967, 1 in 4 18-to-24-year-olds were in college, including roughly 1 in 3 males and just 1 in 5 females. By 2012, 41 percent of that age cohort continued their education beyond high school, although the percentage of men who were enrolled was 37.6 percent compared to 44.5 percent women in that age group.
  • Obamacare: The Congressional Budget Office predicted earlier this year that the Affordable Care Act was likely to result in 2 million Americans leaving the work force voluntarily. The rationale cited included the decoupling of health care coverage from employment and the decision to reduce personal income so as to not risk losing income-based eligibility for subsidies offered under the program to buy insurance.

  • Weaker hiring during the recovery: Once companies learn how to reduce their workforce to get by during lean times, they build on those economies. Whether it be outsourcing, hiring contract labor, automation, and sometimes a combination of all three, businesses don't turn the clock back out of a sense of nostalgia for full employment.
  • Higher criminalization: According to the Center on Budget and Policy Priorities, since 1977 the number of adults in prison in the U.S. has risen by 400 percent. America jails nearly 2.4 million people. This has a seismic impact that will linger for decades, particularly in communities of color where unemployment rates already significantly higher. -- Robert Hennelly