Wednesday, January 09, 2013

Another unwanted record in the eurozone...

Yesterday’s unemployment figures from Eurostat made a surprisingly big splash in the European press today. We say surprising since for anyone following the crisis this has been a longstanding and deeply concerning trend in the eurozone.

Eurozone unemployment reached a record high of 11.8% in November (up from 11.7% in October), while youth unemployment reached the staggering level of 24.4%, meaning almost a quarter of young people in the eurozone are out of work.

Looking deeper at the data, there are a few important points to consider:
The current trend runs counter to the majority of forecasts by the Commission and the IMF. We’ve discussed this before with regards to Greece, but it also holds for Spain, Portugal and many others. Although the pace of increases in unemployment is slowing, it has not yet stopped and with austerity set to continue across the eurozone it seems unlikely to do so at any point this year. Despite this, many of the forecasts show unemployment stabilising at or near current levels – this data highlights that this remains unrealistically optimistic.

There remains huge divergence between the stronger and weaker countries. With Austria posting unemployment of 4.5% compared to Spain’s 26.6%, the talk of the eurozone crisis being over seems rather pre-emptive. Fundamental divergences remain between the countries, with no clear mechanism for correcting or managing them yet being discussed at the highest level.

The increase in long term unemployment is becoming increasingly concerning. In the second quarter of 2012 it reached 5.2% in the eurozone, but topped 13% and 10% in Greece and Spain respectively. This has the ability to significantly harm the potential productivity of these economies and become a significant drag on (already low) economic growth. As with the wider figures it drives home the need for strong structural reforms, particularly to education and retraining programmes.
It’s also worth keeping in mind that this is happening at a time when growth is stagnating and public spending is falling sharply, meaning that the fall in standards of living for many people could be substantial – as we have pointed out before this has the potential to be a toxic mix in what is already a very politically divisive crisis.


Agincourt said...

With youth (24 year-olds & under) unemployment now over 55% in both Greece & Spain, & around 35% in Italy & Portugal, the only solution - if the EU has any genuine integrity at all - is to encourage at least these 4 to exit the euro immediately, & then devalue & develop themselves out of the appalling trough that their euro currency membership has pushed them into!

Rollo said...

Such high unemployment is a recipe for disaster. Unemployed frustrated youths are an explosion waiting to be set off. But history shows that the spark happens when the rich start to be affected, not the powerless poor. The tragedy is that the time for this is approaching, and no-one is lifting a finger to stop it. The EU will have blood on its hands.

Forex Striker Review said...

The problem with embracing austerity is that it is a painful process of correcting past excesses. Initially, austerity always seems to make things worse because it is more comfortable to live on borrowed money than to repay it. It takes time and market discipline to shift economic activity (GDP) into truly productive activity (producing value). It's much more palatable to continue trying to inflate assets and paying with promises.

The problem with rejecting austerity in favor of stimulus is that stimulus only perpetuates the problems that created the crisis. Those problems become worse as governments drain their credibility trying to prop up an unsustainable economy. When austerity is finally unavoidable (as in Greece), it is far worse.

christina speight said...

Agincourt - You are quite right, the exit of Greece, Italy, Spain and Portugal is the only hope for those poor benighted countries. But it will not happen since those besotted visionaries at the top echelons of the EU in Brussels and some capitals see this looming disaster as a heaven-sent opportunity to force a federal Europe onto the whole of the eurozone (to start with ) and the rest of us later.

This is, of course, EVIL but in the EU that has become a non-word and nobody will admit it - not (of course) the eurocrats themselves, not any of our home-grown europhiles and not David Cameron who like so many wouldn't know evil if he fell over it. I am sorry to say that with all its excellent research Open Europe is of the same frame of mind, along with, it seems, the US Department of Foreign Affairs with its ridiculous interference in our affairs yesterday .

christina speight said...

Forex Striker Review - You are completely missing the point! The point is that the EU does absolutely NOTHING to correct the fault line in Europe between the rich northern countries and the poor south. That can only be solved by scrapping the euro either completely (the best solution) or by the northern group or the southern group leaving. This will NOT happen because the Eurocrats are building their Valhalla or the sufferings of the poor south. A thoroughly cunning and evil plot permanently tp enslave the south.

Nothing to do with austerity at all! The cause is the euro - the solution is to leave the euro.

Ian Campbell said...

The only thing that is surprising is that these levels of distress have not already caused the inevitable exits from the Euro. Perhaps 2012 was as early as 5 minutes to midnight, rather than 30 seconds to... .