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Eurozone unemployment hits record high

Associated Press Modified: May 2, 2012 at 1:00 pm •  Published: May 2, 2012
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LONDON (AP) — Pressure is growing on Europe's leaders to focus less on austerity and more on stimulating growth as the 17 countries that use the euro face record high unemployment and a recession that is spreading across the region.

Eurozone unemployment rose by 169,000 in March, official figures showed Wednesday, taking the rate up to 10.9 percent — its highest level since the euro was launched in 1999.

The seasonally adjusted rate was up from 10.8 percent in February and 9.9 percent a year ago and contrasts sharply with the picture in the U.S., where unemployment has fallen from 9.1 percent in August to 8.2 percent in March.

Economies across the eurozone are contracting as governments enact austerity measures — spending cuts and higher taxes — to reduce their budget deficits and slow the growth of their debts. Eight eurozone countries — including Greece, Spain and the Netherlands — have seen their economies shrink for two straight quarters or more, the common definition of a recession.

Austerity has been the main prescription across Europe for dealing with a debt crisis that's afflicted the continent for nearly three years and has raised the specter of the breakup of the single currency. Three countries — Greece, Ireland and Portugal — have already required bailouts because of unsustainable levels of debt.

Bailout fears have intensified in recent months as Spain, Italy and other governments face rising borrowing costs on bond markets, a sign that investors are nervous about the size of their debts relative to their economic output. Austerity is intended to address this nervousness by reducing a government's borrowing needs, but there has been a negative side effect: as economic output shrinks, the debt burden actually looks worse.

So as Europe's economic outlook darkens, economists are becoming more skeptical of the strict adherence to austerity. They say the region's policymakers need to dial back on short-term budget-cutting and place more emphasis on stimulating long-term growth. Pro-growth measures include reducing red tape for small businesses, making it easier for workers to find jobs across the eurozone and breaking down barriers that countries have created to protect their own industries. Some economists go a step further and say governments should not only stop cutting spending, they should actually increase spending while economies are so weak— and make reining in deficits a longer-term goal.

"The question is how long EU leaders will continue to pursue a deeply flawed strategy in the face of mounting evidence that this is leading us to social, economic and political disaster," said Sony Kapoor, managing director of Re-Define, an economic think-tank and policy advisory company.

In a nod to shifting attitudes about austerity, European Central Bank president Mario Draghi recently called for a "growth pact" in Europe to work alongside the "fiscal pact" that has placed so much importance on controlling government spending.

Measures aimed at balancing national budgets have led to drastic spending cuts by governments across the continent, including layoffs and pay cuts for government workers, slashing of key services including welfare and development programs, as well as tax hikes to boost government revenues.

With elections in Greece and France this weekend, there are hopes — certainly among the 17.4 million people unemployed in the eurozone — that Europe may temper, if not reverse, its focus on austerity.

"With the potential changing of political leaders, coupled with confirmation that nearly half of the eurozone is officially in recession, the strategy of continuing austerity is being widely challenged," said Gary Jenkins, managing director of Swordfish Research.

France's Socialist presidential candidate Francois Hollande — who is leading incumbent Nicolas Sarkozy in the polls — has said he would renegotiate the eurozone's austerity-focused fiscal pact to include measures that would encourage growth. The pact requires countries to keep their budget deficits to within 3 percent of economic output — a major reason why Spain, Italy and other governments are slashing spending.

Austerity has been pushed hardest by Germany, Europe's biggest economy, as a way to convince markets and international investors that the region has a grip on its problems. However, Germany's economy is beginning to show signs of vulnerability and analysts say this could prompt Chancellor Angela Merkel to moderate her stance.

April unemployment figures from Germany's statistics office showed a monthly rise of 19,000, only the second increase in the past 25 months.

A survey of Europe's manufacturing sector released Wednesday pointed to grim times ahead.

The eurozone's monthly purchasing managers index — which tracks sales, employment, stock levels and prices — fell to 45.9 in April from 47.7 the previous month, according to financial information company Markit. Anything below 50 indicates a contraction in activity. Germany's index slumped to 46.2, its lowest level since the summer of 2009.

Spain has the highest unemployment rate in the eurozone at 24.1 percent. The rate for people under 25 is an even more alarming 51.1 percent. As Spain's conservative government pushes ahead with more austerity, its recession is expected to deepen and there are doubts that it will be able to meet its deficit-reduction targets.

Greece has the second highest unemployment rate, though its figures date back to January. The country, which has received two massive international bailouts to avoid a messy default on its debt payments, has a jobless rate of 21.7 percent, with 51.2 percent of young people out of work.

Austria had the lowest unemployment rate in the eurozone, at 4 percent. The Netherlands, which saw its government collapse last week over disagreements on austerity measures, was not far behind at 5 percent.

The unemployment rate across the wider 27-country European Union, which includes non-euro members like Britain and Poland, was 10.2 percent, unchanged from February but still higher than the 9.4 percent recorded a year before.