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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.

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