Eurozone Unemployment Sets Record

Hopes rest on measures not yet announced from ECB intervention

A worker in a Siemens plant in Germany, where unemployment rose for the fourth straight month. (Photo: AP) A worker in a Siemens plant in Germany, where unemployment rose for the fourth straight month. (Photo: AP)

Unemployment throughout the eurozone hit a record, statistics revealed, with the numbers for many individual nations following suit. A meeting of financial officials set for August 2 and tough words from European Central Bank chief Mario Draghi days ago promising to do “whatever is necessary” to save the joint currency have boosted hopes that a solution to the crisis will be found, though any action is still likely weeks away.

Bloomberg reported Tuesday that figures released by Eurostat, the statistics office of the European Union showed that unemployment in the region hit a euro-era high of 11.2% in June, up from 11.1% in May. The EU’s numbers indicate that 17.8 million people were without jobs in June; that’s up 123,000 from May.

Individual countries had their own woes to tell, and even in Germany the news was not good as its Federal Labor Agency had depressing numbers to report. Jobless numbers there rose for the fourth straight month. Although unemployment is at its lowest level in Germany in 20 years and wages are on the rise, the number of people without jobs rose a seasonally adjusted 7,000 to 2.89 million as slowdowns elsewhere in the region hit the stalwart German economy.

“To some extent the labor market has been Germany’s active immunization against the ongoing eurozone crisis,” said Carsten Brzeski in the report. Brzeski, senior economist at ING Belgium in Brussels, continued, “However, signs that this immunization is fading away are hard to miss. Employers have continuously downscaled their recruitment plans and employment expectations in the manufacturing industry have dropped.”

In Italy the news was worse. Unemployment there rose in June to its highest level in nearly 13 years to a seasonally-adjusted 10.8%, according to the Rome-based national statistics office, Istat. The young are in particularly dire straits, with those ages 15 to 24 unemployed at a rate of 34.3% in June. In addition, the economy shrank for a third straight quarter for Q1 of 2012. Italy is now in its fourth recession since 2001.

Portugal’s unemployment rate was 15.4%, Ireland’s was 14.8%, and France’s was somewhat better, though still high, at 10.1%. However, the record for unemployment was once again claimed by Spain, which for June posted numbers of 24.8%.

Andreas Scheuerle, an economist at Dekabank in Frankfurt, said in the report, “We’re already in the middle of a recession, with contractions in the third and fourth quarters as well.” He added, “The ECB will have to take additional measures. The economic side and the stability of the eurozone are clearly larger concerns at the moment than the inflation development.”

According to a Reuters report, everything appears to rest on the ECB, which after Draghi’s declaration must come up with some pretty stiff measures to combat market paranoia. Reuters reported that the central bank is considering some strategies that previously were out of the question. One measure is a resumption of its bond-buying program.

Another is quantitative easing, though according to sources with knowledge of the process, any substantive action is likely still at least five weeks away. Some hint of the ECB’s plans may be revealed Thursday, however, when the central bank announces its latest determination on interest rates.

Several obstacles hold up strong action, according to the insiders cited. First is the question of whether Spain will ask for assistance—something Prime Minister Mariano Rajoy is reluctant to do—and then there are the questions of whether eurozone officials will consent to purchase of bonds at auction by the bloc’s bailout fund.

Another factor is the German constitutional court, which plans to issue a ruling on the legality of the European Stability Mechanism (ESM), the eurozone’s permanent rescue fund.

And last but far from least is the opposition of the Bundesbank to many of the drastic actions proposed to combat the crisis. A spokesman for Bundesbank President Jens Weidmann said in the report, "The mechanism of bond purchases is problematic because it sets the wrong incentives."

The German central bank has also repeatedly voiced its opposition to the issuance of a banking license to the ESM and allowing it to borrow from the ECB to control bond market fears, saying that such measures violate an EU treaty that prohibits monetary financing of governments.

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