Euro zone joblessness risks "economic disaster"

BRUSSELS Mon Oct 1, 2012 1:17pm EDT

People check job offers outside a recruitment agency in downtown Milan April 3, 2012. REUTERS/Alessandro Garofalo

People check job offers outside a recruitment agency in downtown Milan April 3, 2012.

Credit: Reuters/Alessandro Garofalo

BRUSSELS (Reuters) - The EU warned on Monday of an "economic and social disaster" if joblessness among young Europeans continued to rise, calling for a joint effort to combat record high unemployment in the countries which share the euro.

Joblessness in the 17 country bloc was 11.4 percent of the working population in August, stable compared to July on a statistical basis, but with another 34,000 people finding themselves out of work in the month, the EU's statistics office Eurostat said. It was 16th straight monthly rise.

That left 18.2 million people unemployed in the euro zone, the highest level since the euro's inception in 1999 and a rise of some 2.6 million people since early 2011. Around 25.5 million people were out of a job in the wider 27-nation European Union.

"It is clearly unacceptable that 25 million Europeans are out of work," European Commission spokesman Jonathan Todd told a regular briefing. In a separate statement, the EU executive said the data showing a record 22.7 percent of 18-to-25-year-olds out of work in Europe in August was of real concern.

"EU institutions and governments, businesses and social partners at all levels need to do all they can to avoid a lost generation, which would be an economic and social disaster," the Commission said.

The debt crisis that began in Greece in 2010 and has spread across the euro zone to engulf Ireland, Portugal, Cyprus and the much bigger economy of Spain has devastated business confidence and sapped companies' abilities to create jobs.

A European-wide drive to cut debts and deficits to try to win back that lost confidence has led governments to cut back spending and lay off staff, while stubbornly high inflation and limited bank credit are adding to household's problems.

Joblessness could go beyond 19 million by early 2014, or about 12 percent of the euro zone's workforce, according to a new study by consultancy Ernst & Young, predicting that rate to rise to 27 percent in indebted Greece. That compares with 24.4 percent in the country in June, the latest data available.

"In this difficult environment, companies are likely to reduce employment further in order to preserve productivity and profitability," the report said.

Euro zone manufacturing put in its worst performance in the three months to September since the depths of the 2008/2009 financial crisis, with factories hit by falling demand despite cutting prices, a survey showed on Monday.

ECB MEASURES?

The International Monetary Fund expects the euro zone's economy to shrink 0.3 percent this year and only a weak recovery to emerge next year that will generate 0.7 percent growth.

But the joblessness picture also obscures wide regional variations. In Austria, unemployment is the euro zone's lowest at 4.5 percent in August, a slight fall from July, while Spain has the highest rate at 25.1 percent in the month.

While a bursting of a real estate bubble in Spain and the end of a decade of credit-fueled expansion in Greece account for difficulties in the Mediterranean, policymakers still face the challenge of trying to revive growth across the bloc.

"The recession in the euro zone is due to the tough consolidation course in the peripheral countries, weaker global demand and the high uncertainty coming from the sovereign debt crisis," Commerzbank economist Christoph Weil wrote in a recent research note.

Euro zone and UK central bankers will likely leave policy unchanged at their meetings this week, but both will announce additional measures to help their moribund economies before the year's end, according to a Reuters poll.

(Reporting by Robin Emmott; Editing by Toby Chopra)

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Comments (4)
Handbook wrote:
Nobody gets it, do they! If I have ten dollars and ten people will accept a dollar each to work, I can employ all of them. But if one workers is a member of a powerful government union and demands all ten dollars, then ony one will work. That’s what we have in Europe. Government serving government! Too many government workers being paid too much for doing too little!

Oct 01, 2012 9:02am EDT  --  Report as abuse
LoveJoyOne wrote:
It’s time to realize that the policy of a strong Euro, coupled with unprecedented austerity, has to go.

You can’t squeeze blood from a turnip, and you can’t balance budgets if nobody earns enough to pay taxes.

It’s time for some sort of “New Deal” for Europe. If this doesn’t happen soon, the current politic elite will find themselves unemployed too.

Oct 01, 2012 9:42am EDT  --  Report as abuse
dareconomics wrote:
European countries have rigid labor markets. It is very difficult to fire workers. In certain circumstances Italy even requires the company to enter the legal system and have a judge approve the firing.

These policies are great if you already have a job, but they hurt workers attempting the enter the workforce. Europe’s young workers have a 23% unemployment rate led by half the young workers in Spain being without a job.

The flip side of guarantees for the jobs of present workers is that it becomes prohibitively expensive to fire workers if they are underperforming or if they are not needed due to slackening demand. The result is that companies choose not to hire workers in the first place.

The severity of these job guarantee laws is sometimes mitigated by allowing companies to hire temporary workers, which do not enjoy the same protections. Of course, these temporary workers are really just permanent employees without the same benefits or guarantees as their permanent co-workers.

Germany allows temporary workers. Its unemployment rate dropped steadily since Gerhard Schroeder’s government reformed the labor market in 2005. In exchange for this lower unemployment rate, workers in all income classes have seen their real wages drop since then.

Germany’s consistent economic strength during both the GFC and the Eurocrisis shows that this trade-off is worth it, so surely other governments will follow. Maybe not, Schroeder lost his job to Merkel shortly after pushing through these reforms. Note that Spain, Italy and Greece have yet to reform their labor markets in any meaningful way, because their politicians fear the wrath of voters.

dareconomics.wordpress.com

Oct 01, 2012 10:11am EDT  --  Report as abuse
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