Record number out of work in eurozone

Joblessness in the 17-nation currency area rose to 12.2 per cent in April, statistics agency Eurostat said yesterday, marking a new record since the data series began in 1995.

With the eurozone also in its longest recession since its creation in 1999, consumer price inflation was far below the ECB’s target of just below 2 per cent, coming in at 1.4 per cent in May, slightly above April’s 1.2 per cent rate.

That rise may quieten concerns about deflation, but the deepening unemployment crisis is a threat to the social fabric of the eurozone, with almost two-thirds of young Greeks unable to find work exemplifying southern Europe’s threat of creating a ‘lost generation’.

Economists and policy makers have expressed concern that the greatest threat to the unity of the eurozone is now social breakdown from the crisis, rather than market-driven factors.

In France, Europe’s second largest economy, the number of jobless rose to a record in April, while in Italy, the unemployment rate hit its highest level in at least 36 years, with 40 per cent of young people out of work.

Some economists expect the ECB, which meets on June 6, to act to revive the economy and go beyond another interest rate cut to consider a US-style money printing programme known as quantitative easing.

“We do not expect a strong recovery in the eurozone,” said Nick Matthews, a senior economist at Nomura International in London. “It puts pressure on the ECB to deliver even more conventional and non-conventional measures.”

In the past, the eurozone has needed economic growth of around 1.5 per cent to create new jobs, according to Carsten Brzeski, an economist at ING.

With the Organisation for Economic Cooperation and Development forecasting this week that the eurozone economy would contract by 0.6 per cent this year, unemployment is set to worsen long before it turns around.

“We do not see a stabilisation in unemployment before the middle of next year,” said Frederik Ducrozet, an economist at Credit Agricole in Paris.

“The picture in France is still deteriorating.”

ECB President Mario Draghi, whose bold decision-making helped protect the eurozone from break-up last year with a plan to buy the bonds of governments in trouble, has so far preferred to leave the onus on eurozone governments to reform.

The European Commission told governments this week they must focus on reforms to outdated labour and pension systems to regain Europe’s lost business dynamism, a move to shift focus away from debilitating budget cuts towards growth.

EU leaders are meeting at the end of June in Brussels.