EU Unemployment Hits New Record Level

Given that the economic cycle of expansion followed by recession and recovery with a return to growth sees employment rise once recovery has kicked in, the fact the unemployment in the Eurozone has hit a fresh record level tends to suggest that recovery from the last recessionary period is not yet, truly, underway.

According to Eurostat, unemployment climbed from 12% in February to 12.1% in March – it remains very patchy across the bloc with the lowest levels seen in Austria (4.7%) and Germany (5.4%) and the worst in Greece (27.2%) and Spain (26.7%). Younger people (<25 years) are particularly hard hit by unemployment in Spain and Greece which report levels of 55.9 and 59.1%, respectively. Youth unemployment (as it is termed) in the Eurozone is roughly twice the average level of unemployment for all workers.

Given that many economies are enjoying growth, albeit at very modest levels, we should be in the recovery phase of the economic cycle. The reason underlying the weak employment data is that the recovery is feeble because global demand is subdued. Partially, this is due to the profound shock that the global financial crisis has dealt to the financial industry which has called some of the riskier lending strategies and investment modalities into doubt. The money supply to business has been restricted as financial institutions retrench in order to protect themselves against a future financial shock. In their turn, businesses have yet to regain the confidence that they need to expand (even if financing was available) which would trigger a new wave of hiring. A further factor which depresses the job market are the austerity measures that many nations are engaged on in a bid to trim excessive public deficits. These cutbacks have a knock-on effect in the wider employment market as expenditure is reined-in (in addition to direct job losses in the public sector in many economies).

The French government and the new Italian government have both stated that growth should not be sacrificed on the altar of austerity. To underscore the point, the besieged Greeks have staged a one-day general strike in protest against on-going austerity measures. It seems that the time for an EU policy shift is probably ripe.