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Unemployment in Euro Zone Reaches a Record 12% Unemployment in Euro Zone Reaches a Record 12%
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PARIS — Unemployment in the euro zone rose to yet another record high in the first two months of the year, official data showed Tuesday, providing confirmation that the economy remains in a deep freeze. PARIS — While the euro zone has been transfixed lately by the Cyprus meltdown, another and potentially bigger European crisis has continued to simmer: record-high unemployment.
The jobless rate reached 12 percent in both January and February, the highest since the creation of the euro in 1999, Eurostat, the statistical agency of the European Union, reported from Luxembourg. Spending cuts and tax increases aimed at trimming debt and addressing the financial crises in bailed-out euro zone countries, and the rising rate of joblessness in much of the currency bloc, “are feeding off of each other,” said Mark Cliffe, chief economist at ING Group.
The January jobless rate for the 17-nation currency union was revised upward from the previously reported 11.9 percent. “It’s a bit of a vicious circle,” he said. “Europe is pursuing a policy that is self-evidently failing.”
For the overall European Union, the February jobless rate rose to 10.9 percent from 10.8 percent in January, Eurostat said, with more than 26 million people without work across the 27-nation bloc. The euro zone jobless rate rose to 12.0 percent in the first two months of the year, the latest in a series of record highs tracing to late 2011, Eurostat, the statistical agency of the European Union, reported Tuesday.
European officials continue to hold out hope that the economy, which continued to shrink in the first quarter of 2013, will begin turning around in the second half of the year. Many private sector forecasters are more pessimistic, expecting a contraction of as much as 2 percent in the euro zone’s gross domestic product this year, after a 0.9 percent contraction last year. The agency revised upward the January jobless rate for the euro zone from the previously reported 11.9 percent, itself a record. For the overall European Union, Eurostat said the February jobless rate rose to 10.9 percent from 10.8 percent in January, with more than 26 million people without work across the 27-nation bloc.
While there is general agreement that the current course for addressing the euro crisis — heavily focused on budget- balancing measures that reduce overall demand — is not working, the need for emergency action like the recent bailout of Cyprus has appeared to inhibit any deep rethinking of economic policy. Both the jobless rates and the number of unemployed are the highest Eurostat has recorded in data that reach back to 1995, before the creation of the euro.
In the absence of new measures to stimulate growth at the European and national levels, all attention will be focused Thursday on the governing council of the European Central Bank, which meets in Frankfurt to consider whether to maintain interest rates at their current record low or cut even further. Europe’s rising unemployment is in increasingly stark contrast to the jobs recovery in the United States, where unemployment in February declined to 7.7 percent, the lowest level since late 2008. The consensus among economists surveyed by Reuters is for the U.S. economy to show a gain of 200,000 jobs in March, after a gain of 236,000 in February. The labor data will be released Friday.
Britain, the largest E.U. economy outside the euro zone, had an unemployment rate of 7.7 percent in December, the latest available month. With most European economies either contracting or barely growing, any hiring that is being done by Europe’s companies tends to be taking place elsewhere. Volkswagen, aspiring to become the world’s largest automaker within a few years, is planning to hire 50,000 workers by 2018, raising its total work force to 600,000 employees, according to Bernd Osterloh, the chairman of the German carmaker’s workers council.
In the United States, the jobless rate fell in February to 7.7 percent, the lowest since late 2008. The consensus among economists surveyed by Reuters is for U.S. nonfarm payrolls Friday to show a gain of 200,000 jobs in March, after a gain of 236,000 in February. But the company wants to add production where the demand is.
The European labor market has now declined for 22 straight months, making this the worst downturn since the early 1990s, Jennifer McKeown, an economist in London with Capital Economics, wrote in a note. In particular, she said, the rise in France’s February jobless rate to 10.8 percent from 10.7 percent in January “looks very worrying.” “Volkswagen is growing, and is therefore continuing to hire in production,” Mr. Osterloh said in an article that appeared Tuesday in the German daily Handelsblatt. More of the new employees will be added in China than in Europe, he told the newspaper.
“With fiscal tightening still putting downward pressure on disposable incomes and consumer confidence at very low levels, household spending is likely to fall further in the coming months,” Ms. McKeown said. The European car market, meanwhile, is at its lowest level in nearly two decades — a side effect of the weak regional economy and the growing number of people without paychecks to spend.
On Tuesday, a report by Markit Economics showed the euro zone’s manufacturing sector contracted again in March, with an index of purchasing managers activity dropping to 46.8 from 47.9 in February. An index level below 50.0 suggests contraction, while a level above that suggests expansion. After Greece’s staggering debt problems became apparent in 2009, political leaders and the European Central Bank began demanding that member nations cut government spending and raise taxes to bring their budgets in line with European rules. Those efforts, along with a commitment from the E.C.B. to do whatever is necessary to defend the euro, have helped to ease the near-panic that has gripped the euro zone as recently as last year.
The manufacturing index has contracted every month since August 2011. Manufacturing activity in Germany and Ireland, which had been expanding, began to decline again. But lower government spending also reduces overall demand for goods and services, weakening the overall economy and the labor market.
The euro zone manufacturing sector shed jobs in March for a 14th consecutive month, Markit reported, with “steep rates of declines reported in France, Italy, Spain, the Netherlands, Ireland and Greece,” and only Germany and Austria bucking the trend. In the absence of new measures to stimulate growth at the European and national levels, all attention will be focused Thursday on the governing council of the European Central Bank, which meets in Frankfurt to consider whether to maintain interest rates at their current record low or cut even further. Economists said that the data Tuesday would give the E.C.B. greater scope to cut its main interest rate target from the current 0.75 percent, but that the bank would probably hold its fire for now.
Eurostat said Greece had the euro zone’s highest unemployment rate: 26.4 percent unemployment in December, the latest month for which data are available. A sovereign debt crisis, and the tax increases and spending cuts that followed it, have wrecked the Greek economy. An astonishing 58.4 percent of Greek youth were classified as unemployed, Eurostat reported. The jobless crisis is hitting hardest in the south of Europe. Eurostat said Greece, with its economy in free fall, had the euro zone’s highest unemployment rate ,at 26.4 percent in December, the latest month for which data are available. Among Greek youth, the jobless rate has hit a staggering level, 58.4 percent.
Spain, where the economy has also contracted sharply following the collapse of the global credit bubble, posted the second-highest unemployment rate in the euro zone: 26.3 percent in February. Spain, where the economy has contracted sharply after the collapse of the global credit bubble, posted the second-highest unemployment rate in the euro zone in February, at 26.3 percent.
Austria’s jobless rate was the lowest, at 4.8 percent. Germany's was near the bottom at 5.4 percent, while France’s was double its larger neighbor, at 10.8 percent. Cyprus’s jobless rate, at 14.0 percent, is almost certain to rise because the country’s recently negotiated bailout deal will crimp the economy for years to come, said Mr. Cliffe, of ING. “We’ve already seen how this story plays out in Greece,” he said. “We’re about to see it play out again in Cyprus.”
Austria had the euro zone's lowest jobless rate, at 4.8 percent. Britain, the largest E.U. economy outside the single currency bloc, had an unemployment rate of 7.7 percent in December, the latest available month.
The European labor market has now declined for 22 straight months, making this the worst downturn since the early 1990s, Jennifer McKeown, an economist in London with Capital Economics, wrote in a research note Tuesday. “With fiscal tightening still putting downward pressure on disposable incomes and consumer confidence at very low levels, household spending is likely to fall further in the coming months,” Ms. McKeown said.
Ms. McKeown also noted that the France’s February jobless rate at 10.8 percent — double the German rate of 5.4 percent — “looks very worrying.”
Philippe d’Arvisenet, global chief economist of BNP Paribas, said France had lost competitiveness relative to Germany over recent years, as Berlin overhauled the labor market to hold costs down while Paris had stood by as wages outgrew productivity.
President François Hollande’s government is taking positive steps, he said, including labor market reforms and budget consolidation, but it will take time.
“Labor reform and fiscal consolidation are done in Germany,” Mr. d’Arvisenet said. “But we still have a lot to do in France.”
One company bucking the unemployment trend is the aircraft maker Airbus, with an order backlog of seven years and the bulk of its sales outside Europe. Anne Galabert, a spokeswoman, said about 90 percent of the company’s 3,000 new hires this year will be in Europe, about the same percentage as the more than 10,000 people Airbus hired in the two years spanning 2011 and 2012.
But the company, a unit of European Aeronautic Defense and Space, which is partly owned by the French, German and Spanish governments, may feel pressure to maintain employment in its home markets.
European officials continue to hold out hope that the economy, which continued to shrink in the first quarter of 2013, will begin turning around in the second half of the year. Many private-sector forecasters are more pessimistic, expecting a contraction of as much as 2 percent in the euro zone’s gross domestic product this year, after a 0.9 percent contraction last year.
Mr. Cliffe said it was unlikely that European officials would consider any change of course before Germany's national elections, in September, as a combination of bailout fatigue and German electoral politics had halted any discussion of action on the labor market, banking union or the possibility of jointly issued euro bonds.
“The only other hope is that the global economy turns up,” he said. “But so far that seems unlikely.”