23rd Mar 2018


Unemployment now the main problem in eurozone

  • Dole queue: the eurozone will remain in recession in 2013 (Photo: EUobserver)

February 22 was a black Friday wherever you were in Europe. The morning brought the publication of dismal economic data to the effect that the eurozone will remain in recession in 2013.

Then, at 10pm Brussels time as the the markets closed, ratings agency Moody's quietly issued a statement stripping the UK of its AAA credit rating.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

For those lulled into a false sense of security through a recent combination of relatively benign financial markets and the euro strengthening against sterling and the yen, it was a rude awakening.

Reading the European Commission's Winter Forecast is a singularly dispiriting experience. The bald figures are that the eurozone is expected to remain in recession with a 0.3 percent contraction in 2013. The words "sluggish … weak … vulnerable … modest … fragile'" litter the 140 pages of charts and analysis.

Spain's budget deficit has cleared 10 percent. The average eurozone country now has a debt to GDP ratio of 95 percent - a figure that observers had previously thought was applicable only to Italy and Greece.

There is little to cheer the critics of austerity.

The scope for Keynesian supply-side measures to increase demand is now even more limited. With the average debt burden now standing so high, there simply is not enough money around for a stimulus package.

That said, the nature and magnitude of the problems facing the eurozone are changing. While the Greek economy will contract by a further 4.4 percent this year - by the end of 2013 Greek economic output will have fallen by more than a quarter in five years - the clear indication from the Winter Forecast is that Athens is no longer in the eye of the storm.

Paris and Madrid now have that unwanted place.

France out for censure

France was one of a handful of countries called out for censure by commissioner Rehn on Friday.

The French budget deficit remains stubbornly high, falling by a mere 0.6 percent to 4.6 percent in 2012. The commission's projections have it remaining above the 3 percent threshold in 2013 and 2014. Ominously, Rehn told reporters that the commission would prepare a full report on France's public spending after Paris prepares its next budget plan, adding that President Francois Hollande's government needs to "pursue structural reforms alongside a consolidation programme."

Some of the figures that leap off the pages of the Spanish assessment are truly alarming.

Spain's budget deficit actually increased to 10.2 percent in 2012, although the data does not include the savings from spending cuts and tax rises at national and regional level in the final weeks of the year, estimated to be worth 3.2 percent.

Even then, the country will still have averaged a 10 percent deficit over the last four years. By the end of 2014, its debt pile will have nearly doubled to 101 percent of GDP over the space of five years. Meanwhile, over one in every four Spaniards is out of work.

Mass unemployment here to stay?

But there are still crumbs of comfort or straws to clutch at.

Most government books are closer to being balanced. Budget deficits will shrink below the 3 percent limit in the Stability and Growth Pact, while the commission estimates that the eurozone will run a current account surplus of over 2 percent in 2014.

The commission also expects Spain to run a current account surplus in 2013. Greece, too, is expected to run a surplus in either 2013 or 2014. The South Mediterranean patient is undoubtedly getting leaner, and this certainly augurs well for Europe's competitiveness in the future.

However, while the eurozone appears to be moving away from a crisis fuelled by deficit and debt, mass unemployment seems to be here to stay.

The headline rate of 11.7 percent unemployment across the eurozone is bad enough, but it is the sharp rise in long-term joblessness that is most concerning. Forty five percent of the EU's unemployed have been out of work for more than a year, and in eight countries this figure rises to over one in two.

In Spain, Greece and Portugal, where the unemployment rate is above 15 percent and youth unemployment sits close to one in two, millions of Europeans risk being locked out of the labour market for good.

In the foreword to the Winter Forecast, Marco Buti, head of the commission's economics department, rightly acknowledges the "grave social consequences" resulting from the unemployment crisis. But it is more dangerous than that.

As the commission paper concedes "long-term unemployment is associated with lower employability of job seekers and a lower sensitivity of the labour market to economic upturns."

The longer people are out of work, the more likely it is that high unemployment rates become a structural feature of the European economy.

Where then does Europe go from here?

It seems inevitable that the commission will relax its enforcement of the deficit targets under the economic governance "six pack." Most governments are clearly taking steps to cut spending and the consolidation efforts are being delayed by the recession rather than a refusal to comply with the new rules.

Spain, Portugal and others besides will probably be given more time to reach the 3 percent deficit target.

The commission and member states could also front-load infrastructure projects to be funded by the 2014-2020 budget framework and make greater use of the European Investment Bank.

We can expect action on a pan-EU youth guarantee scheme, although it will need more than a commission communication and a few billion euros to solve Europe's youth unemployment crisis.

Like gamblers who are too deep in the hole to resist yet another bet, most governments, with the support of the commission, will make the patient swallow more of the foul-tasting medicine of austerity.

But it is hard to avoid the central message that over two years of fiscal consolidation measures have had, at best, a negligible impact across most European countries.

By focusing solely on spending cuts and allowing unemployment to reach unprecedented levels, Europe's leaders may have helped turn a recession into a prolonged depression.

Eurozone recession to continue in 2013

The eurozone economy will shrink by a further 0.3 per cent in 2013, the European Commission has said. The bloc will have to wait until 2014 before seeing economic growth.

Spain in wait-and-see mode as recession worsens

Spanish Prime Minister Mariano Rajoy on Tuesday said his government has not yet taken a decision on asking for European help in refinancing its debt, pending a key meeting of the European Central Bank next week.

Eurozone still mired in recession

The eurozone economy shrank in the final three months of 2012, dealing a blow to those hoping that the bloc's recession had run its course.

Top-level discussion glum on state of EU

A clutch of academics, policy-makers and politicians gathered in Brussels Wednesday for a glum and angst-ridden debate on the state of the European Union.

VW dismisses complaints on Dieselgate fix

'I think customers who want to get information (...) are able to receive information if they want," VW management board member Hiltrud Werner told EUobserver. Consumer groups disagree.

News in Brief

  1. EU wants 'Paris' climate strategy within 13 months
  2. Workload of EU court remains high
  3. Spain's supreme court charges Catalan separatist leaders
  4. EU calls for 'permanent' exemption from US tariffs
  5. Summit backs guidelines for future EU-UK talks
  6. Macron support drops as public sector workers go on strike
  7. EU leaders condemn Turkey for illegal actions in Aegean Sea
  8. Parliament must publish 'trilogue' documents, court says

Stakeholders' Highlights

  1. EUobserverStart a Career in EU Media. Apply Now to Become Our Next Sales Associate
  2. EUobserverHiring - Finance Officer With Accounting Degree or Experience - Apply Now!
  3. ECR GroupAn Opportunity to Help Shape a Better Future for Europe
  4. Counter BalanceControversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  5. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds
  6. Macedonian Human Rights MovementMeets with US Congress Member to Denounce Anti-Macedonian Name Negotiations
  7. Martens CentreEuropean Defence Union: Time to Aim High?
  8. UNESDAWatch UNESDA’s President Toast Its 60th Anniversary Year
  9. AJC Transatlantic InstituteAJC Condemns MEP Ana Gomes’s Anti-Semitic Remark, Calls for Disciplinary Action
  10. EPSUEU Commissioners Deny 9.8 Million Workers Legal Minimum Standards on Information Rights
  11. ACCAAppropriate Risk Management is Crucial for Effective Strategic Leadership
  12. EPSUWill the Circular Economy be an Economy With no Workers?

Latest News

  1. Commission sticks to its line on Barroso case
  2. Germany and France promise new Russia sanctions
  3. EU rejects US trade 'gun to the head'
  4. Tariffs and Turkey will top This WEEK
  5. EU leaders roll over Brexit talks amid Trump and Russia fears
  6. Europe needs corporate tax reform - a digital tax isn't it
  7. EU data chiefs rally behind UK over Cambridge Analytica
  8. Russian diplomats risk EU expulsions over UK attack

Stakeholders' Highlights

  1. European Jewish CongressThe 2018 European Medal of Tolerance Goes to Prince Albert II of Monaco
  2. FiscalNoteGlobal Policy Trends: What to Watch in 2018
  3. Human Rights and Democracy NetworkPromoting Human Rights and Democracy in the Next Eu Multiannual Financial Framework
  4. Mission of China to the EUDigital Cooperation a Priority for China-EU Relations
  5. ECTACompetition must prevail in the quest for telecoms investment
  6. European Friends of ArmeniaTaking Stock of 30 Years of EU Policy on the Nagorno-Karabakh Conflict: How Can the EU Contribute to Peace?
  7. ILGA EuropeCongratulations Finland!
  8. UNICEFCyclone Season Looms Over 720,000 Rohingya Children in Myanmar & Bangladesh
  9. European Gaming & Betting AssociationEU Court: EU Commission Correct to Issue Guidelines for Online Gambling Services
  10. Mission of China to the EUChina Hopes for More Exchanges With Nordic, Baltic Countries
  11. Macedonian Human Rights MovementCondemns Facebook for Actively Promoting Anti-Macedonian Racism
  12. Nordic Council of MinistersGlobal Seed Vault: Gene Banks Gather to Celebrate 1 Million Seed Collections

Stakeholders' Highlights

  1. CECEIndustry Stakeholders Are Ready to Take the Lead in Digital Construction
  2. ILGA EuropeAnkara Ban on LGBTI Events Continues as Turkish Courts Reject NGO Appeals
  3. Aid & Trade LondonJoin Thousands of Stakeholders of the Global Aid Industry at Aid & Trade London
  4. Macedonian Human Rights MovementEuropean Free Alliance Joins MHRMI to End the Anti-Macedonian Name Negotiations
  5. Mission of China to the EUChina-EU Tourism Year to Promote Business and Mutual Ties
  6. European Jewish CongressAt “An End to Antisemitism!” Conference, Dr. Kantor Calls for Ambitious Solutions
  7. UNESDAA Year Ago UNESDA Members Pledged to Reduce Added Sugars in Soft Drinks by 10%
  8. International Partnership for Human RightsUzbekistan: Investigate Torture of Journalist
  9. UNICEFExecutive Director's Committment to Tackling Sexual Exploitation and Abuse of Children
  10. Nordic Council of MinistersState of the Nordic Region 2018: Facts, Figures and Rankings of the 74 Regions
  11. Mission of China to the EUDigital Economy Shaping China's Future, Over 30% of GDP
  12. Macedonian Human Rights MovementSuing the Governments of Macedonia and Greece for Changing Macedonia's Name