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25th Jun 2022

EU unemployment potentially explosive, says Juncker

  • The eurozone may be heading towards a social crisis, says Mr Juncker (Photo: EUobserver)

Euro group chief Jean Claude Juncker warned about the potential social fallout from the economic crisis during discussions on Europe's toxic assets and rising unemployment on Monday (4 April) evening.

"We are in the heart of an economic and financial crisis and we are headed towards a social crisis," said Mr Juncker after a meeting with eurozone finance ministers, describing the fallout as potentially "explosive."

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Earlier, economy commissioner Joaquin Almunia presented the EU executive's latest economic forecast to the euro area finance ministers which project unemployment to rise to 9.9 percent for the euro area this year and 9.4 percent for the EU27.

Mr Juncker, who was a labour minister in Luxembourg for 17 years, welcomed the commission's report and said greater emphasis must be placed on schemes to increase employability such as life-long learning and training programmes for workers on shortened weeks.

At the same time he urged employers to avoid premature lay-offs and to act in accordance with their "social responsibility."

Earlier this year the Czech EU presidency, facing accusations of inactivity from French president Nicolas Sarkozy, decided to tackle the problem head on and called an extraordinary employment summit to be held in Prague on 7 May.

But at a summit in March, EU leaders - worried about the possibility of coming away empty handed from the May employment summit - decided to downgrade its importance and the seniority of those attending.

"My feeling is that many politicians underestimate the extent of the phenomenon," said Mr Juncker.

"I'm very sad that the social summit on 7 May in Prague is going to take place in a rather reduced format. Even if we don't have many ideas at this stage, it doesn't mean we shouldn't be sitting down to tackle the problem."

Toxic assets

One important step towards ending the current recession and reducing unemployment is the restoration of a correctly functioning banking system within the EU, say analysts.

To do this, billions of euros worth of "toxic" assets held by EU banks must be cordoned off or neutralised in a bid to restore general public and investor confidence in the system.

In January, the British government announced an insurance scheme for British banks holding toxic assets and recently a number of other EU states have made moves to tackle the problem.

The German government is expected to complete a draft bill by 13 May aimed at clearing the banking system's toxic assets, recently valued at over €800 billion.

Part of the plan may involve extensive consolidation of state-owned Landesbanken reports the Financial Times, before these banks would be allowed to avail of a central government "bad bank."

Irish finance minister Brian Lenihan gave more details of his country's plans to tackle the problem at the euro group meeting on Monday.

Ireland recently set up a new body called the National Asset Management Agency which is expected to buy up to €90 billion of toxic assets off the country's banks using government funds.

However to do so, the government will first need to issue more debt, a move that would appear to conflict with EU calls for a return to fiscal responsibility and reduced public deficits.

Mr Juncker denied there was a contradiction here, however. "I don't see a different way from my Irish colleagues and friends to deal with the issue," he said.

For his part, Mr Almunia said Ireland would continue to be studied as a "success case" in the future, but also an example where "macroeconomic imbalances linked with the excessive growth of the housing sector" should have been dealt with at an earlier stage.

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