Eurozone unemployment hits another record high
Protestors gather near Parliament demonstrating against austerity measures announced by the Spanish government in Madrid on Sept. 29, 2012. Tens of thousands of Spaniards and Portuguese rallied in the streets to protest enduring deep economic pain from austerity cuts, including high unemployment rates. (AP Photo/Daniel Ochoa De Olza)
Published Friday, November 30, 2012 7:38AM EST
LONDON -- Another month, another record unemployment rate for the economy of the 17 European Union countries that use the euro.
Figures released Friday by Eurostat, the EU's statistics office, showed that the recession in the eurozone pushed unemployment in the currency bloc up to 11.7 per cent in October.
The rise from the previous record of 11.6 per cent in September was anticipated in light of the eurozone's return to recession in the third quarter, commonly defined as two consecutive quarters of negative growth.
While the eurozone's unemployment has been inching upward since June 2011, the equivalent rate in the U.S. has fallen to below 8 per cent as the world's largest economy continues its recovery from recession. In October, it stood at 7.9 per cent.
Eurostat found 18.7 million people were out of work across the eurozone, an increase of 173,000 on the previous month. The wider 27-nation EU that includes non-euro countries such as Britain and Poland had an unemployment rate of 10.7 percent and a total of 25.9 million out of work.
"The level of unemployment in Europe remains unacceptably high," said Jonathan Todd, a spokesman for the European Commission, the EU's executive arm.
Spain and Greece have the region's highest unemployment rates -- both over 25 percent, with youth unemployment levels heading towards 60 per cent, a potentially toxic long-term economic and political development.
Both countries are in recession and struggling to convince investors as well as their own people that they can get a grip on their debts to improve living standards. Both, along with a number of euro countries, have introduced tough austerity measures, such as cutting spending and raising taxes, in order to get a handle on their debts.
However, reducing wages and pensions lowers demand in the economy to the detriment of the labor force.
Other measures taken alongside the austerity, such as reforming labor practices, boosting skills and education, are intended to promote jobs but they take time, both to enact and to feed through an economy.
"We expect, however, that progress in structural reforms, especially those that improve the functioning of labour markets, will help lower unemployment and facilitate new employment opportunities," Mario Draghi, the president of the European Central Bank, said in a speech Friday in Paris.
The Commission's Todd said all EU countries should implement a new scheme -- to be officially proposed next week -- to help young jobless people. The scheme would ensure that, within four months of leaving school or becoming unemployed, a young person would be offered a job, further education, a traineeship or an apprenticeship.
"This would extend to the whole of the EU existing good practice that exists in, for example, Austria, Finland and Sweden," Todd said.
Many economists think that unemployment in many countries will carry on rising for months to come, certainly as long as the economies remain in recession. Draghi expects the recovery to start only in the second half of next year.
Marie Diron, a senior economic adviser at Ernst & Young, forecasts unemployment will rise through 2013 and a peak a little under 20 million in the last quarter of the year. She said that by then, companies that have become "leaner and fitter" could fuel growth and start hiring again.
"But before we reach that stage, there is unfortunately more pain to go through with high social costs," Diron said.
At present, the five euro countries at the forefront of the debt crisis -- Greece, Spain, Italy, Cyprus and Portugal -- are in recession.
Others, like the Netherlands and Austria -- neither of which is particularly debt-laden -- are also close to officially falling into recession, having posting declines in third-quarter economic output. Austria nevertheless has the lowest unemployment rate in the eurozone, at 4.3 per cent.
The currency bloc's powerhouse economies, such as Germany and France, have also seen growth levels fall in the last year and that's ratcheted up the pressure on businesses to cut costs. Industrial conglomerate Siemens AG, for example, announced Friday it would cut another 4,700 jobs, not all in Germany.
Germany's unemployment rate stood at a still-low 5.4 per cent in October, but France's was nearly double that at 10.7 percent.
Households got some good news in separate figures showing the annual inflation rate in the eurozone fell by more than anticipated to a 23-month low of 2.2 per cent in November from 2.5 per cent the previous month.
Since it was a preliminary estimate, Eurostat gave no reasons behind the decline but waning labor market pressures to lift wages are likely to have been, at least partially, behind the fall.
"We think inflation could fall quite a bit further over the next year or so in response to the spare capacity in the economy, helping to ease the squeeze on households' real incomes," said Jonathan Loynes, chief European economist at Capital Economics. "But whether that will get them spending in an environment of austerity and rising unemployment is another matter."
Despite the November decline, inflation is still above the ECB's target of keeping price rises at just below 2 per cent. Few economists think the ECB will cut its main interest rate from the current record low of 0.75 per cent at its monthly policy meeting next Thursday.