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Tuesday, July 31, 2012

Europe’s debt crisis has ramifications beyond the financial markets.

The number of people unemployed across the 17 countries that use the euro hit a record high in June, official figures showed Tuesday, in a stark reminder that Europe’s debt crisis has ramifications beyond the financial markets.
Eurostat, the EU’s statistics office, said 17.801 million people were out of work in the eurozone in June. That was 1,23,000 more than May, and is the highest level since the euro was formed in 1999. The increase was the 14th in a row and means that around 2.25 million people have lost their jobs since April 2011.

Despite the increase, unemployment on a seasonally-adjusted basis in June was unchanged at a record 11.2 per cent, nearly three percentage points higher than the U.S.’s equivalent 8.2 per cent. Europe’s unemployment rate for May had originally been estimated at 11.1 per cent.
“Another horrible set of labour market data for the eurozone, which bodes ill for consumer spending and growth prospects,” said Howard Archer, chief European economist at IHS Global Insight.
Spain, which is at the forefront of Europe’s debt crisis concerns, had the highest unemployment rate across the eurozone of 24.8 per cent. Greece’s rate was not far behind at 22.5 per cent, though the latest figures available are for April.
Many countries that use the euro, including France and Italy, also have double-digit unemployment rates.
Germany, Europe’s biggest economy, continues to fare far better, and its unemployment rate, according to Eurostat, dropped to 5.4 per cent in June from the previous month’s 5.5 per cent.
The figures will add to the pressure on policymakers to get a grip of the debt crisis, which is impacting communities and consigning large chunks of younger people to unemployment. Every other person aged below 25 in Spain and Greece is unemployed.
Those comments raised expectations that, at the very least, the European Central Bank will ramp up its bond-buying programme in the hope of keeping a lid on Spanish and Italian borrowing rates. The recent sharp rise in Spain’s interest rates raised concerns that the 17-country eurozone hasn’t the capacity to bail out its fourth-largest economy, and raised the spectre of Italy needing financial help too.
Eurostat revealed Tuesday that inflation was unchanged at 2.4 per cent in July. Though that remains above the ECB’s mandated target of keeping price increases just below 2 per cent, the recent trend has been downward and analysts expect that to continue.
A waning economy and rising unemployment, which combine to keep a lid on wage increases, are expected to push inflation back below target over the coming months. Lower energy inflation is also expected to ease down on price rise pressures.
This opens the door for the ECB to cut its benchmark rate below its current record low of 0.75 per cent.

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