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Record eurozone jobless rate spotlights growth dilemma

02 May 2012, 13:02 CET
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(BRUSSELS) - A slowing eurozone economy pushed unemployment to a record 10.9 percent in March, highlighting on Wednesday growing pressure on governments to go for growth rather than more austerity.

The figures, up from 10.8 percent in February, coincided with a survey showing manufacturing in the 17-nation eurozone stumbling to near three-year low levels as spending cuts and tax rises push the bloc towards recession.

Almost 17.37 million men and women, 169,000 more than in February, were out of work in March, according to the Eurostat data agency.

The Markit Purchasing Managers' Index, a closely watched indicator, fell sharply to 45.9 from 47.7 in March, signalling contraction of the manufacturing sector for a ninth month running.

"Manufacturing in the eurozone took a further lurch into a new recession in April, with the PMI suggesting ... output fell at (a) worryingly steep quarterly rate of over 2.0 percent," Markit chief economist Chris Williamson said.

"Austerity (policies) in deficit-fighting countries is having an increasing impact on demand across the region (while) ... even German manufacturing output showed a renewed decline," Williamson said.

With elections in France and bailed-out Greece on Sunday turning on what governments can do to restore growth as a way out of the eurozone debt crisis, analysts said the latest data clearly shows the challenges ahead.

The jobless and manufacturing figures "underline the enormity of the challenge facing policymakers to respond to the growing calls for growth across the region," Capital Economics said in a client note.

It pointed out that even though southern eurozone countries were worst affected -- with Spain's jobless rate 24.1 percent according to Eurostat -- there were signs of stronger states such as Germany coming under pressure too.

Europe's powerhouse had a jobless rate of 5.6 percent in March, they said, but a headline increase of 19,000 was only the second rise in 25 months.

"With unemployment rising and industry slumping, a prolonged recession looks much more likely," they concluded.

May Day protests across Europe on Tuesday picked up on the theme, with calls for the focus to be put on jobs as the best way forward and too much austerity only making problems worse.

Sony Kapoor, head of the Re-Define think-tank, said recent data confirmed that the eurozone crisis is deepening and its leaders have to change course.

"The question is how long EU leaders will continue to pursue a deeply flawed strategy in the face of mounting evidence that this is leading us to social, economic and political disaster," Kapoor said.

He said that austerity policies cannot work for the whole EU and called for adoption of a "growth pact" which it needs "more than anything else in order to stem the downward spiral of falling growth, rising unemployment and weakening banking systems that has currently taken hold."

European Central Bank head Mario Draghi recently called for just such a growth pact to sit alongside the fiscal compact agreed earlier this year to tighten fiscal discipline across the EU.

However, Draghi was careful to note that a growth compact could not be based on additional stimulus spending and would have to rely on structural reforms -- a point quickly made by German Chancellor Angela Merkel.

Merkel insists that the fiscal compact could not be renegotiated, as called for by Socialist presidential front-runner Francois Hollande in France, but has conceded that growth would be on the June EU summit agenda.

Controversy about austerity and growth in the European Union turns on the views of some who say that a return to sound finances will generate growth through structural reform, and those who say that extra stimulus is needed.

This dilemma was likely to feature in a keynote television debate in France on Wednesday between outgoing right-wing President Nicolas Sarkozy and Hollande before the final vote in a presidential election on Sunday.


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Put the sparkplugs back!

Posted by Per Kurowski at 04 May 2012, 12:54 CET
What Europe needs is to put the sparkplugs back into its economic growth engine.

Those sparkplugs, the risk-takers, the “risky” small business and entrepreneurs, were forcedly removed by the regulators when they decided to base the capital requirements for banks on the perceived risks of default, as if those perceptions were not already discriminated for sufficiently by the banks.

What these regulations delivered, as should have been expected, are dangerous obese bank exposures to what is officially perceived as not-risky, and for us and economic growth equally dangerous anorexic exposures to what is officially perceived as “risky”.