Eurozone Unemployment Soars in Debt Crisis

by John M. Curtis
(310) 204-8700

Copyright Oct. 31, 2012
All Rights Reserved.                                         

        Unemployment in the 17-nation Eurozone hit 11.6% in September, signaling more economic woes inside the once do-know-wrong land of the vaunted euro.  Launched in 1999 to much fanfare, the euro was supposed to assure member-states unprecedented prosperity, replacing the U.S. dollar as the world’s reserve currency.  While the euro performed well for a while, it didn’t take long for less export-based economies to run in the red.  Brussels-based Eurostat, the EU’s statistical bureau, reported at about 18.49 million people were out of work, up 146,000 in August.  While tame by European standards, President Barack Obama’s second term hangs on one-tenth increments, with U.S. unemployment last month dropping to 7.8%.  With a tight presidential race, Democrats and Republicans await anxiously Friday’s Labor Department unemployment number. 

            When the number’s read early Friday morning, you can bet Democrats and Republicans will spin it to their advantage. GOP presidential nominee former Massachusetts Gov. Mitt Romney and his VP pick Rep. Paul Ryan (R-Wis.) have done a good job in interpreting every piece of positive Labor and Commerce Department economic data as disastrous for the White House.  When the September unemployment rate dropped from 8.1% to 7.8%, Romney and Ryan said it wasn’t enough because Obama promised it would be down to 5.4% at the end of his first term.  Mitt and Paul never give Barack any credit for improving the economy, only bashing him for not fulfilling campaign promises.  Forget about the historic depth of the recession, Romney and Ryan cut Obama no slack.  When the U.S. looks at Europe, the U.S. economy doesn’t look too bad.

            Eurozone economists expect the unemployment rate to continue rising before policymakers can figure out a fix to the sovereign debt crisis.  German Chancellor Angela Merkel has been selling pie-in-the-sky about the euro’s future.  While the 58-year-old Merkel is the euro’s biggest advocate, others aren’t so certain about the currency’s future.  Faced with defaults and bankruptcies is some of the Euozone’s biggest economies, the euro faces its biggest crisis in its 13-year history.  “Financial markets have calmed but we expect that the deteriorating economy will so enough lead to more crisis headlines,” said Tim Ohlenburg, senior economist at the London-based Centre for Economics and Business Research.  More bad news usually means sell offs in European stock markets, something that infects Wall Street.  Recent overtures by Merkel to U.K. Prime Minister David Cameron show growing desperation.

            Europe’s sovereign debt crisis started with Greece, spread to Ireland, now infecting Portugal, Spain and Italy.  Even more prosperous Eurozone members, like France, Netherlands and Belgium, are also having economic problems, as debt-burdened countries drag down the rest of the economic zone.  Poor growth across the Eurozone doesn’t bode well for Germany’s automotive industry, where Europe’s top brands, like Mercedes, Volkswagen, Audi, BMW, have watched sales plummet in recent months.  While Germany’s unemployment rate hangs at 5.4%, it could rocket up.  Merkel hasn’t had an easy go admonishing debt-burdened countries to cut back spending, in what’s euphemistically known as “austerity.”   More rioting on Greek streets doesn’t help the Eurozone’s image of showing economic solidarity and continued prosperity with its member-states.

            Unable to print their own currency and replenish their banking system, Eurozone countries like Greece, Ireland, Portugal and Italy, are forced to ask the Belgium-based European Union for bailouts.  Europe’s cash-flow problems stem directly from the Frankfurt-based European Central Bank reluctance to print and distribute more currency to member-states.  ECB officials have told the Eurozone, especially Germany, to contribute their own cash to any bailout fund.  Running an inflation rate of 2.5%, the ECB fears hyperinflation, should they simply print more euros.  With high welfare and health care costs in the Eurozone, the ECB expects each member-state to live within its means and not expect handout from the central bank.  Mounting sovereign debt has forced Germans to pay a disproportionately high amount its revenue to a Eurozone bailout fund for debt-ridden countries.

            Europe’s recession and high unemployment is indirectly related to the euro, where the common currency prevented sovereign nations from regulating their own money supply.  When the euro inflated in value after its launch, it became difficult, if not impossible, for foreign governments to transact with a common currency.  Unable to print or coin money, Eurozone countries must beg the ECB for more cash.  Greece and Spain’s record high 25%-plus adult unemployment together with over 50% youth unemployment has created Europe’s perfect economic storm.  “High and rising unemployment and relatively sticky inflation, does not bode well for consumer spending across the Eurozone, especially as consumers in many countries are also facing muted wage growth and tighter fiscal policy,” said Howard Archer, chief European economist at HIS Global Insight, signaling bad days ahead.

 John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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