Unemployment at Record High in Euro Zone

The numbers from the European Union’s statistical agency, Eurostat, come ahead of the meeting Thursday of the European Central Bank’s governors, a gathering upon which many hopes of a decisive new intervention to stem the crisis have been pinned.

On the unemployment report, European stocks ended their three-day rally, led downward by Spain’s benchmark IBEX 35 index, which was off nearly 1.6 percent.

The yield, or interest rate on Spain’s 10-year bond, a measure of the government’s borrowing costs, edged higher after several days of declines, ticking up to 6.672, up 0.144 percentage point. Italy’s 10-year bond edged back above 6 percent.

According to Eurostat the seasonally adjusted unemployment rate for the 17 nations that use the euro was 11.2 percent in June, stable compared with May’s revised statistics but significantly higher than the 10 percent recorded a year earlier. For the 27 nations of the E.U., the unemployment rate was also stable, at 10.4 percent.

Eurostat estimates that 25.1 million men and women were unemployed in the European Union in June, of whom 17.8 million are in the euro zone.

With the European economy paying the price for an acute lack of business confidence, hopes are high that the president of the European Central Bank, Mario Draghi, will follow through on his pledge, made in London last week, to do “whatever it takes” to preserve the euro.

Mr. Draghi’s comments led to a reduction in the borrowing costs of Spain and Italy, which had been hitting the sorts of critical level that analysts say would make their debt unsustainable in the medium term.

But financial markets will be looking closely to see if there is any more detail forthcoming Thursday about moves to lower the interest rates paid by Spain and Italy. One theory is that the euro zone’s rescue fund, the European Financial Stability Facility, could intervene alongside the E.C.B., which has recently stayed out of the bond markets.

On Monday, President Barack Obama said European leaders could save the euro by acting promptly to solve their debt crisis.

“I don’t think ultimately that the Europeans will let the euro unravel, but they are going to have to take some decisive steps,” Mr. Obama told a $40,000-a-plate fund-raiser at the NoMad Hotel in New York, according to Bloomberg News. “And I am spending an enormous amount of time, trying to work with them. The sooner that they take some decisive action, the better off we are going to be.”

Before heading to France, Finland and Spain for talks with fellow leaders, Prime Minister Mario Monti of Italy added to the growing sense of anticipation Tuesday over an easing of the euro zone debt crisis in an interview with an Italian radio station, but again without providing any detail. “Some light is appearing at the end of the tunnel,” Mr. Monti said. “We and the rest of Europe are approaching the end of the tunnel.”

“We are now seeing results both in the willingness of European institutions as well as from the governments of individual countries, including Germany,” he added.

Financial analysts like Holger Schmieding, chief economist at Berenberg Bank, and Christian Schulz, senior economist there, think they can see the outlines of the new strategy, although it remains unclear how much action will be forthcoming in the very short term.

“News agency reports suggest that the E.C.B. may already be planning a coordinated bond purchase with the rescue fund E.F.S.F., where the latter would lend support in primary markets and the E.C.B. would intervene in secondary markets,” they wrote in a briefing note. “More likely than not, the E.C.B. will not act immediately but deliver a strong verbal intervention instead. Draghi is likely to warn officially that turmoil in sovereign bond markets impairs the transmission of E.C.B. monetary policy and that the E.C.B. will react decisively if the situation deteriorates.”

However Mr. Schmieding and Mr. Schulz said Mr. Draghi was unlikely to confirm publicly any potential cooperation with the E.F.S.F. “With luck, a forceful verbal intervention might already be enough to end this wave of the euro crisis,” they said.

Leave a Reply

error: Content is protected !!