Hamish McRae: Unfair division of the jobless misery but some rays of hope

Economic Life: We have devised a system that condemns a tenth of workforce to living off welfare

It is very hard to be optimistic about the eurozone economy, particularly so when we get data such as the unemployment figures out yesterday. These showed that eurozone unemployment has risen to 10.9 per cent, a level only matched in April 1997 before the creation of the euro.

Click HERE to view graphic

There actually are a couple of small glimmers of hope, of which more in a moment, but these figures are dreadful and give a disturbing backcloth to the elections this weekend in France and Greece. How much more misery can you heap on to people?

Looking at the numbers, two things stand out. One is the huge divergence across the region. The other is that, even in the good times, unemployment was still a problem. The top graph shows the divergence. The most alarming figure of course is that of Spain, where nearly a quarter of the workforce is unemployed, a number that is likely to climb further as the economy is still shrinking. There are some reasons for these very high levels, in particular the collapse of the construction sector (building employs a lot of people) but also the size of the informal economy, where some of the unemployed are able to earn something.

But the figures for Portugal are worrying too because the country had relatively low unemployment a decade ago, suggesting that euro membership has worked to its disadvantage, making the country less competitive. Portugal, of course, is one of the three countries to be rescued by the eurozone authorities, whereas Spain has not yet met that fate. But the flow of news and opinion in recent weeks suggests that such an outcome is pretty much inevitable. Several banks will have to be rescued and the question is who will do that.

At any rate the divergence across the region, from Spain's 24.1 per cent to Germany's 5.6 per cent (6.8 per cent on the national calculation) is utterly different from the divergence in the UK, which ranges from 11.2 per cent in the North-east to 6.3 per cent in the South-east. Worse still, the divergence is increasing. What Germany has achieved is a remarkable contrast to the fringe of Europe.

The other thing that stands out is the high unemployment generally. The second graph shows the longer-term pattern and the NAIRU, a clumsy acronym that stands for the Non-Accelerating Inflation Rate of Unemployment. That is the lowest unemployment rate an economy can accommodate without causing inflation, in shorthand the natural rate of unemployment. It seems to have been between 8 per cent and 9 per cent for most of the past 20 years, a level that represents a huge wastage of human skill and energy. We have managed to devise a system in Europe that condemns nearly a tenth of the potential workforce to living off welfare. In view of the pressure on public finances from an ageing population as well as supporting these jobless people, it cannot make sense to continue in this way.

But to change things means labour market reforms, such as the UK pushed through in the 1980s and Germany in the early 2000s, are now being urged on Spain, Greece, Italy and elsewhere. However, in the short-term labour market reform tends to increase unemployment. As you can see, German unemployment in the middle of the last decade was higher than in France, Spain and Italy and that was in a growth period. It is much more painful to try to adjust in a slump, hence the debate in Europe as to whether the necessary structural reforms can sustain political support.

So it is all bad news. But if you want to see a glimpse of light in what is happening in Europe, it is worth noting that unemployment is a lagging indicator, in that it reflects what has been happening to the economy rather than what is likely to happen. The forward-looking indicators, while not great, are somewhat more cheering. I have been looking at two.

One is European money supply. The European Central Bank has pumped in a huge amount of liquidity into the banking system. Most of that seems to have ended up in European sovereign debt, with the banks borrowing at 1 per cent and buying their own country's bonds yielding 5 per cent or more.

But some has leaked into the commercial economy. Simon Ward at Henderson comments: "Eurozone monetary trends are improving at the margin, suggesting that the ECB's rate cuts and liquidity injections have been at least partially effective... A recovery, moreover, has occurred in the periphery as well as the core in the last two months, a development that – if sustained – could herald an end to recessions in the former group by late 2012."

If he is right that would be rather contrary to the current mood of despair. Some support for the "Europe is growing again" school comes from some work by Goldman Sachs developing what it calls the Current Activity Indicator. The idea is to look at all the data and devise something that tells you what is happening in a more timely and more accurate way than the official GDP figures.

Well the new calculations for the eurozone suggest that growth was "marginally positive" in the first three months of this year. Goldman thinks that the official figures for GDP, out on 15 May, will probably show a decline, the difference being that the Goldman estimates include the purchasing manager surveys whereas GDP figures do not. But we will see. The main point here is that while the European economy is struggling and parts are in dire trouble, the overall picture is not one of unutterable gloom. Goldman thinks the eurozone, taken as a whole, will show some growth this year. But even if the eurozone economy does stabilise, it will be many months before any real progress will be made getting the jobless back to work.

Suggested Topics
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
PROMOTED VIDEO
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
i100This Instagram photo does not prove Russian army is in Ukraine
News
Morrissey pictured in 2013
people
Sport
sportVan Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Life and Style
Martha Stewart wrote an opinion column for Time magazine this week titled “Why I Love My Drone”
lifeLifestyle guru Martha Stewart reveals she has flying robot... to take photos of her farm
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
filmReview: Sometimes the immersive experience was so good it blurred the line between fiction and reality
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices