World Economy

Eurozone Jobless Rate Falls, But More Needs to Be Done

The problem is especially severe in Greece with 45.2%  youth unemployed. The problem is especially severe in Greece with 45.2%  youth unemployed.

Finally, good news from the eurozone. Unemployment rates fell to 9.5% in February 2017. According to Eurostat, this is the lowest rate since May 2009. The 19 countries that have adopted the common currency are thus returning back to the unemployment level they experienced before the outbreak of the eurozone crisis. In the last 12 months, the eurozone recovery has lifted 1.25 million people out of unemployment.

This long-awaited decrease in unemployment is highly welcome; every person back in work is good news, even though it took nine years to recover. Many economists believe that the recovery could have been faster with much less pain if there had been less initial emphasis on austerity and less reluctance “to do what it takes” at the ECB before Mario Draghi made that move in 2012. But that said, the eurozone must now look forward, LSE reported.

So, is the worst over? Is wealth and prosperity–the ultimate promise of the EU to its citizens–finally coming back to the eurozone? And is the fragility of the eurozone that brought the crisis and the dramatic rise in unemployment a thing of the past?

To start with: Yes, the worst is over, but ‘better’ is not yet ‘good’. First, the benchmark should not be 2009, but 2007, the year before the great financial crisis, when the unemployment rate stood at around 7.5%. Second, even this number was back then considered as being much too high, pointing at structural unemployment problems in several countries.

Third, the positive data should not mask the heterogeneity across countries. While some of the crisis countries, like Ireland, Portugal and Spain, show the biggest improvements, the unemployment situation in Italy (11.5%) and France (10.0%) has hardly improved and the rates have remained stubbornly high. And with unemployment rates of 18% in Spain and some 23% in Greece, it is clear the situation is not yet healthy.

Finally, this is particularly true with respect to youth unemployment, where the rate is still standing at 19.4% with over 2.7 million young people out of work, a problem that is especially severe in Greece (45.2), Spain (41.5), Italy (35.2), Portugal (25.4) and France (23.6).

In sum, the good news is not enough and more needs to be done. On the one hand, national labor market policies need to provide better employment incentives, and on the other hand, it is now important to keep and support the momentum of the eurozone recovery.

In the latter respect, the policy stance of the European Central Bank will continue to play a major role. For the time being, the ECB seems to be determined to continue with its quantitative easing program, as Peter Praet, member of the executive board, has indicated recently: “while we are certainly seeing a firming, broadening and more resilient economic recovery, we still need to create a sufficiently broad and solid information basis to build confidence that the projected path of inflation is robust, durable and self-sustained.”

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