European Council on Foreign Relations

Unemployment across the eurozone

Ministers from France, Germany, and Italy are expected to meet in Rome this week to tackle youth unemployment and introduce reforms to relaunch growth and competitiveness. What is at stake is the European project. The German finance minister, Wolfgang Schäuble, described it as a "battle for Europe's unity", and warned that a revolution might occur if Europe's welfare model is abandoned. Joblessness is an emergency and it is good sign that it is on top of the agenda of the next European Council (to be held end of June). President Van Rompuy acknowledged [1] that the number of unemployed people in the Union, especially of the unemployed young, is at record levels. At last, European leaders are addressing social issues alongside economic ones.

The European Commission has proposed a series of measures in the framework of the Youth Employment Package: the European Alliance for Apprenticeships will be launched in early July; the recommendation to establish a Youth Guarantee has been swiftly adopted by the Council; the importance of tackling youth unemployment has been underlined in the Compact for Growth and Jobs. In June 2012 the EC redirected EU funds to help 800,000 young people in the eight worst hit countries. Last February €6 billion were set aside for the Youth Employment Initiative within the next seven year EU budget. Of course, as the dreadful unemployment figures suggest, these measures will not fix the problem.

What is really needed is reform, as European Central Bank President Mario Draghi has pointed out. The ECB won't act to ensure the solvency of a country, he said. He guaranteed that a higher inflation rate will not be used to solve debt crises, and said interest rates will rise once confidence returns to the euro area. Instead he suggested that indebted countries should follow Germany's 2003 reforms. Those brave reforms (for instance to the labour market) may have led to the electoral demise of Chancellor Schröder, but in the long term they also ensured Germany would suffer far less unemployment during the crisis.

Italy, the eurozone's third-biggest economy, is worse off than most of the others precisely because it has not enacted and implemented structural reforms over the past 20 years. Despite a timid recovery in 2010, since the middle of 2011 it has been stuck in its longest post-war recession, while unemployment has hit record levels. In the last quarter of 2012, Italy’s GDP fell by 0.9 percent, and the country’s real GDP dropped by 2.4 percent in 2012 as a whole. Private consumption contracted unprecedentedly by more than 4 percent, and government consumption also experienced a serious setback following severe fiscal consolidation. The new government is looking at the possibility of using €1.1 billion to reduce taxes for enterprises that hire young employees on long-term contracts. Italy’s competitiveness has been declining over the past decade: real unit labour costs have grown at a faster pace than productivity, and faster than in most of the euro area. Since the creation of the euro, Italy’s unit labour costs have risen by about 30 percent more than the currency area average. Real unit labour costs rose by 0.7 percent in 2012. [2]

According to the latest Eurostat [3] estimates, in April 2013 26,588,000 people in the EU-27 were unemployed, of whom 19,375,000 were in the euro area (EA-17). This represents increases of 104,000 in the EU-27 and 95,000 in the euro area compared to just one month earlier. When the comparison is with one year earlier, unemployment rose by 1,673,000 in the EU-27 and by 1,644,000 in the euro area. The EA-17 unemployment rate went from 11.2 percent in April 2012 to 12.2 percent in April 2013; in the EU-27 it rose from 10.3 percent to 11 percent over the same period. Among the Member States, the lowest unemployment rates were recorded in Austria (4.9 percent), Germany (5.4 percent), and Luxembourg (5.6 percent); and the highest rates in Greece (27 percent in February), Spain (26.8 percent), and Portugal (17.8 percent).

The economic crisis has hit the youth more than other age groups. From the beginning of 2009, the EU-27 youth unemployment rate was higher than in the euro area between 2000 and mid-2007. Since then, and until the third quarter 2010, these two rates have been very close. In the middle of 2012 the euro area youth unemployment rate overtook the EU-27 rate, and the gap has since increased.

In April 2013, 5,627,000 young persons (under 25) were unemployed in the EU-27, of whom 3.624 million were in the EA-17. In April 2013, the youth unemployment rate was 23.5 percent in the EU-27 and 24.4 percent in the euro area, compared with 22.6 percent in both zones in April 2012. In April 2013 the lowest rates were observed in Germany (7.5 percent), Austria (8.0 percent) and the Netherlands (10.6 percent); and the highest in Greece (62.5 percent in February 2013), Spain (56.4 percent), Portugal (42.5 percent) and Italy (40.5 percent).

However, out of this economic and social crisis Europe could find more legitimacy, which seems to be lost for European citizens. Between now and the June European Council, leaders will have the opportunity to adopt measures that demonstrate that Europe is not a super-national entity aimed at making lives difficult, but it is still a land of opportunities. We will be following these meetings closely, as unemployment is not simply a matter of numbers: it is a matter of people, of Europeans, and the future of the European project.


[1]http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/137290.pdf

[2]http://www.ecb.europa.eu/stats/exchange/hci/html/hci_ulct_2012-10.en.html

[3]http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics#Youth_unemployment_trends

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