No Recovery in EU Unemployment

Eurostat, the EU statistics agency, has released new unemployment numbers for Europe. The EU Observer notes that in January the unemployment rate for the euro zone was 12 percent, unchanged from a year ago, while unemployment in the EU as a whole was down by two tenths of a percent to 10.8 percent.

This is the short story of European unemployment, giving the impression that the crisis has stagnated and that there is a small, slow turnaround happening, at least outside the euro zone. But is this true? I recently reported macroeconomic data that show that the European economy is in a state of stagnation, not a recovery. I have also pointed to Greece as an example of how the crisis over the past few years is morphing into a depressive state of economic stagnation.

If I am correct, we should see evidence of a permanent stagnation in Eurostat’s unemployment numbers.

Before we get to the month-to-month numbers, let us take a bigger view of annual numbers which are now reported through 2013. For the European Union as a whole, unemployment has increased almost every year since it was 7.1 percent in 2008. In 2009 it reached nine percent; in 2010 it was 9.7, remaining at that level in 2011. In 2012 it rose again to 10.5 percent.

In 2013 it was up again, to 10.9 percent.

The euro area follows a similar pattern: 7.6 percent in 2008, 9.6 in 2009, 10.2 in 2010 and 2011, sharply up to 11.4 percent in 2012 and up again last year, to 12.1 percent.

This big-picture view shows an unrelenting economic crisis. Before we leave this level, it might be worth pointing to the plateau in unemployment in 2011. After that year, in 2012, the EU joined the ECB and the IMF in subjecting several euro-zone states to economically destructive austerity policies. Precisely as macroeconomic theory would suggest, the effects of those policies spread throughout the euro zone, sending unemployment up another couple of notches.

Thus, annual data show no sign whatsoever of a recovery. At best, we might hope that the jump in unemployment in the last two years is going to be followed by the same kind of plateau that occurred in 2010-11. The only way Europe can enter a trend of shrinking unemployment is if there is new spending going into the economy on a sustained basis. That, in turn, requires structural reforms to the European economy that I do not see any support for at this point.

Moving to a more detailed time scale, quarterly data can be sliced different ways. Looking first at the last quarter of every year back to 2010, we once again see no sign of a recovery. EU unemployment was 9.6 percent in the fourth quarter of 2009, ten percent in 2011 and has been 10.8 the fourth quarter of the past two years. Euro-zone unemployment, in turn, has been inching up all the way: 10.2 in ’09, then 10.6, 11.8 and 12.0.

Again, notice the austerity-driven bump from 2011 to 2012.

If we look at quarterly data as a series of quarters, we get a more detailed view. Here we can actually find the a weak sign of something that could turn into a recovery:

  • For the EU as a whole, unemployment increased seven quarters in a row, from 9.5 percent in the second quarter 2011 to eleven percent in the first quarter of 2013;
  • In 2013 unemployment fell marginally to 10.9 percent in the second quarter and 10.8 percent in the fourth.

The euro zone, on the other hand, saw an eight-straight-quarter rise, topping out in the second quarter of 2013 at 12.1 percent. The drop by a tenth of a percent since then is not the beginning of a trend.

The fact that the euro zone does not exhibit the same minor decline that the EU as a whole can show, is an indication that there is no emerging recovery in the EU as a whole. Instead, this is a matter of isolated reductions in non-euro zone countries such as Lithuania (-2.1 percent in 2013) and Hungary (-1.8 percent).

Moving, lastly, to monthly numbers, we start with the first month of every year back through 2009:

2009M01 2010M01 2011M01 2012M01 2013M01 2014M01
EU 8.1 9.6 9.5 10.1 11.0 10.8
Euro zone 8.7 10.2 10.0 10.8 12.0 12.0

See any downward trend? Nope. Just yet more evidence of stagnation.

But what about month-to-month? Let’s go back through 2012 and 2013 to find out:

EU Euro zone
2012M01 10.1 10.8
2012M02 10.2 10.9
2012M03 10.3 11.0
2012M04 10.4 11.2
2012M05 10.4 11.3
2012M06 10.5 11.4
2012M07 10.5 11.5
2012M08 10.6 11.5
2012M09 10.6 11.6
2012M10 10.7 11.8
2012M11 10.8 11.8
2012M12 10.9 11.9
2013M01 11.0 12.0
2013M02 11.0 12.0
2013M03 11.0 12.0
2013M04 11.0 12.1
2013M05 10.9 12.1
2013M06 10.9 12.1
2013M07 10.9 12.1
2013M08 10.9 12.1
2013M09 10.9 12.1
2013M10 10.8 12.0
2013M11 10.8 12.0
2013M12 10.8 12.0
2014M01 10.8 12.0

Long story short: unemployment numbers for the EU and the euro zone firmly establish that the European economy is in a state of stagnation. This is, again, not the least bit surprising to anyone who knows his macroeconomics: so long as there is no new spending injected into the private sector, on a sustained basis, there will be no sustained reduction in unemployment.

As depressing as that conclusion is, it is not surprising. It is the predictable fallout of the fiscal and monetary policy package in Europe over the past several years.

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