Why Can’t the Euro Zone Tackle Unemployment?

The Eurogroup of euro zone finance ministers are gathering for yet another summer meeting this weekend. But, for once, it’s not Greece topping the agenda. Instead, officials will be discussing how to boost growth and employment in the 19-country single currency region in order to prevent a lost generation of “unemployable” citizens.

Although the most recent economic data show a positive trend in the region — the most recent gross domestic product (GDP) estimates released this week showing that the euro zone economy grew a respectable 0.4 percent in the second quarter against the previous three months. But it is getting that return to growth to translate into an investment in human capital remains a hot topic for politicians.

Although the headline unemployment rate in the euro zone was 10.9 percent in July – the lowest level in three years – the rate belies the great disparity between the rate of unemployment seen in northern and southern Europe. While Germany has the lowest jobless rate of 4.7 percent, for example, its southern counterpart Greece has a 25 percent unemployment rate (in May, the latest available data), followed by Spain, at 22.2 percent.

Jonathan Loynes, chief European economist at Capital Economics, told CNBC that while he saw the labor market improving against a backdrop of better growth data, it was doing so very slowly.

“Labor market conditions have been improving but it has been doing so from a very low starting point and economic growth rates at this level are not really adequate,” he told CNBC this week.

“There is still a great deal of slack in the economy (the amount of unused capacity in the economy) and the longer that goes on, the greater the potential damage done to the economy’s capacity for productivity,” he said, warning that the those already unemployed at length effectively can become unemployable.

Euro zone leaders are not oblivious to the problem of pockets of stubborn high unemployment in the region, particularly in the poorer southern euro zone nations. In November 2014, the head of the European Commission, Jean-Claude Juncker, proposed a 315 billion euro ($351.5 billion) investment plan for Europe aimed at helping small and medium-sized enterprises, creating a million jobs, long-term growth and competitiveness.

Unveiling the package last year, Juncker said it offered a simple message to the world: “that Europe can offer hope to its future generations and to the rest of the world as a promising, attractive hub for jobs, growth and investment.”

CNBC

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.