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.”


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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