The Eurozone is not working

Tim Wallace
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ay: EU boss says threat to euro has been overcome
Yesterday: Joblessness in single currency area hits record

UNEMPLOYMENT hit a record high and retail sales slumped towards the end of last year as the Eurozone’s economic tragedy plumbed new depths, official figures showed yesterday – despite top Brussels politicians insisting the crisis has been overcome.

That means the Eurozone is almost certainly still in recession, with even the tough German economy likely to have shrunk at the end of the year as its exports to other countries plunged.

The latest set of gloomy data comes after European Commission president Jose Manuel Barroso claimed on Monday that “the existential threat against the euro has essentially been overcome”.

“In 2013 the question won’t be if the euro will implode or not,” he said, arguing that European Central Bank boss Mario Draghi has helped put the continent back on track to recovery by promising to buy bonds from struggling governments that ask for a bailout and vow to reform their economies.

But despite Barroso’s optimism, the crisis is deepening and economists still doubt whether the Eurozone can stay together in the face of such mounting economic and social pressures.

Unemployment hit 11.8 per cent in November – the highest level on record since the euro was introduced in 1999 with 18.82m people unemployed across the single currency area.

And youth unemployment in the Eurozone also jumped to a new high of 24.4 per cent, with the rate in the worst-hit states like Spain and Greece edging closer to 60 per cent.

Retail sales fell 2.6 per cent compared with November 2011, and analysts expect demand to remain under pressure as the private sector continues to pay down its debts instead of borrowing and spending.

Even the Eurozone’s largest economy Germany may have been battered into contraction at the end of last year by the worsening crisis, with figures out yesterday showing that German exports dropped 3.4 per cent in November and factory orders fell 1.6 per cent, worsening the Eurozone’s ongoing recession.

“A weaker German economy this year poses an additional and very real threat to existing projections for growth and deficits across much of the Eurozone,” said Neil Mellor from BNY Mellon

“This will be a tougher year than 2012 for Germany and by extension, the Eurozone as a whole, and under such circumstances, it is difficult to imagine that the 12 months that lie before us will be devoid of one funding crisis of varying scale or other.”

And despite positive market reactions to the ECB’s plans to support the economy through monetary policy, economists argue such aid cannot put the Eurozone back on a track to recovery by itself.

“The Eurozone is trundling further into recession, but neither states nor the central bank are taking action. Reform will have to be undertaken the long and painful way: falling wages in the periphery amid widespread unemployment, rising wages in the core thanks to a weak euro and loose monetary policy,” said Tim Ohlenburg from the Centre for Economics and Business Research (CEBR).

He doubts whether the currency area really will last as president Barroso claims.

“The Eurozone faces a long and hard trek and it remains unclear if it can reach the summit intact,” Ohlenburg warned.