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http://www.ft.com/cms/s/0/0caececc-c425-11e1-850c-00144feabdc0.html#ixzz1zYmR5yKo

Eurozone unemployment hits record high

By James Wilson in Frankfurt
[image: People line up to enter a government employment benefit office in
Madrid, Spain]©AP <http://www.ft.com/servicestools/terms/associated-press>

People queue at a government employment benefit office in Madrid on Friday

The European Central Bank is widely expected to make an interest rate cut
this week to try to invigorate the eurozone’s ailing economy after
unemployment in the region climbed to a record high of 11.1 per cent and a
key survey of manufacturing showed the sector to be at its weakest in three
years.

Attention is back on the ECB’s role in helping the eurozone emerge from its
debt crisis, after last week’s EU summit agreed that the central bank
should play a role in common bank supervision. Leaders also backed the view
of Mario Draghi, ECB president, that eurozone bailout funds should be
offered directly to recapitalise struggling banks.

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MoreOn this story

   - Soaring youth unemployment stokes
fears<http://www.ft.com/cms/s/0/b9990f16-c43f-11e1-9c1e-00144feabdc0.html>
   - Interactive Youth
unemployment<http://www.ft.com/cms/s/0/5e9dbee4-c459-11e1-a98c-00144feabdc0.html>
   - Youth unemployment to remain
high<http://www.ft.com/cms/s/0/d24b937a-a366-11e1-ab98-00144feabdc0.html>
   - Steven Hill Youth job woe is not as
bad<http://www.ft.com/cms/s/0/5cc9db3e-bbbc-11e1-9436-00144feabdc0.html>
   - German unemployment drifts
higher<http://www.ft.com/cms/s/0/8d5b5036-c10a-11e1-853f-00144feabdc0.html>

On this topic

   - Gideon Rachman Blackmail cannot be UK’s Europe
policy<http://www.ft.com/cms/s/0/a5d7a2b2-c3a9-11e1-966e-00144feabdc0.html>
   - Cameron in delicate balancing act over
Europe<http://www.ft.com/cms/s/0/12a38d32-c38e-11e1-ad80-00144feabdc0.html>
   - Cameron considers EU
referendum<http://www.ft.com/cms/s/0/b086823c-c363-11e1-966e-00144feabdc0.html>
   - Summit gives birth to common EU
patent<http://www.ft.com/cms/s/0/17684bb2-c205-11e1-bffa-00144feabdc0.html>

IN EU Economy

   - Irish mortgage crisis imperils
recovery<http://www.ft.com/cms/s/0/1224b872-c384-11e1-ad80-00144feabdc0.html>
   - Poland’s growth defies eurozone
crisis<http://www.ft.com/cms/s/0/99bb5b68-c13d-11e1-8eca-00144feabdc0.html>
   - The Long View testing Spain and Italy
defences<http://www.ft.com/cms/s/0/b2ea09e6-c1d2-11e1-b76a-00144feabdc0.html>
   - Eurozone officials in all-night aid
fight<http://www.ft.com/cms/s/0/43dc9300-c143-11e1-8eca-00144feabdc0.html>

Few analysts expect the ECB to offer politicians a quid pro quo this week
by giving further direct support to banks or governments such as more cheap
loans<http://www.ft.com/intl/cms/s/0/a7ade85e-5184-11e1-a99d-00144feabdc0.html>or
bond
buying<http://www.ft.com/intl/cms/s/0/2007154e-baf0-11e1-b445-00144feabdc0.html>.
But markets are pricing in the likelihood that the ECB will respond to
worsening economic data by cutting its main policy rate to below 1 per cent
for the first time – a step that should help peripheral eurozone banks that
rely on central bank borrowing.

“A rate cut by 25bp almost looks like a done deal,” said Carsten Brzeski,
senior economist at ING in Brussels, in research published on Monday.

Mr Draghi has voiced alarm at increased
risks<http://www.ft.com/intl/cms/s/0/81e1c8ec-afe5-11e1-ad0b-00144feabdc0.html>to
the economic outlook and some economists think the central bank could
consider a more aggressive rate cut of 50 basis points.

“Circumstances are sufficiently negative to move to 0.5 per cent,” said
Julian Callow, European economist at Barclays. “It is clear that the
economy does need significantly more stimulus.”

The 11.1 per cent oblessness rate in the eurozone in May is the highest in
the history of the single currency, the EU’s statistics office said on
Monday. The rate climbed in Spain, where almost one in four people is out
of a job, and edged higher in France, where President François Hollande’s
government is this week to set out key parts of its policies to boost
growth and cut the budget
deficit<http://www.ft.com/intl/cms/s/0/d5a0e716-c380-11e1-966e-00144feabdc0.html>
.
[image: G4018X, Eurozone PMI]

Across the eurozone the number of unemployed rose by more than 1.8m in the
past year. Unemployment among those aged under 25 is more than 52 per cent
in Spain and Greece.

ING’s Mr Brzeski said economic confidence was “far below historical
averages in all eurozone countries” except for Germany, where unemployment
remains low. But confidence is also declining in Germany, with the
country’s manufacturing sector shrinking at its fastest rate in three years
in June according to data from Markit’s manufacturing purchasing managers’
index.

The index showed that the downturn in eurozone manufacturing extended to an
11th straight month.

“It will not be long before the eurozone is officially in a recession,”
said Mr Brzeski.
In depth*

Eurozone in crisis <http://www.ft.com/indepth/euro-in-crisis>
*
[image: Eurozone]

As the debt storm spreads Europe’s leaders battle to save the eurozone

Some economists believe the ECB will yet stay its hand, leaving the main
policy rate unchanged. But aside from discussing its main policy rate, the
ECB’s governing council is also likely to consider what it should do with
its deposit facility rate – what banks earn for depositing money overnight
at the central bank.

The deposit rate is important because it in effect sets a floor for market
interest rates: banks have little incentive to lend to each other at below
the deposit rate.

For the past three years the deposit rate has been 75 basis points below
the main policy rate. But few economists think the ECB will cut the deposit
rate to zero, even if the main refinancing rate falls to 0.75 per cent. “We
suspect the ECB would prefer a non-zero rate,” said economists at Deutsche
Bank.

The ECB held its main policy rate at 1 per cent for much of 2009 and 2010,
before tightening last year in a premature attempt at a crisis “exit
strategy”. The rate was cut again to 1 per cent in December, when the ECB
also announced unprecedented three-year loans in a sign of its alarm at a
potential borrowing crunch for banks.


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