Hard to be optimistic... but there is hope ahead
It is very hard to be optimistic about the eurozone economy, particularly so when we get data such as the unemployment figures.
These showed that eurozone unemployment has risen to 10.9%, a level only matched in April 1997 before the creation of the euro.
Looking at the numbers, two things stand out. One is the huge divergence across the region. The other is that, even in the good times, unemployment was a problem.
The most alarming figure of course is that of Spain, where nearly a quarter of the workforce is unemployed, a number that is likely to climb further as the economy is still shrinking. There are some reasons for these very high levels, in particular the collapse of the construction sector but also the size of the informal economy, where some of the unemployed are able to earn something.
But the figures for Portugal are worrying too because the country had relatively low unemployment a decade ago, suggesting that euro membership has worked to its disadvantage, making the country less competitive.
The other thing that stands out is the high unemployment generally. We have managed to devise a system in Europe that condemns nearly a tenth of the potential workforce to living off welfare. In view of the pressure on public finances from an ageing population as well as supporting these jobless people, it cannot make sense to continue in this way.
But to change things means labour market reforms, such as the UK pushed through in the 1980s and Germany in the early 2000s, are now being urged on Spain, Greece, Italy and elsewhere. However, in the short-term labour market reform tends to increase unemployment. So it is all bad news. But if you want to see a glimpse of light in Europe, it is worth noting that unemployment is a lagging indicator, in that it reflects what has been happening to the economy rather than what is likely to happen.
The European Central Bank has pumped a huge amount of liquidity into the banking system. Most of that seems to have ended up in European sovereign debt. But some has leaked into the commercial economy. Simon Ward at Henderson comments: "Eurozone monetary trends are improving, suggesting that the ECB's rate cuts and liquidity injections have been partially effective".
Well the new calculations for the eurozone suggest that growth was 'marginally positive' in the first three months of this year. But even if the eurozone economy does stabilise, it will be many months before any real progress will be made getting the jobless back to work.
It will be many months before real progress will be made in getting the jobless back to work