Unemployment in Euro Zone Hits Record High By DAVID JOLLY


¶
PARIS — Fundamental weaknesses in the euro zone economy were back in the
spotlight Monday, with the release of reports showing record
unemployment in May, a decline in manufacturing and intense pressure on
French public finances just days after European leaders decided on
measures to reinforce the longer-term prospects for the currency union.







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Unemployment in the euro zone rose in May to 11.1 percent from 11.0
percent in April, Eurostat, the statistical agency of the European
Union, reported from Luxembourg. The May jobless figure was the highest
recorded since the creation of the euro in 1999. ¶
A separate report showed euro zone manufacturing falling in June for an
eleventh straight month. Markit Economics, a research concern, said its
survey of purchasing managers in the manufacturing sector showed
operating conditions continuing “to deteriorate at the fastest pace for
almost three years.” ¶
In Paris, the French national auditor, the Cour des Comptes, said that
President François Hollande’s government would need to cut between 6
billion euros and 10 billion euros from this year’s budget to meet its
deficit-reduction targets. ¶
The auditor said 2013 would be even more challenging, with 33 billion
euros of spending cuts and tax increases essential if France is to meet
the European Union’s 3 percent limit on the budget deficit as a
percentage of gross domestic product next year. ¶
The economic data starkly illustrate the scale of the problem facing the
currency bloc: Even as its members seek to curtail spending to reassure
markets that government finances are manageable, economic weakness
threatens to create a vicious cycle in which reduced government outlays
contribute to declining growth, government revenue falls further,
generating new pressure to cut spending. ¶
“The data show the euro zone is in a recession,” Holger Schmieding,
chief economist at Berenberg Bank in London, said. “I’m afraid they show
that the European Central Bank has to step up and do its part” when its policy council meets on Thursday. ¶
Mario Draghi, the E.C.B. president, said May 31 that the bank was
nearing the limits of its powers and that politicians needed to act
decisively to resolve the euro crisis. He warned that the structure of
the currency union had become “unsustainable unless further steps are
undertaken.” ¶
European leaders surprised markets on Friday with an agreement that
included using their bailout funds to recapitalize struggling banks
directly. They also agreed to begin work on a unified banking regulator
to restore faith in the euro zone financial system, something they hope
will break the link between worries about banks and sovereign finances.
¶
Between the dim economic outlook and political cover provided by
European officials’ relatively bold moves Friday, analysts believe the
E.C.B. now has the scope for new measures to bolster the economy.
¶
Mr. Schmieding predicted the central bank would cut its main interest
rate target from the current 1.0 percent and possibly “do something on
liquidity.” If the bank does not act, he said, “the current relief in
the market won’t last very long, and it’s going to be a very rough
summer.” ¶
The French auditor’s 2013 prediction is based on the assumption that the
French economy will grow by 1 percent. Mr. Schmieding said that was in
line with his own forecast, but it might not be achievable if the
auditor’s call for 33 billion euros of austerity measures was acted
upon. ¶
Italy may announce the results of a spending review Monday or Tuesday
that is thought likely to include cuts to public administration and the
national health system. Rome is looking to raise money quickly to avoid
raising the value-added tax, a sales tax, as planned in October. ¶
In late afternoon trading, the Euro Stoxx 50 index, a barometer of euro
zone blue chips, rose 1.03 percent, after soaring about 5 percent on
Friday. The FTSE 100 index in London was up 0.69 percent. ¶
The euro fell to $1.2569 from $1.2667 late Friday in New York. Prices
fell for Spanish government 10-year bonds, and the yield, which moves in
the opposite direction, rose 4 basis points to 6.29 percent. Italian
10-year yields fell, dropping 7.7 basis points to 5.718 percent. A basis
point is one-hundredth of a percent. ¶
Elisabetta Povoledo contributed reporting from Rome.