The jobless rate in the 19-country euro zone dropped to 10.9 per cent in July from 11.1 per cent in June.Jason Alden/Bloomberg
The markets may be taking a beating, there is still talk of Grexit and inflation remains too low for comfort, but Europe finally has some good news to share with the world: Unemployment is falling fairly fast.
Driven by austerity-related economic reform, low energy prices and the European Central Bank's €1.1-trillion ($1.6-trillion) quantitative easing program, the jobless rate in the 19-country euro zone dropped to 10.9 per cent in July from 11.1 per cent in June, the European Union data agency, Eurostat, reported on Tuesday. Youth unemployment went to 40.5 per cent from 43 per cent, the lowest in two years.
The big winner was Italy whose unemployment fell to 12 per cent in July – a surprisingly large drop – from 12.5 per cent in the previous month.
The unemployment dip in the euro zone's third-largest economy, which has been in recession for the better part of seven years, was welcome news for Italian Prime Minister Matteo Renzi, who has been under political fire for the country's slow-motion recovery. "These are good numbers and show positive signs," he said. "In the past years, it was if Italy had burst a tire and our EU partners were doing much, much better economically. We are not now among those leading the expansion, but we have joined the group of those growing."
While fall in the euro zone's jobless rate in no way means the region will return to its precrisis economic health any time soon, it does suggest that the gaping transatlantic divide is beginning to narrow. Canada and the United States recovered far faster than Europe after the 2008 financial crisis and subsequent deep recession.
Now, Canada is going into reverse, thanks to the plunge in oil prices. Having registered two consecutive quarters of negative growth, Canada is in technical recession, although the pain is concentrated in Alberta. Business investment is plummeting. Consumer spending is holding up, but that could change if job losses in the West pile up.
The new euro zone unemployment figure is the lowest in three years. Italy was not the only country that performed well: In Spain, whose jobless rate has rivalled Greece's throughout the crisis, official unemployment fell to 22 per cent from 24.3 per cent; Portugal's rate fell to 12.1 per cent, and Greece's was down to 25 per cent.
The jobs divide, however, remains enormous, with northern Europe faring far better than the Mediterranean countries. Unemployment in Germany, at 4.7 per cent, is the lowest in the euro zone. In Britain, which is a member of the EU but not the euro zone, the figure is 5.6 per cent. Greece's unemployment was the highest in the EU and the euro zone. (The Canadian figure was 6.8 per cent, in July.)
The disparity is also extreme within some countries, notably Italy, whose southern half is mired in Greek-style economic atrophy. Italy's gross domestic product fell 0.4 per cent in 2014; the contraction was 1.3 per cent in southern Italy, where GDP per capita is less than 54 per cent of Italians' elsewhere.
Italy's youth unemployment rate, at 40.5 per cent in July, seems robust compared with the south. In some southern cities, such as Naples, the rate can be 10 or 20 percentage points higher. Corruption in the south is endemic, manufacturers are pulling out and most companies are too small to be competitive and create jobs.
Some economists hold out little hope that the euro zone's unemployment will drop into single digits soon in spite of the stronger performance in Italy and a few other hard-hit countries. The International Monetary Fund recently warned that Italian unemployment will not return to precrisis levels for 20 years unless the country sees "significant acceleration" in its growth rate
Barclays economist Fabio Fois on Tuesday said lower unemployment figures show that euro zone job creation is under way but feared that the fairly sharp unemployment fall was partly driven by people dropping out of the work force.