The EU now has seen it's unemployment level rise to 12%-the highest it's been. It basically has stopped recovering in 2010. That decision to raise interest rates is looking more and more fateful.
http://marketmonetarist.com/2013/04/02/the-damage-done-by-ecbs-rate-hikes-in-2011-the-3-graph-version/
" Unemployment in the euro zone rose to yet another record high in the first two months of the year, official data showed Tuesday, providing confirmation that the economy remains in a deep freeze."
"The jobless rate reached 12 percent in both January and February, the highest since the creation of the euro in 1999 . . ."
"European officials continue to hold out hope that the economy, which continued to shrink in the first quarter of 2013, will begin turning around in the second half of the year. Many private sector forecasters are more pessimistic, expecting a contraction of as much as 2 percent in the euro zone’s gross domestic product this year, after a 0.9 percent contraction last year."
"While there is general agreement that the current course for addressing the euro crisis — heavily focused on budget- balancing measures that reduce overall demand — is not working, the need for emergency action like the recent bailout of Cyprus has appeared to inhibit any deep rethinking of economic policy."
"In the absence of new measures to stimulate growth at the European and national levels, all attention will be focused Thursday on the governing council of the European Central Bank, which meets in Frankfurt to consider whether to maintain interest rates at their current record low or cut even further."
"Britain, the largest E.U. economy outside the euro zone, had an unemployment rate of 7.7 percent in December, the latest available month."
"In the United States, the jobless rate fell in February to 7.7 percent, the lowest since late 2008. The consensus among economists surveyed by Reuters is for U.S. nonfarm payrolls Friday to show a gain of 200,000 jobs in March, after a gain of 236,000 in February."
"The European labor market has now declined for 22 straight months, making this the worst downturn since the early 1990s, Jennifer McKeown, an economist in London with Capital Economics, wrote in a note. In particular, she said, the rise in France’s February jobless rate to 10.8 percent from 10.7 percent in January “looks very worrying.”
“With fiscal tightening still putting downward pressure on disposable incomes and consumer confidence at very low levels, household spending is likely to fall further in the coming months,” Ms. McKeown said.
"On Tuesday, a report by Markit Economics showed the euro zone’s manufacturing sectorcontracted again in March, with an index of purchasing managers activity dropping to 46.8 from 47.9 in February. An index level below 50.0 suggests contraction, while a level above that suggests expansion."
"The manufacturing index has contracted every month since August 2011. Manufacturing activity in Germany and Ireland, which had been expanding, began to decline again."
"The euro zone manufacturing sector shed jobs in March for a 14th consecutive month, Markit reported, with “steep rates of declines reported in France, Italy, Spain, the Netherlands, Ireland and Greece,” and only Germany and Austria bucking the trend."
While the ECB is very belatedly thinking about lowering interest rates Sumner argues that won't be enough by itself. The trouble is that the EU is still trying to just enough to stop things from totally disintegrating but not anymore. This is deliberate as Matt O'Brien says. The point is to force the southern countries to force through painful labor reforms. As O'Brien says, there is two different ways to deal with the fact that southern country wages are too high relative to northern.
Either a painful downward reduction in southern wages while the northern countries do nothing or even engage in their own austerity or they could inflate their own economies to make the adjustment easier. Guess which one they prefer?
While it's true that the euro's week links are dragging it down, this is only because the other ones aren't willing to pull the weaker ones up. Lars Christensen gets to do what he likes best: quoting Milton Friedman to show that he was right. It's hard to argue that he wasn't right on this one.
"The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity."
That's a great point. The rationale behind the euro was political. The monetary side was never thought through properly. The "European Project" in many was is a worthy goal. But at this point Europe is more divided than ever. As O'Brien says the euro pact is becoming a suicide pact under austerity.
"History doesn't need to repeat, or even rhyme. Europe doesn't have to keep crucifying itself on a cross of euros, the gold standard of the 21st-century. The euro's northern bloc could decide to let the ECB do more. Or it could decide to start spending more. Or not. Eurocrats seem content to do just enough to keep everything from falling apart, and nothing more. It's one part inflationphobia, and another part strategy. Indeed, it's how they try to keep the pressure on the southern bloc to push through unpopular labor market reforms. But doing enough today eventually won't be enough tomorrow if the southern bloc doesn't have any hope of recovering within the euro. The politics will turn against the common currency long before that."
Nothing so far, however, suggests that the EU learns at all quickly. If they don't get it soon then the economics or the 30s will hold: the countries that get off the euro quickest will recover quickest.
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