Just days after the European leaders decided on measures to reinforce the long-term prospects for the currency union, fundamental weaknesses in the euro zone was revealed by a report showing record unemployment in May along with intense pressure on French public finances.
As per, Eurostat, the statistical agency of the European Union, the May jobless figure of 11.1 percent is up from 11.0 percent in April. This number is the highest recorded since the creation of the euro in 1999.
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This blow was in addition to a separate report, showing Euro zone manufacturing falling in June for an eleventh straight month, and according to a survey by Markit Economics, the fastest decline in almost three years.
As per, AIn Paris, the French national auditor, the French Government would need to cut between 6 billion Euros and 10 billion Euros from this year’s budget to meet its deficit-reduction target. For next year, France has to cut around 33 billion Euros to meet European Union’s 3 percent limit on the budget deficit as a percentage of gross domestic product.
Such reduction or cuts is in no way an answer to gigantic problem that the Euro-Zone is facing. On the contrary, these cuts will contribute the vicious cycle where reduced government outlays contribute to declining growth, government revenue shortfalls, and exacerbating the economic crisis.
In an attempt to bolster the economy, European leaders announced on Friday that bailout funds will be directly used to recapitalize struggling banks . European leaders also are working for a unified banking regulator to restore faith in the euro zone financial system.
Italy may announce a spending review 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.
Amid all these news, Euro Stoxx 50 index, which consist euro zone blue chips, rose 0.8 percent in early afternoon trading.
According to Holger Schmieding, chief economist at Berenberg Bank in London “The data show the euro zone is in a recession, I’m afraid they show that the European Central Bank has to step up and do its part.”
Even the analyst believes the same as Mr. Schmieding, that after the bold moves by the European officials, the ECB should step up to support the economy.
Now all the eyes are fixed on ECB, even though Mario Draghi, the E.C.B. president had already stated on 31st May that bank was nearing the limits of its powers and that politicians needed to act decisively to resolve the euro crisis.