Thread: Brussels fears 'poverty trap' for half of Europe as North-South gap widens

Brussels fears 'poverty trap' for half of Europe as North-South gap widens

Unemployment in the eurozone jumped to a record high of 11.8pc in November as the region slid deeper into recession, with alarming rises across the Mediterranean that threaten extreme social distress.



The report said the biggest single cause of the jobs crisis is a 'demand shock' to the Euroland economy Photo: Alamy


By Ambrose Evans-Pritchard
7:31PM GMT 08 Jan 2013
292 Comments

The jobless rate has reached an all-time high of 26.6pc in Spain, rising to 56.5pc for youth. It is much the same picture in Greece, where unemployment has spiked from 19pc to 26pc over the past year as austerity bites in earnest, with Portugal not far behind as it follows suit with draconian cuts. There are now 18.8m people looking for work across the eurozone.

“A widening gap is emerging,” said Laszlo Andor, the European Social Affairs Commissioner. “Peripheral states appear to be caught in a downward spiral of falling economic output, rapidly rising unemployment and eroding individual incomes.”

Mr Andor’s unemployment report said the welfare systems of southern Europe are unravelling as governments slash benefits, leaving families exposed to the full brunt of the crisis. The “automatic stabilisers” are no longer functioning properly.

He said there is a rising risk that the long-term jobless will fall into an “enormous poverty trap” if the crisis is allowed to drag on. “Severe material deprivation” has surged to 31pc in Latvia and 44pc in Bulgaria, casting doubts on claims that these two euro-pegged countries have shaken off the crisis .

Spain’s long-term jobless now number 2m, while the country’s GINI coefficient measuring inequality has risen from 31.2 to 34 since the crisis began.

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The report said the biggest single cause of the jobs crisis is a “demand shock” to the Euroland economy, deeming other factors to be “less relevant”. The findings reflect deep dissent within the EU policy apparatus over the contractionary policy settings, and undercut claims by hard-liners that labour reforms in the Club Med bloc are enough to pull the region out of slump.

Mr Andor’s grim warnings came a day after Commission chief Manuel Barroso claimed the eurozone crisis had “essentially been overcome”.

Graeme Leach, from the Institute of Directors, said the European Central Bank has bought time with its bond-buying pledge but the deeper economic crisis grinds on with a “terrifying” human cost. “The figures are shockingly bad. This saga is far from over,” he said.
The North-South gap makes it very hard for the ECB to run monetary policy for the whole bloc. Unemployment is just 4.5pc in Austria, 5.4pc in Germany, and 5.6pc in Holland.

Real household income, after tax, had fallen 17pc in Greece, 8pc in Spain, 7pc in Cyprus, and 5pc in Ireland between 2009 and 2011, a slide still gathering speed. Mr Andor said labour market reforms would bear fruit eventually, adding that the jobless rate may be near its peak in Spain.

Jobs data tend to be a lagging indicator so the latest rise in unemployment may reveal much about economic growth prospects for 2013.


Brussels fears 'poverty trap' for half of Europe as North-South gap widens - Telegraph