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Eurozone Unemployment Improves

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Eurozone Unemployment Improves

Eurozone unemployment is improving but still remains stubbornly high. Today has seen the publication of the February data for the single currency bloc and this has come in at 11.9%. Based on January’s reading of 12% the expectation was that this month’s figure would remain at that level.

German unemployment earlier in the day showed a glimmer of improvement at 6.7% but the periphery economies are pushing up the overall figure for the Eurozone, Italy for example also just published it’s numbers somewhat worsened and still remain very high at 13.0%.

In combination with deteriorating inflationary situation in Europe, the unemployment numbers are weighing heavily on the recovery. The European Central Bank is struggling to produce even growth across all member states. Interest rates are at record lows of 0.25% so direct monetary loosening is a limited option. The ECB will meet this Thursday to discuss and potentially act on monetary policy. It is running out of ammunition but does have a few options remaining.

The ECB needs to get money into the system. Obvious solutions open to it would include increasing it’s lending to European banks for onward dissemination into the economy. Alternatively it may just begin to discourage banks from using it’s overnight deposit facilities, this could be achieved by applying a charge to banks to deposit short term cash thus encouraging them to actively seek other lending opportunities. Finally, the situation is such that Quantitative Easing may even make a return to the table.

One last item that the ECB will need to deal with is the rise of the Euro. There is a pressing need to maintain global competitiveness if this recovery is to be credible. According to a recent Bloomberg poll of economists EURUSD will be held at or below $1.43 by the ECB, this of course is just a projection and perhaps Thursday’s press conference by the bank can shed some further light in this area.

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