Hopes fade as Euro zone joblessness hits record
Rome, July 31, 2012
Joblessness in the euro zone hit on Tuesday its highest level since the single currency was born, a further sign of economic desperation as hopes erode that the bloc will be saved by its central bank this week.
An additional 123,000 people were out of work in the euro zone in June, figures from Eurostat showed, bringing the unemployment rate to a record high 11.2 percent across the 17 countries that use the single currency.
The rate hides wide divergences, with unemployment as low as 4.5 percent in Austria and as high as 24.8 percent in Spain, where a shrinking economy makes it ever more difficult to pay off debt.
New data showed capital fleeing Spanish banks at a growing rate. Spain has come dangerously close to losing affordable access to financial markets, raising the prospect of a bailout that would swamp the euro zone's hastily erected defences. If Spain goes, Italy, with an economy twice the size, could follow.
Euro zone leaders have spent the past week issuing statements promising to take whatever steps are necessary to rescue the currency, but none have raised expectations as much as Mario Draghi, head of the European Central Bank.
His announcement last Thursday that the ECB would do whatever within its mandate to rescue the currency raised expectations that he will deliver forceful new steps this week to lower Spanish and Italian borrowing costs.
But market sentiment has since soured, showing that investors doubt whether he can deliver.
Germany, which says it is illegal for the ECB to bankroll government borrowing, squelched talk of any easing of its opposition to letting the euro zone's rescue fund borrow from the ECB so it could buy almost unlimited quantities of government bonds.
Italian Prime Minister Mario Monti, who has campaigned for concerted action by the euro zone's rescue funds and the ECB to bring down ruinous borrowing costs for Spain and Italy, struck an optimistic tone.
"It is a tunnel but ... some light is appearing at the end of the tunnel. We and the rest of Europe are approaching the end of the tunnel," he told RAI public radio before talks in Paris with French President Francois Hollande.
Monti said decisions taken at an EU summit last month were starting to bear fruit. "We are now seeing the results both in the willingness of European institutions as well as from the governments of individual countries, including Germany," he said.
After lunching with Hollande, he said there was no time to lose and they had discussed deadlines, adding: "We cannot afford even a minute of distraction."
The ECB's Draghi promise last week to act to preserve the euro raised investors' expectations of a resumption of a long-suspended government bond-buying programme. Investors are waiting to see what the ECB announces at a meeting of its policy-setting Governing Council on Thursday.
"Today will probably be a quiet last day of the month. Everybody is waiting for Thursday to see if Draghi can deliver," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets.
"He'd better pull a big rabbit out of his hat."
However, central bank sources cautioned against expecting dramatic action, saying bold moves could be at least five weeks away because other elements must first fall into place. - Reuters