Eurozone unemployment at record high in June

1 / 2
People leave as others arrive at an unemployment registry office in Madrid, Friday, July 27, 2012. The number of people out of work in Spain shows no sign of dropping, with almost one in four people unemployed, according to the latest government figures. The rate is the highest among the 17 nations using the euro currency. Spain is battling to avoid having to seek a full-blown financial bailout as it struggles to emerge from its second recession in three years and strives to convince investors it can manage its finances. (AP Photo/Paul White)

LONDON (AP) — The number of people unemployed across the 17 countries that use the euro hit a record high in June, official figures showed Tuesday, in a stark reminder that Europe's debt crisis has ramifications beyond the financial markets.

Eurostat, the EU's statistics office, said 17.801 million people were out of work in the eurozone in June. That was 123,000 more than May, and is the highest level since the euro was formed in 1999. The increase was the 14th in a row and means that around 2.25 million people have lost their jobs since April 2011.

Despite the increase, the seasonally adjusted unemployment rate in June was unchanged at a record 11.2 percent. Without Germany's relatively-low unemployment rate of 5.4 percent, the wider figures would be much worse.

Even then, the eurozone unemployment is nearly three percentage points higher than the U.S.'s equivalent 8.2 percent. Europe's unemployment rate for May had originally been estimated at 11.1 percent.

"Another horrible set of labor market data for the eurozone, which bodes ill for consumer spending and growth prospects," said Howard Archer, chief European economist at IHS Global Insight.

The figures will add to the pressure on policymakers to get a grip of the debt crisis, which has hit investor confidence in the eurozone, forced five countries to seek external aid and pushed companies to cut their staff numbers.

The 17 countries that use the euro are struggling as economies across the region face deepening recessions. Spain and Italy, the two chief trouble spots, are threatened with a financial collapse that could tear the 13-year old currency union apart and rock the global economy.

Hopes have risen over the past week — at least in financial markets — that Europe is preparing new measures to handle the crisis. Last week, European Central Bank president Mario Draghi said the bank "is ready to do what it takes to preserve the euro. Believe me, it will be enough."

Those comments raised expectations that, at the very least, the ECB will ramp up its bond-buying program in the hope of keeping a lid on Spanish and Italian borrowing rates. Such a move would reduce the economic uncertainty surrounding a country, helping it to get its finances under control.

The ECB meets this Thursday to decide on its benchmark interest rate. It could use this opportunity to announce any other measures.

Meanwhile, the U.S. Federal Reserve meets Wednesday and could also decide to take action to stimulate a weakening economy — such as embarking on another round of quantitative easing, which is designed to free up the flow of money in the U.S. economy.

"Irrespective of what happens on Thursday and whether Draghi delivers or not, the economic data out of Europe is nothing short of woeful," said Michael Hewson, markets analyst at CMC Markets.

It's particularly grim in Spain, which is at the forefront of Europe's debt crisis concerns. It had the highest unemployment rate across the eurozone of 24.8 percent. Greece's rate was not far behind at 22.5 percent, though the latest figures available are for April. In Greece and Spain, every other person aged under 25 is unemployed.

Many countries that use the euro, including France and Italy, also have double-digit unemployment rates.

Even if new anti-crisis measures are to be announced this week, many analysts think the eurozone appears headed for recession.

Germany, Europe's biggest economy, is showing increasing signs of coming off the boil. With growth dropping sharply and demand for its high-value exports set to fall, German unemployment is expected to start rising again.

Figures earlier from Germany's Federal Labor Agency showed the unadjusted jobless rate climbing from 6.6 percent in June to 6.8 percent in July as the typical seasonal increase of school-leavers signing on for unemployment benefits was reinforced by a gradual slowing in the labor market.

Elsewhere, Eurostat revealed Tuesday that inflation was unchanged at 2.4 percent in July. Though that remains above the ECB's mandated target of keeping price increases just below 2 percent, the recent trend has been downward and analysts expect that to continue.

A stagnating economy and rising unemployment, which combine to keep a lid on wage increases, are expected to push inflation back below target over the coming months. Lower energy inflation is also expected to ease inflationary pressures.

This opens the door for the ECB to cut its benchmark rate below its current record low of 0.75 percent in addition to any anti-crisis measures it announces.