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Eurozone unemployment reaches record high; austerity questioned

By Pan Pylas

Associated Press

Published: Wednesday, May 2 2012 7:29 p.m. MDT

Protesters spell "No Nazi in Parliament" in Greece Tuesday. Thousands rallied this week to show their distaste with years of austerity. Greece's general elections are Sunday.

Louisa Gouliamaki,Afp/Getty Images

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LONDON — The 17 countries that use the euro are facing the highest unemployment rates in the history of the currency as recession once again spreads across Europe, pressuring leaders to focus less on austerity and more on stimulating growth.

Unemployment in the eurozone rose by 169,000 in March, official figures showed Wednesday, taking the rate up to 10.9 percent — its highest level since the euro was launched in 1999. The seasonally adjusted rate was up from 10.8 percent in February and 9.9 percent a year ago and contrasts sharply with the picture in the U.S., where unemployment has fallen from 9.1 percent in August to 8.2 percent in March.

Austerity has been the main prescription across Europe for dealing with a debt crisis that's afflicted the continent for nearly three years and has raised the specter of the breakup of the single currency. Three countries — Greece, Ireland and Portugal — have already required bailouts because of unsustainable levels of debt.

Eight eurozone countries, including Greece, Spain and the Netherlands, have seen their economies shrink for two straight quarters or more, the common definition of a recession.

Economies are contracting across the eurozone as governments cut spending and raise taxes to reduce deficits. That has prompted economists to urge European Union policymakers to dial down short-term budget cuts and focus on stimulating long-term growth.

"The question is how long EU leaders will continue to pursue a deeply flawed strategy in the face of mounting evidence that this is leading us to social, economic and political disaster," said Sony Kapoor, managing director of Re-Define, an economic think-tank and policy advisory company.

In a nod to shifting attitudes about austerity, European Central Bank president Mario Draghi recently called for a "growth pact" in Europe to work alongside the "fiscal pact" that has placed so much importance on controlling government spending.

Bailout fears have intensified in recent months as Spain, Italy and other governments face rising borrowing costs on bond markets, a sign that investors are nervous about the size of their debts relative to their economic output. Austerity is intended to address this nervousness by reducing a government's borrowing needs, but there has been a negative side effect: As economic output shrinks, the debt burden actually looks worse.

Economists recommend pro-growth measures including reducing red tape for small businesses.

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