By: Dr. Mike Campbell
Within the 17 nations that make up the Eurozone (Estonia joined the single European currency at the start of the year), unemployment remained unaltered at 10% in December. Strictly, the unemployment situation in Estonia will not have been considered in this statistic since it was not a member when the data were complied. However, it would make little difference since the wider European Union unemployment figure also came in at 9.6%, about the same level. Both figures remain unchanged from the previous month, so if the employment situation is not getting better, at least there is the consolation that it is not deteriorating.
Eurostat also announced that inflation within the Eurozone has risen to 2.4% in January, up from 2.2% in the previous month. The target level of inflation within the zone is 2%. Inevitably, an inflation figure above target leads to speculation that the respective central bank will push up interest rates to try to rein in inflationary pressure.
ECB Announcement Predictions
The European Central Bank (ECB) is due to make an announcement on interest rates later in the week, but my money is on a continuation of the existing policy. If the rate rises, it makes borrowing more expensive and therefore pushes costs up for businesses that need to borrow to expand. Such an expansion is the only way that the Eurozone jobless totals will fall, against a backdrop of public spending reduction, and this is a more pressing need than control of inflation which is at a modest level by most standards.
A further factor against such a rise is that governmental austerity plans within the Eurozone are likely to dampen economic growth and worsen unemployment in the shorter term. The austerity measures may also lead to an easing of inflation themselves, so the most likely outcome is that rates will remain on hold.