December 12, 2017

Off the Charts: Jobs Recovery in Europe Is Also Painfully Slow

The decline was not large — 24,000 jobs, or 0.1 percent of the 19.3 million people out of work in May. But it was the first month in more than two years that there had been a decline.

Some, but not all, of that decline was in Germany, where unemployment has been falling even as it rose in other countries. Other euro zone countries that reported declines during the month were Austria, Finland, Ireland, Italy, Portugal, Slovenia and Spain. Two of the 17 countries in the zone, Estonia and Greece, have yet to report.

The accompanying charts show how the number of people unemployed has risen or fallen since March 2008, the month that overall unemployment in the euro zone hit its recent low. The charts also show the trends in two major countries outside the zone, Britain and the United States, where unemployment had bottomed out earlier. In the United States, the low was reached in October 2006, more than a year before the recession officially began.

It should be noted that the number of unemployed workers does not exactly equate to the number of people without jobs, which may be changing at a faster or slower rate. Discouraged workers who conclude they cannot get a job can drop out of the labor force, and thus not be counted. But when things begin to improve, those people can begin to search for employment and be newly counted among the unemployed.

Perhaps the most striking thing about the charts is how little improvement there has been in most of the countries shown. Germany is the striking exception to that, of course, and the number of unemployed in the United States has been falling steadily, if slowly, since 2010. On Friday, the government reported that the American unemployment rate fell to 7.4 percent in July, the lowest since December 2008. The number of people out of work in Britain fell in 2012 but has stabilized in recent months.

Among the most troubled countries in the euro zone, only in Ireland has there been a significant decline in the number of unemployed workers, although the figure remains nearly one and a half times as high as it was in 2008. In Greece, the number out of work appeared to stabilize late last year, but it began to rise again this year and was at the highest level yet in April, the last month for which data was available.

Perhaps the most extraordinary development has been in the Netherlands, where the number of unemployed workers has begun to rise rapidly after rising relatively slowly early in the credit crisis. Nonetheless, the latest unemployment rate for the Netherlands is only 6.8 percent, a figure that is lower than that of either the United States or Britain and about half the rate in Ireland.

For some countries, the reported unemployment rates remain very high. Although the number of unemployed workers in Portugal was reported to have fallen in both May and June, the unemployment rate remains at 17.4 percent, not far below the high of 17.8 percent reached in April. In neighboring Spain, two months of falling unemployment have reduced the rate by only 0.2 percentage points, to 26.3 percent. At least Spain no longer ranks as having the highest unemployment rate in the euro zone, as it did at the end of 2012. Greece, at 26.9 percent at last report, has regained that unfortunate position.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/08/03/business/economy/in-europe-too-a-painfully-slow-jobs-recovery.html?partner=rss&emc=rss

High & Low Finance: A Central Bank Doing What Central Banks Do

That should be the slogan of Mario Draghi, the president of the European Central Bank.

In recent weeks, the new president publicly insisted the central bank would never do any of the things that Germany opposed. The bank would not drastically step up its purchases of Spanish and Italian government bonds. It would not directly finance European governments. It would not backstop European rescue funds or print money that the International Monetary Fund could use to bail out governments.

It would do only what central banks normally do. It would lend to banks.

It turns out that may be enough to stem the European crisis for at least a few years, and go a long way to recapitalizing banks in the process.

That fact only became clear on Wednesday, although Mr. Draghi announced his intentions on Dec. 8, when the central bank said it would offer to lend money to banks for three-year terms, in unlimited amounts, at a very low rate.

In reality, it was an offer banks could not refuse. They will initially pay the central bank’s official rate of 1 percent. But if the bank lowers the rate in coming months — as it is widely expected to do — the rate on these loans will drop as well.

There is no limit on what the banks can do with the money. But there is an obvious, virtually risk-free, option. A bank can buy short-term securities of its own government and pocket the difference — up to four or five percentage points — for the life of the securities.

On the same day the central bank announced its lending offer, Mr. Draghi held a news conference at which he talked very tough. He said he was surprised that a speech he had made a week earlier had been widely interpreted as signaling the bank was ready to make large scale purchases of Spanish and Italian bonds. He threw cold water on the idea of the bank funneling money to countries through the I.M.F.

Many observers — including me — focused on what he told reporters, not on what he announced. Bond yields rose. The yield on three-year Italian bonds leaped to 6.6 percent on Dec. 8 from 5.9 percent. For Spain, the comparable rate rose to 5.1 percent from 4.6 percent. Stock prices plunged, with the main Spanish index down 2 percent and its Italian counterpart off more than 4 percent.

It was more than Mr. Draghi’s rhetoric that had misled the market. In normal times, borrowing from a central bank is seen as a sign of weakness, and banks hate to do it for fear word will leak out that they had to do it. And banks have come under pressure to raise more capital in part because of their exposure to dubious government paper. Would they really line up to buy more, even with favorable financing?

The answer is yes. On Wednesday, the European Central Bank announced that 523 banks would borrow a total of 489.2 billion euros ($640 billion). That was above virtually every forecast.

On Tuesday, the same day the banks were putting in their requests for loans, Spain held an auction of Treasury bills. A month earlier, it had to pay an annual rate of 5.1 percent on three-month bills and 5.2 percent on six-month securities. This time the rates were 1.7 percent and 2.4 percent. Credit that plunge to Mr. Draghi.

Rates have also fallen significantly on government debt out to three years, but the declines in longer term rates have been smaller.

It now seems obvious that this was what Mr. Draghi had in mind. Spain and Italy will be able to borrow money from the market at rates they can live with, but this move is unlikely to have much effect on long-term rates. If those stay high, the pressure for austerity, as Germany demands, will remain.

There is no assurance that the banks will use all, or even most, of the money they borrowed, to buy government securities. It would be nice if some of it were lent to the private sector to spur growth and investment. But the logic of putting it in two- or three-year government notes is obvious.

Spanish two-year securities now yield about 3.6 percent, while Italian ones offer 5.1 percent. A bank that uses central bank money to buy them will clear the difference between those rates and 1 percent. The spread will be a little larger when the central bank lowers rates in a month or two. The securities will mature well before the loans come due.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://feeds.nytimes.com/click.phdo?i=05fe436cdbfbee31b368f84324daf29f

Off the Charts: Europe’s Consumers Are Pointing the Way Down

Germany is the dominant member of the group of countries doing well, although a few smaller countries, including Austria and Estonia, are also posting good results.

In the middle group are countries that are less competitive and showing signs of stress, but still growing. In the bottom group are countries with major problems. Some are showing more signs of growth than others — Ireland this week reported surprisingly good industrial production figures — but consumers are suffering in all of them.

Statistics on imports help show which countries are in which group.

In all European countries — and virtually all other countries around the world as well — trade levels plunged after the credit crisis intensified with the collapse of Lehman Brothers in September 2008. Trade financing became hard to get for many exporters, and customers slashed orders out of fears that the recession would get much worse or that they would be unable to finance the purchases.

Trade volumes recovered after credit conditions eased, and many economies began growing again. That trend is continuing for countries whose economies are in decent shape, but in others, the recovery in trade appears to be over. This time, the issue is often a simple one: the buyers cannot afford what they used to buy.

The accompanying charts show changes in imports at eight members of the euro zone — the largest ones and the ones that have been forced to seek bailouts.

The charts are based on three-month averages of seasonally adjusted imports, and show the change in levels from the average of June through August 2008, just before the Lehman collapse.

Germany stands out because its imports are now well above the precrisis levels, and are continuing to rise. In most of the other countries, the trend line has turned down over the last few months. This week, even Germany reported a very small decline in imports from July to August, although the three-month average did continue to rise.

Greece also stands out, but for the opposite reason. There, austerity is taking its toll and imports are plunging. They totaled just 2.9 billion euros in August, on a seasonally adjusted basis. That was nearly half a billion less than the July figure and the lowest figure for any month since 2002. Before the credit crisis hit, Greece was averaging imports of more than 5 billion euros a month.

The good news for Greece is that its exports are rising rapidly, but that increase is off a very low base and the country continues to run large trade deficits.

In both France and Italy, imports have returned to precrisis levels, and the Netherlands has done a little better. But in Ireland, Portugal and Spain, imports are well below the levels of 2008 and are again falling.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://feeds.nytimes.com/click.phdo?i=3c48299f45dca961f76561dd68941260