Is Europe’s Unemployment Worse Than We Thought?

The roots of unemployment are growing deeper in Europe, and unless something happens soon, the future will not be much brighter.

The number of people out of work reached a record high in April, with 12.2 percent of EU citizens in need of work. This figure represents 19.4 million people trying to find a job, and nearly a quarter of those were under the age of 25.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

The only good news released for April was a slightly higher inflation number, up to 1.4 percent from 1.2 percent. Fears of deflation have been on the rise in Europe; a problem which is hard to reverse should a larger trend take hold. However the slight increase in prices bodes reasonably well as the European Central Bank looks for inflation of around 2 percent.

The unemployment picture is particularly startling due to its impact on young people. In April, 5.6 million people under the age of 25 were out of work, with more than 50 percent of that age group being out of work in Greece and Spain. The economic consequences of that are notably profound, as an entire generation of workers are not acquiring new skills, advancing careers, or able to start businesses. Tom Rogers, an economist advising Ernst & Young explains, “Youth joblessness at these levels risks permanently entrenched unemployment, lowering the rate of sustainable growth in the future.” This phenomenon has earned the group of young people the nickname the “lost generation.”

Some feel the ECB needs to adopt more creative and meaningful measures in the fashion of the U.S. Federal Reserve, and greatly expand the money supply. If ECB President Mario Draghi were to further lower interest rates, the results are not expected to be dramatic, as already historic low rates have been unable to drive lending.

With the ECB not taking more drastic action at the moment, the focus in Europe has shifted to how countries will address their domestic competitiveness. Ireland saw a slight downturn in unemployment to 13.5 percent this year through April, down from 14.9 percent a year earlier after implementing tax reforms and working to lure in foreign capital. The European Commission, though, still feels countries should liberalize labor markets and shore up their budgets in order to better growth prospects.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Pension systems also continue to cause problems in European countries, where extraordinarily high costs are plaguing cash-strapped governments. For example in France, pension systems will still face deficits in the year 2020 unless the government takes significant action, according to the commission. French President Francois Hollande is in a precarious situation as limited public support strains his leadership. Somewhat surprisingly the French public supports larger reforms than Hollande has proposed, with 66 percent desiring a massive overhaul of the entire system. The projected pension deficit by 2020 is currently 19 billion euros, unless any sort of change is incurred.

EU leaders are expected to focus on joblessness when they meet in Brussels in June.

Don’t Miss: How Badly Does America Need to Improve Its Financial Literacy?

More from The Cheat Sheet