Unemployment up and inflation down in the eurozone

ECB rate cuts expected

The latest unemployment figures in the Eurozone are really, really bad. In fact, they are – again – the worst they've ever been:

That's an average unemployment rate of 12.1 per cent in the eurozone (and 10.9 per cent in the wider EU). But that high rate disguises enormous disparities: unemployment in Greece is 27.2 per cent; unemployment in Spain is 26.7 per cent; but in Austria, just 4.7 per cent of people looking for work can't find it, and in Germany it's only 5.4 per cent.

At the same time, inflation in the eurozone has been plummeting. In the latest quarterly data, the all-items index is estimated to have grown by just 1.2 per cent over the year – well below the 1.6 per cent which was predicted.

That offers a ray of hope for the continent. Unlike the (claimed) British plan of fiscal restraint and monetary activism, Europe has experienced crippling austerity without any major monetary policy designed to ease the burden. Typically, that reluctance is ascribed to the stereotypical German fear of inflation. Regardless of whether or not the blame truly lies at the feet of Germany – and whether the fear of inflation is just a hangover from the harrowing experience of hyperinflation in the 1920s, or something more concrete – the ECB is an exceptionally inflation-averse central bank.

All eyes will be on the bank later this week, then, as it announces whether or not it will be cutting rates for the first time in almost a year. It's bumping against the lower bound, since the bank already pays 0 per cent on overnight deposits; but the rate it charges for overnight loaning is still at 1.5 per cent. And its headline rate, which it charges to the majority of the banking system, is still at 0.75 per cent, leaving ample room for a cut.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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