|Mario Draghi, ECB president, European Parliament, Brussels, March 23, 2015|
One in 10 workers in the Eurozone will remain jobless despite the economic recovery according to ECB staff projections.
The central bank economists says that in the period to 2017, the "unemployment rate is expected to decline further. The number of unemployed is expected to decline by about 2.7m over the projection horizon, reaching its lowest level since mid-2009. This decline reflects the downward impact of rising employment (up by 4.2m), which is to some extent compensated for by the impact of a growing labour force. The unemployment rate is expected to fall to 9.9% in 2017, from 11.6% in 2014."
The economists say in their March outlook: "Overall, real GDP growth is projected to pick up from 0.9% in 2014 to 1.5% in 2015, and to 1.9% in 2016 and 2.1% in 2017. In contrast, the pace of potential output is estimated to remain rather modest, as the contribution from labour and capital remain subdued on account of high structural unemployment and in the aftermath of a long phase of weak investment. This implies that the estimated negative output gap will be closing over the projection horizon."
The European Central Bank’s expanded asset purchase programme, known as “quantitative easing” (QE), is starting to make headway across the EU, Mario Draghi, ECB president, told the European Parliament's Economic and Monetary Committee on Monday. Draghi also reported on the tough negotiations with Greece and outlined what it would take for the ECB to reinstate the waiver for buying Greek state bonds on the secondary market, so as to enable QE to benefit Greece, too.
The ECB began buying sovereign bonds on 9 March and aims to buy €60bn worth of state bonds on the secondary market each month until at least September 2016. "There are enough bonds to purchase and the operation is running smoothly", Draghi assured MEPs and he cited some signals that the ECB's monetary policy measures are having some effect. "Growth is gaining momentum – the outlooks for 2015 and 2016 have been revised upwards by 0.5% and 0.4% - and inflation is expected to gradually increase from 0% in 2015 to 1.8% in 2017", he said, adding that these inflation rates assume full implementation of the newly programme. Draghi nonetheless reiterated that the ECB's monetary policies must be complemented by structural and fiscal policy reforms to mobilise additional benefits.
Many MEPs raised Draghi's assessment of Greece, which seems set to face insolvency by the end of April without a new financial assistance package. "To have a credible perspective, Greece needs to put in place a process to restore policy dialogue between the Greek government and the three institutions” [formerly known as the ECB, European Commission, and IMF “troika”], said Draghi.
The ECB president rejected criticism by centre-left parties that the ECB is "blackmailing" or "suffocating" Greece by refusing to reinstate the waiver for buying Greek state bonds unless it accepts reforms that were agreed upon before its recent elections. "The ECB's exposure to Greece is €104bn, equal to 65% of its GDP. This is the highest exposure in the whole of the Eurozone! The ECB does not create rules for Greece, we apply them. We lifted the waiver after its bonds fell below the threshold of what we accept as collateral. We agreed on the waiver last year, when we expected a full review of the economic reform programme and a disbursement of loans. Since February those conditions are no longer met. "
“What we have seen in Europe is a deskilling of the labour force because of a protracted period of high unemployment,” said Lucrezia Reichlin, a professor at the London Business School, according to the FT. “I believe in the Eurozone’s recovery. But it’s a very modest recovery and that means we are never going to recover a lot of what we have lost in terms of output and employment.”
The official US unemployment rate is at 5.5% and the 15-64 labour participation rate is at 62.7% this month — now at the lowest rate since 1978
The employment participation rate for the Eurozone in 2013 (Eurostat's database is acting up and no newer information as the maze would test a saint!) was 63.5%. It was 73.3% in Germany, 74.4% in Sweden and 59.8% in Ireland at end 2014.
Long-term Euro Area growth prospects grim even at pre-crisis jobs/investment rates