Euro zone morale climbs in shadow of record unemployment

Fri Aug 30, 2013 9:04am EDT
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By John O'Donnell

BRUSSELS (Reuters) - Optimism in the euro zone's economy improved sharply in August but stubbornly high unemployment, especially in the bloc's weaker countries, highlighted the fissure separating the recovering north from the struggling south.

Confidence among business managers polled by the European Commission rose for a fourth successive month in the euro zone, the EU executive said on Friday. The positive trend was particularly strong in Germany and the Netherlands but was also seen in Italy, France and Spain.

The measure of sentiment across the currency bloc in August, based on business orders, industrial confidence and other factors such as companies' hiring plans, increased by 2.7 points to 95.2.

Rising confidence has inspired some to predict that the 17 countries using the euro have overcome the worst of a crisis that was triggered by banks' investment in risky mortgage debt and later drove some states to the brink of bankruptcy.

"The most acute phase of the crisis and the toughest period of belt-tightening is behind us," said Dirk Schumacher, an economist with Goldman Sachs.

In a separate release, Eurostat, the European Union's statistics agency, said annual consumer price inflation in August would be 1.3 percent, down from 1.6 percent in the previous month, due mainly to a drop in energy prices.

A lack of price pressures is a further potential boon to the economy, giving households a little more spending power, and would allow the European Central Bank to stick to its record lower interest rate policy to try to help the economy.

But while morale improved, unemployment in the euro zone in July remained at a record high of 12.1 percent, although there is a huge variation in jobless rates between countries such as Germany, where the job market is robust, and Greece or Spain where more than one in four workers have no job.   Continued...

Latvia's Prime Minister Valdis Dombrovskis and Finance Minister Andris Vilks (L) address a news conference on the adoption of the euro by Latvia at the European Union council building in Brussels July 9, 2013. REUTERS/Francois Lenoir