Unemployment divergence remains at large in Euro zone

German economy added more jobs in March and unemployment rate dropped to record low at 6.4%. For Italy on other hand saw unemployment rate tick up at 12.7%.

• Divergence in economic activity suggests that core issue to the stability of Euro zone still persists, which is divergence between core and peripheral countries.

• Structural issues since 2009 crisis gave rise to TARGET 2 imbalances across countries that saw rise close a trillion Euro. That dropped after measures were taken in 2012, however still hovering close to 500 billion Euro.

Weaker Euro will not be able to solve these structural issues faced by countries, which if remain unchecked will call for systematic crisis from time to time.
Chart explains unemployment gap between Germany and Italy.

• While German unemployment is at 6.4% Euro zone unemployment still at 11.3%. However unemployment difference between Germany and Euro zone average is showing signs of improvement in recent readings.
• Without a recovery in unemployment gap, depression of yield difference between Germany and periphery name Italy is a temporary phenomenon induced by ECB bond purchase.
• Recovery in Euro zone remains a long term phenomenon, so weaker euro is here to persist for now. Euro is trading at 1.072 against dollar today.

Share this: