“Surging unemployment rates from Spain to Italy and Greece are threatening efforts to quell the region’s debt crisis and keeping bond yields close to record premiums relative to benchmark German bunds.
Joblessness is soaring as European nations reduce spending, igniting strikes and protests fromAthens to Madrid. Unemployment in Spain surged to almost 24 percent, pushing the euro-region level to 10.8 percent in February, the highest in more than 14 years. Italy’s rate is at 9.3 percent, the most since 2001, hampering efforts to spur economic growth.
Deepening recessions in Italy and Spain contributed to a five-week slide in Italian and Spanish bonds as the shrinking tax base helped lead to both countries raising their deficit targets. The yield premium investors demand to hold Spanish 10- year debt over German bunds reached a four-and-a-half-month high this week.
“The higher the jobless rate, the more that has to be spent on benefits, creating the potential for a negative spiral,” saidChristian Schulz, an economist at Berenberg Bank in London and a former ECB official.
Berenberg Bank predicts euro-region unemployment will peak at 11.5 percent in September, he said….”
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