Euro zone confidence climbs

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IOL pic july29 euro bank notes Reuters .

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

The confidence of business managers polled by the European Commission rose for its 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 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.

Such rising confidence has inspired some to predict that the 17 countries using the euro have overcome 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, as households have a little more spending power, and 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, with the sharp contrast between countries such as Germany and Spain, showing that the upswing is not being felt everywhere.

“It would be the most dim-witted thing you could do to declare that the crisis is over,” Juergen Fitschen, the co-chief executive of Germany's flagship Deutsche Bank, told reporters earlier this week in Brussels.

While just over five percent of workers in Germany were unemployed, according to Eurostat, that figure reached almost 28 percent in Greece and was over 26 percent in Spain.

Although there were 15 000 fewer people in the euro zone without a job compared with the previous month, 3.5 million people under 25 remain unemployed.

“We haven't broken the negative dynamic in the south of Europe,” said Guntram Wolff of think tank Bruegel. “Banking fragility, weak growth and high unemployment still present a threat.” - Reuters

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