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Europe's jobs crisis comes into sharper relief

People wait for an employment office to open in Badalona, near Barcelona, April 25, 2013. The stickers on the wall read, "Unemployment". REU
People wait for an employment office to open in Badalona, near Barcelona, April 25, 2013. The stickers on the wall read, "Unemployment". REU

By Andy Bruce

LONDON (Reuters) - Europe's policymakers are starting to recognize chronic unemployment as a crisis in its own right, rather than something that will resolve itself when the economy improves.

Compared with the United States, where the labor market is a key determinant of economic policy, European authorities have been more passive in their approach to jobs for many years.

But the depth of the jobless epidemic, especially in euro zone countries like Spain and Italy, means their rhetoric is at least changing.

Friday's spring economic forecast from the European Commission was a case in point.

Invoking European Central Bank President Mario Draghi's pledge to protect the euro, the European Union's Economic and Monetary Affairs Commissioner Olli Rehn said the EU would do "whatever it takes" to overcome the jobless crisis.

In previous forecasts, Rehn mentioned reducing unemployment mainly as something that would only come further down the line, after the completion of painful reforms.

Jobs data from across the Atlantic, also released on Friday, contrasted starkly. The United States added 165,000 non-farm jobs in April, while the unemployment rate there fell to 7.6 percent, its lowest since December 2008.

Business surveys on Monday will reveal more about the pace of job losses in the euro zone, where the jobless rate hit a new record 12.1 percent in March, meaning more than 19 million euro zone citizens are out of work.

"At some point they're going to have to change tack, and maybe 12.1 percent unemployment is the time," said David Blanchflower, economics professor at Dartmouth College in New Hampshire, and formerly a Bank of England policymaker.

He noted ECB President Draghi did not mention the labor market at all in his economic analysis of the euro area last week, after cutting interest rates to a new record low of 0.5 percent.

"If you see the latest minutes from the (U.S. Federal Reserve), they really are targeting unemployment, as they should be. They really do take it seriously," he said.

NO QUICK FIX

Even if Europe's politicians increasingly recognize joblessness as a crisis that must be fought actively, little exists that could spur a quick change in fortunes.

"There are always measures which the authorities can take to get the labor market going," said Philip Shaw, chief economist at Investec in London.

"The problem is, given the depth of the crisis, they're unlikely to make a material, positive impact for quite some time. There is absolutely no quick fix to the problem."

Given how Europe has dragged on global economic growth for the last few years, officials there have had no shortage of advice from politicians around the world.

U.S. Treasury Secretary Jack Lew last month said a rush towards fiscal austerity in Europe had worsened the economic situation in some countries, arguing that there is a need to assess the impact of budget cuts on growth and employment.

He and his G7 finance minister counterparts meet on Friday in London, and although the agenda focuses on fighting tax evasion, the event will provide another chance to discuss how Europe can return to prosperity.

Ultimately, the solution lies in the structural reforms that are already slowly taking place, and also in the restoration of Europe's banking system.

Shaw cited the fact U.S. banks recapitalized earlier than their European peers, particularly in the euro zone, as one of many reasons why the American economy has performed better, therefore creating more jobs.

"(U.S.) unemployment peaked in double digits back in 2009. Looking at a snapshot now, the U.S. seems to have less of an unemployment issue than continental Europe," said Shaw.

"However, that hides the fact it's been a long, hard grind getting the jobless rate down in the U.S."

And even a return to sustained economic growth might not be enough to guarantee European unemployment will fall significantly, said Blanchflower.

He co-authored a study, released last week, showing how the statistics showing an apparently resilient jobs market failed to cover a sharp rise in the number of people working less than they would like.

"If any recovery comes, presumably it's going to come by the incumbent (employees) working more hours, which means the unemployment rate doesn't come down as fast as you'd have thought," said Blanchflower.

"So it looks like we're going to be stuck with high unemployment for a long time."

(Editing by James Jukwey)

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