Shadow unemployment: the gaps in the statistics


It’s five to twelve: Employment Agency in Hamburg
Image: dpa

Much more people than the official quota shows have nothing to do at the moment. This also applies to Germany, where many people had to go on short-time work.

Kcan that really be? The economy is plunging into the deepest recession in a long time because of Corona – but the officially recorded unemployment is rising only a little, almost at a snail’s pace? According to the Eurostat statistics office, the unemployment rate in the euro zone was 7.2 percent in March, but the latest figures for July mean that it has increased to 7.9 percent. According to these statistics, only around one million more people have been on the streets since March, a total of 12.8 million. But these numbers only show part of the truth. At the same time, millions of people have been forced to reduce their jobs to short-time work; others have lost their jobs but do not appear in the official statistics as unemployed.

Economists at the major Swiss bank UBS have therefore carried out a calculation of “shadow unemployment”. Their result: In the spring quarter, actual unemployment in the euro zone was 20 percent and now, in the third quarter, it is probably 15 percent. That is twice as much as in the Eurostat figures. In Spain, UBS economist Anna Titareva suspects that despite the recent decline in short-time work, there are still well over 20 percent non-working people, in Italy almost 20 percent, in France around 13 percent and in Germany around 12 percent.

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Bulgaria and Croatia on the way to the euro zone

Bulgaria and Croatia have come a decisive step closer to joining the European monetary union. The responsible bodies, consisting of the Euro States and the European Central Bank (ECB), decided on Friday evening to include the two countries in the so-called Exchange Rate Mechanism (ERM) II with immediate effect.

This is the exchange rate agreement of a country with the monetary union, in which a fluctuation range of the domestic currency against the euro of maximum 15 percent is specified. A minimum of two years of affiliation to ERM II is one of the prerequisites for a country to be able to join the euro.

Not a sure-fire success

The exchange rate mechanism is therefore considered to be the “forecourt” to the euro. Since accession only takes place on January 1st and July 1st, the common currency in the two countries could apply at the beginning of 2023 at the earliest. The expansion to 21 states would be the first since 2015. At that time, Lithuania was the 19th country to join.

Accession to ERM II emerged in June after the ECB and the EU Commission viewed the progress of convergence in the two countries as positive in June. In addition to the exchange rate peg, the convergence criteria also include the government deficit and debt ratio, the inflation rate, interest rate developments and compliance with various legal provisions.

Bulgaria had already stood at ERM II in 2018; The ECB, in particular, had advised the government in Sofia to change banking legislation first and to prepare for membership of the EU banking union. This has now taken place.

The accession of Bulgaria and Croatia on January 1, 2023 is not a sure-fire success. More than in the case of previous candidate countries, the Eurogroup and the ECB will pay attention to the economic development in the two countries, which is particularly uncertain due to the corona pandemic.

Neither Croatia nor Bulgaria have fully met all the convergence criteria. In 2019, the debt level in Croatia was above the Maastricht reference value of 60 percent of economic output. In Bulgaria, the ECB criticizes excessive inflation. The ECB also holds out to both countries that banking laws do not sufficiently guarantee the independence of their central banks. However, a bank stress test by the ECB had given positive judgments in both countries.

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Inflation drops almost to zero percent

Whe goes shopping these days, sometimes doesn’t believe his eyes. You can even discover a cauliflower for an impressive five euros. In normal times, half would have been steep. And apart from such extreme cases, fruit and vegetables have become significantly more expensive in the crisis months. In return, the crisis has made gasoline and heating oil cheaper and relieved consumers’ budgets.

It has been official since Friday: The inflation rate in the euro area fell to 0.1 percent in May. At least that’s what the preliminary figures from the European statistics agency Eurostat say. This means that at least almost the zero limit that analysts at Commerzbank had expected for May was reached.

The prices in the euro area are practically stagnating. In April, euro inflation was still 0.3 percent. In Germany, inflation was still 0.6 percent in May: Energy prices in the euro area fell more sharply than at national level (minus 12 percent, in Germany minus 8.5 percent). Food, alcohol and luxury goods rose by 3.3 percent, services by 1.3 percent.

Money supply increases, inflation falls

Meanwhile, the money supply in the euro area has grown faster than expected. The broad M3 money supply increased by 8.3 percent in April compared to the same month a year earlier, as the European Central Bank announced. The most recent growth rate was in October 2008. This money supply comprises the cash held by non-banks plus the sight deposits held with banks and savings banks, time deposits up to two years in duration, savings deposits with a statutory notice period of up to three months as well as selected short-term securities such as money market funds and money market papers.

The narrower amount of money M1, which includes cash and sight deposits from non-banks, grew by 11.9 percent compared to the previous year. Lending to households, on the other hand, only increased by 3 percent in April compared to the same month a year earlier, which was slightly less than in March (3.4 percent). In contrast, the growth rate of corporate loans increased from 5.5 percent to 6.6 percent in April.

Holger Schmieding, chief economist at the Hamburg bank Berenberg, said that this was not unusual. In the crisis, the demand for cautions is increasing: “Households want to spend less and instead invest liquid reserves – companies draw large amounts of credit lines to be liquid.”

Increase by 500 billion euros?

The low inflation rate is also exciting in view of the next monetary policy meeting of the Governing Council next Thursday. The central bank, which is targeting inflation below, but close to 2 percent, could expand its PEPP bond purchase program. Frederik Ducrozet, economist at Bank Pictet, expects a € 500 billion increase and an extension until September 2021. Indications from ECB Executive Board member Isabel Schnabel and French central bank chief François Villeroy de Galhau this week have been suggested in this direction.

On the other hand, it seems controversial whether the ECB permanently leaves the capital key in the crisis program, according to which the bond purchases are distributed to the euro countries. Villeroy de Galhau indicated on Tuesday that the flexibility of the program was at least as important as the volume, and the capital key was an unreasonable restriction.

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