Unemployment in Euro Zone Hits Record High By DAVID JOLLY Published: July 2, 2012

I'm so happy they've "saved the Euro"  --  here we go again  ---  this from The New York Times  --  please follow link to original.
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http://www.nytimes.com/2012/07/03/business/global/daily-euro-zone-watch.html?hp

PARIS — Fundamental weaknesses in the euro zone economy were back in the spotlight Monday, with the release of reports showing record unemployment in May, a decline in manufacturing and intense pressure on French public finances just days after European leaders decided on measures to reinforce the longer-term prospects for the currency union.

Unemployment in the euro zone rose in May to 11.1 percent from 11.0 percent in April, Eurostat, the statistical agency of the European Union, reported from Luxembourg. The May jobless figure was the highest recorded since the creation of the euro in 1999.

A separate report showed euro zone manufacturing falling in June for an eleventh straight month. Markit Economics, a research concern, said its survey of purchasing managers in the manufacturing sector showed operating conditions continuing “to deteriorate at the fastest pace for almost three years.”

In Paris, the French national auditor, the Cour des Comptes, said that President François Hollande’s government would need to cut between 6 billion euros and 10 billion euros from this year’s budget to meet its deficit-reduction targets.

The auditor said 2013 would be even more challenging, with 33 billion euros of spending cuts and tax increases essential if France is to meet the European Union’s 3 percent limit on the budget deficit as a percentage of gross domestic product next year.

The economic data starkly illustrate the scale of the problem facing the currency bloc: Even as its members seek to curtail spending to reassure markets that government finances are manageable, economic weakness threatens to create a vicious cycle in which reduced government outlays contribute to declining growth, government revenue falls further, generating new pressure to cut spending.

“The data show the euro zone is in a recession,” Holger Schmieding, chief economist at Berenberg Bank in London, said. “I’m afraid they show that the European Central Bank has to step up and do its part” when its policy council meets on Thursday.

Mario Draghi, the E.C.B. president, said May 31 that the bank was nearing the limits of its powers and that politicians needed to act decisively to resolve the euro crisis. He warned that the structure of the currency union had become “unsustainable unless further steps are undertaken.”

European leaders surprised markets on Friday with an agreement that included using their bailout funds to recapitalize struggling banks directly. They also agreed to begin work on a unified banking regulator to restore faith in the euro zone financial system, something they hope will break the link between worries about banks and sovereign finances.

Between the dim economic outlook and political cover provided by European officials’ relatively bold moves Friday, analysts believe the E.C.B. now has the scope for new measures to bolster the economy.

Mr. Schmieding predicted the central bank would cut its main interest rate target from the current 1.0 percent and possibly “do something on liquidity.” If the bank does not act, he said, “the current relief in the market won’t last very long, and it’s going to be a very rough summer.”

The French auditor’s 2013 prediction is based on the assumption that the French economy will grow by 1 percent. Mr. Schmieding said that was in line with his own forecast, but it might not be achievable if the auditor’s call for 33 billion euros of austerity measures was acted upon.

Italy may announce the results of a spending review Monday or Tuesday that is thought likely to include cuts to public administration and the national health system. Rome is looking to raise money quickly to avoid raising the value-added tax, a sales tax, as planned in October.

In late afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 1.03 percent, after soaring about 5 percent on Friday. The FTSE 100 index in London was up 0.69 percent.

The euro fell to $1.2569 from $1.2667 late Friday in New York. Prices fell for Spanish government 10-year bonds, and the yield, which moves in the opposite direction, rose 4 basis points to 6.29 percent. Italian 10-year yields fell, dropping 7.7 basis points to 5.718 percent. A basis point is one-hundredth of a percent.

Elisabetta Povoledo contributed reporting from Rome.