Euro Area Recession Is Expected to Deepen

The new forecasts stood in stark contrast with figures from the United States on Friday that showed that more new jobs were created in April than expected, which pushed the unemployment rate to a four-year low. While American job creation is still slower than in a typical recovery, the new data could ease concerns of a sharp slowdown in the U.S. economy.

In Europe, far from delivering relief, the outlook presented by Olli Rehn, the Union’s commissioner for economic and monetary affairs, stoked further concerns that unemployment risked becoming endemic and could eventually cause social upheaval.

Unemployment is expected to reach 11.1 percent across the European Union this year and hit 12.2 percent in the euro zone. It is expected to remain at those levels for much of 2014, according to the Union’s spring forecast, which was released Friday. That picture is distinctly worse compared with 2012, when 10.5 percent were without jobs across the Union and 11.4 percent in the euro area.

Given the fragmented structure of the 27-nation Union, economists and analysts say there are few real policy options for easing the situation any time soon.

“We are living through a very difficult process of adjustment following the financial crisis” and that “is having very unfortunate toll on employment,” Mr. Rehn said during a news conference. “In view of the protracted recession,” he said, “we must do whatever it takes to overcome the unemployment crisis in Europe.”

Mr. Rehn offered to give some countries longer to meet their budget targets. He also urged a quicker pace of economic liberalization in countries like France and said it was necessary to get credit flowing to households and businesses, especially in Southern Europe.

But analysts say remedies may be hard to find.

Unless the euro zone countries are willing to pool their debt and finances and engage in uniform economic policies — which is politically unlikely — the most effective medicine for the euro zone would be for Germany to stimulate its own economy to raise consumer demand for more of the goods sold by beleaguered nations in Southern Europe, said John Springford, a research fellow at the Center for European Reform, a research organization in London.

Another effective measure, he said, might be for Germany to drop its opposition to more direct lending by the European Central Bank to small and midsize companies in those countries.

“Relying less on exports, and more on domestic demand, would also be good for Germany as it’s starting to feel recessionary effects from the south,” Mr. Springford said. But, he acknowledged, “those steps would be very difficult politically for the government in Berlin to take.”

Nicolas Véron, a visiting fellow at the Peterson Institute for International Economics in Washington and a senior fellow at Bruegel, a research organization in Brussels, said he did not expect European banks to significantly regain confidence to start lending to small and midsize businesses until late 2014 at the earliest, when the E.C.B. is expected to take over supervision of the European Union’s biggest lenders.

“Credit allocation in Europe is clearly dysfunctional,” Mr. Véron said, “and that’s hugely serious because lending in Europe is so reliant on banks compared to the United States, where there are far more diverse sources of capital, like bond markets and nonbank intermediaries.”

On Thursday, the E.C.B. cut rates to a record low to do what it could to spur growth. Bond markets responded favorably, with Spanish 10-year yields falling below 4 percent Friday for the first time in a couple years, and Italian 2-year yields below 1 percent for the first time ever.