By Scott Hamilton

Euro-area jobless data this week will expose the social cost of last year’s debt crisis and recession on southern European economies as unemployment across the region probably rose to a record in December.

Unemployment in the 17-nation bloc climbed for a fifth month to 11.9 percent, according to the median of 34 economists’s forecasts in a Bloomberg News survey. That result due on Feb. 1 would show the highest jobless rate since records began in 1995. By contrast, German unemployment data the day before may show the jobless rate there held steady for a fourth month at 6.9 percent in January, a separate survey found.

While measures to stem the region’s debt turmoil have helped reduce sovereign bond yields from Spain to Greece, the recession and crisis have led to job cuts by companies and governments. The European Central Bank predicts the currency bloc’s economy will shrink 0.3 percent this year and President Mario Draghi said last week that the “jury is still out” on whether investor optimism can be reflected in economic momentum.

“The worst may be over for financial markets, but definitely not for the real economy,” Marco Valli, chief euro- area economist at UniCredit Global Research in Milan, said by telephone. “The unemployment situation is going to remain very poor at least for another year, if not longer.”

The euro was trading at $1.3445 at 11:33 a.m. in London, down 0.1 percent on the day. The Stoxx Europe 600 Index was little changed at 289.52.

Spanish data last week showed a record 26 percent of the workforce without jobs in the fourth quarter, bringing the total close to 6 million people. In Greece, the rate was even higher in October, at 26.8 percent, also a record.

“Companies are still shedding labor, especially in southern Europe,” Martin Van Vliet, an economist at ING Groep NV in Amsterdam, said in an interview. “Unemployment will probably continue to trend higher in the next couple of months.”

While economists predict the German unemployment rate will stay unchanged, they still see an increase of 8,000 people without work this month from December, according to the median forecast of 31 economists in a Bloomberg news survey.

The euro-area economy has shrunk for two successive quarters and economists predict a further 0.4 percent decline in gross domestic product in the final three months of last year, according to the median of 26 estimates in a Bloomberg survey. The International Monetary Fund on Jan. 23 cut its global growth forecast and projected a second year of contraction in the euro region.

While investor confidence in Germany, Europe’s largest economy, rose to the highest in 2 1/2 years this month as debt tensions ease, high unemployment and continued austerity measures elsewhere are undermining household sentiment and spending. An index of euro-area economic confidence probably rose to the highest level since June, according to median estimate in a Bloomberg News survey of 30 economists.

“We’re in the phase of financial conditions improving and markets becoming more optimistic, but that has to feed through to the real economy,” ING’s Van Vliet said.

ECB Governing Council member Luc Coene said he would prefer the central bank’s as-yet-untapped bond-buying program to stay that way and it’s now up to governments to generate growth in the euro area.

“There is only so much a central bank can do,” Coene, who heads Belgium’s central bank, said in an interview at the World Economic Forum in Davos, Switzerland, on Jan. 26. “Governments can make the adjustments that are needed to make the economy grow again. We are going to hear that message this year again and again. The next move won’t be from the ECB.”

No country has yet asked for a bailout that could trigger bond buying by the ECB after Draghi’s rescue plan, announced in July, ended a wave of panic in euro-region debt markets. The currency block will see a “shallow” recovery starting this year as long as leaders don’t hesitate to implement measures to reduce debt and increase competitiveness, Coene said.

France needs an economic overhaul to revive growth and help underpin the political union required to stabilize the euro region, Harvard economist Kenneth Rogoff said.

European governments’ policy responses to the debt crisis, such as a “half-hearted” banking union and national budget oversight by the European Commission, aren’t enough, Rogoff was quoted as saying in an interview published in German newspaper Die Welt today. Leaders need to start now with a push toward political integration that includes a European government with taxation powers, he told the Berlin-based daily.

If governments follow through on their promises in the coming months, underlying momentum could mean the ECB will revise its prediction that the euro-area economy will contract by 0.3 percent this year, Coene said.

“When you look at the latest indicators in Germany, they point to a stronger underlying base of activity than was assumed,” he said. “If there is any adjustment to happen, it will be a small adjustment, and probably rather on the upside than the downside.”

Mark Carney, who is due to take over as Bank of England governor in July, said policy makers should secure “escape velocity” for their economies and there’s room for more monetary stimulus around the world. Policy in developed countries isn’t “maxed out” and central bankers can be flexible in meeting inflation goals, Carney, currently governor of the Bank of Canada, said on Jan. 26 in Davos.

Alongside the euro-area unemployment data, Eurostat, the European Union’s statistics office, will also release data on consumer prices for January. The annual inflation rate will remain at 2.2 percent compared with December, according to the median of 39 economists’ forecasts in a survey.

Euro-area economic conditions will be “tough” in the first half before a wider recovery takes hold in 2014, according to Patrick de Maeseneire, chief executive officer of Adecco SA, the world’s biggest supplier of temporary workers.

This year “is not going to be a good year,” De Maeseneire said in an interview on Jan. 25. “The first six months will be tough, especially in France, especially in southern Europe,” he said. “Germany is also slowing down, we see automotive slowing down, and that’s going to have an effect on the surrounding economies.”

[Bloomberg]