The European Central Bank has cut interest rates to a new record low of 0.25 percent, but what's really needed to get the region's economy going and reduce the record high unemployment rate is flexible labor markets, say experts.
Indeed, on Friday, ratings agency Standard and Poor's downgraded France's credit rating citing the lack of reform to its labor market. Earlier this week, the European Commission warned that the euro zone's competitiveness and growth could be hindered if rigidities in the labor markets – like those in France and Italy – persisted.
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But labor unions are warning that such reforms could make long-term job security a thing of the past.
Flexible labor markets are those where employers can lay off workers more easily or reduce the number of hours worked by employees.
In a sign that businesses in the euro zone are already switching to greater flexibility, recruitment agencies this week reported that demand for permanent contracts is declining while that for temporary contracts is on the rise.
Swiss staffing agency Adecco reported a 61 percent increase in net profit earlier this week and said that revenues from placing permanent contracts had fallen in the U.K., France and Ireland.
The company's chief executive, Patrick De Maeseneire also said he expected an increased demand for flexible labor in Europe as the region emerged from recession.
The U.K. has shown that a flexible labor market could pay dividends for the euro zone, if its unemployment rate of 7.7 percent is anything to go by.
Out of the 29 million people in work, 8 million work part-time, 4 million are self-employed and 1.6 million are on temporary contracts, according to labor data from the U.K.'s Office of National Statistics (ONS). Data from the the U.K.-based Recruitment and Employment Confederation (REC), a body which represents the recruitment industry, also says that on any given day, there are 1.1 million agency workers fulfilling temporary roles in workplaces across the U.K.
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Nine out of ten employers say they plan to either maintain or increase their use of temps over the next year, according to REC's latest monthly Jobs Outlook. The top three reasons given by employers for using agency staff are to manage peaks in demand, to cover leave or the short-term provision of a particular skill.
"Organizations face the tension of keeping costs down while attracting the best people to the job. They want to keep their fixed costs down, so flexible contracts are a good way for them to do that," Kevin Greene, the CEO of REC told CNBC on Thursday.
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"While we do recognize that some temporary workers are in a more precarious situation, look at the alternative. In the euro zone, the alternative is record high unemployment," Greene said. "We think it's better to get people into some form of work, keep their skills fresh, keep them contributing and keep them off benefits."
"Once in temporary employment you are far more likely to get offered permanent work, too," he stressed, adding that he'd seen a marked increase in workers requesting flexible contracts and hours at all levels of the workforce.
Firing, not hiring?
Labor unions in Europe however are warning that flexible labor markets could ultimately make millions of workers more vulnerable. They say that by implementing the strategy the European Commission terms "flexicurity" – which attempts to reconcile employers' need for a flexible workforce with workers' need for security – euro zone governments could put the long-term job security of workers at risk.
"Flexicurity is being interpreted as a licence for easier dismissal and the expansion of precarious and casual forms of working," the European Trade Union Confederation (ETUC), which represents 60 million members from 85 national trade unions in 36 countries, said on its web site.
"Trade unions are totally opposed to this approach, which will produce a more segmented labor market, and social exclusion for the most vulnerable workers."
Despite the confederation's concerns over more flexible working practices, experts on social policy and employment say flexibility is the best way forward.
Ian Brinkley, the director of The Work Foundation, an independent U.K.-based authority advising on employment policy, said the liberalization of labor markets in Europe could lead to a fall, rather than rise, in temporary work, as it became less costly and less risky for employers to hire permanent workers.
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The director of the U.K. National Institute of Economic and Social Research (NIESR) said that the dire state of the European labor market made it more urgent to get people into some kind of work, rather than worrying over the decline in permanent roles.
"There are hopes that reforms, particularly in the labor markets of southern euro zone countries, will mean that employers will be more encouraged to offer permanent roles. At the moment, it's so hard for them to fire people in some countries, they're reluctant to hire permanently at all," Jonathan Portes told CNBC on Thursday.