Europe's leaders paralysed as EMU jobless rate hits record high President Francois Hollande gave a hostage to fortune last year, exhorting voters to judge him by his success in "bending the curve" of jobless figures. He gave a second hostage by agreeing to push through the toughest budget cuts since the Second World War - fiscal tightening of 2pc of GDP this year, in the midst of a triple-dip recession - to meet EU deficit targets. The two objectives are now in flagrant contradiction. The grim jobs data came as Markit reported a fresh slide in eurozone manufacturing PMI surveys to 46.8 in March, with dire figures for France, Italy and Spain. The slight bounce earlier this year appears to have been a false dawn. "The authorities keep saying there is going to be a recovery in the second half of 2013, but do they really believe their own story any longer?" said Marchel Alexandrovich, an analyst at Jefferies. The risk is a Japanese-style situation where there is just no growth and debt dynamics get worse. Europe's policymakers have misjudged the severity of the downturn at each stage over the past two years, yet have brushed aside calls from the International Monetary Fund for a change in strategy. It is unclear how much longer this can continue, after Italy's earthquake election in February and amid rising anger among Europe's labour movement. Austerity is a failure. It has not succeeded in reducing deficits and is having a devastating social and economic effect," said Bernadette Ségol, head of the European Trade Union Confederation (ETUC). All attempts to form a government in Rome have so far failed. The three key parties have repudiated the EU's austerity strategy in any case, leaving it unclear whether the European Central Bank's conditional back-stop for Italy's bond markets is still valid. "Italy has become ungovernable," said sovereign debt strategist Nicholas Spiro. It is suffering from a toxic mix of economic depression and political stalemate. Investors are deluding themselves if they think the ECB can keep holding the fort. President Giorgio Napolitano has picked 10 "wise men" to put together a team, but critics say such efforts to preserve the status quo are doomed to failure. Fresh elections in June look likely, with polls pointing towards an even bigger rejection of eurozone austerity. It is questionable what Italy achieved with fiscal cuts worth 3pc of GDP in 2012. Recession shattered political consent for reform, while the economic damage caused the debt ratio to rise even faster. Fitch Ratings has lifted its debt forecast sharply to 130pc of GDP this year. The ECB has stabilised the sovereign debt of the so-called Club Med countries, but cheap credit is not reaching the firms that desperately need it. Goldman Sachs said the North-South spread in funding costs is back to the extreme levels seen in late 2011, with Italian and Spanish firms paying almost twice as much as German rivals to borrow for up to five years. It said the ECB may have to try "direct measures" to target credit at countries starved of funds. The chorus of dissent over Europe's fiscal strategy is growing louder. The Dutch Bureau for Economic Policy Analysis (CPB) has accused its own government of "cognitive dissonance" over the self-defeating effects of austerity overkill. The CPB said fiscal cuts do far more harm in balance sheet recessions when the private sector is slashing costs and the interest rates are near zero. Germany, meanwhile, has brought forward plans to balance its budget by a year "to set an example." Leaders of Bavaria's Social Christians in the ruling coalition want to go further, calling for an inner club of AAA states to fix policy and impose discipline on everybody else. North and South are scarcely listening to each other anymore.