ONE has to hand it to the European Central Bank; it is impressive how effectively the ECB has managed to decouple outcomes in the euro-zone economy from financial-market panic. Just looking at movements in the S&P 500 or the yield on American Treasuries over the past month, one would be hard pressed to say anything about the state of things in Europe. For that, Americans clearly owe Mario Draghi thanks; his programme of cheap, long-term bank lending pushed the possibility of a Lehman-like event in the euro zone back out on the statistical tails where it belongs. Europeans are surely happy to have avoided a panic collapse (for now). I suspect they're finding it hard to cheer for the ECB all the same. New unemployment data provide one look at just why:

The unemployment rate in the euro zone rose to 10.8% in February. It was 10.0% a year ago and has inched upward every month since August, each recent uptick representing a new record high for the euro area. The pain is unevenly distributed. Germany's unemployment rate has held steady at 5.7% since October. Greek unemployment touched 21.0% in December (the latest month for which data are available); the rate was 14.9% in February of 2011. Spanish unemployment has risen a full three percentage points over the past year and stood at 23.6% in February. Italian unemployment moved up to 9.3%, from 8.1% a year ago. Portugal's unemployment rate rose from 12.3% in February of 2011 to 15.0% in February of this year. Youth unemployment rates are dramatically worse. A third of Italian and Portuguese under 25s are jobless and over half of youths in Greece and Spain are without work.

Conditions do not appear to be improving. Purchasing Managers' Index figures from March show manufacturing activity in the euro zone touching a three-month low. Spanish and French activity seems to be slowing at an ever faster pace. Worse still, contraction has now moved to core economies; both Germany and the Netherlands registered declining manufacturing activity for the month. Data on new orders suggest that April could be as bad or worse.

While peripheral euro-zone economies are contracting, it will be very difficult to hit deficit targets. If the result of disappointing fiscal performance is pressure for greater austerity, the squeeze on growth around the euro zone will intensify. Strikingly, the ECB continues to sit on its hands despite the seeming surety that the euro zone was in recession in the first quarter and will start the second in the same place. While both the Federal Reserve and the Bank of England have moved toward greater monetary accommodation against a more benign economic backdrop, the ECB contented itself with merely reversing last year's ill-considered 50 basis-points' worth of rate increases. Inflation continues to edge downward in the euro zone; the flash estimate for inflation in the year to March was 2.6%, down from 2.7% the prior month. Given the ECB's laser-like focus on headline inflation and its demonstrated willingness to respond to rising energy costs, it's difficult to see a big chance in stance despite the desperate economic conditions around the periphery.

A blow-up looks unlikely (absent unexpected political developments) thanks to ECB bank lending. Maybe euro-zone politicians will use the time they've been given to move toward real mutualisation of financial risks, which could reduce market pressure on peripheral sovereigns and allow for at least a mild slowdown in the pace of austerity. Unless, of course, the price of a eurobond is aggressive austerity for the forseeable future. Maybe two more years of soaring unemployment will bring unit labour costs around the periphery down to competitive levels. Internal devaluation on that scale would be an unprecedented accomplishment in the age of low inflation. If things hold together, the euro zone may well be all right by the beginning of 2014. Can things hold together while continuing on this course?