Is the situation dramatically different in the EU than in the US?
Here in the US, we are not suffering from a crisis of demand at all. We are suffering from structural unemployment - demand and production have both recovered, but people remain unemployed.
Your thesis is surprising, so I'll have to look more into your data.
For now I will say that (1) because of the tight correlation between employment and demand, you'd need a very solid argument that demand has recovered but employment hasn't and why and (2) the data you have in your comment doesn't show that conclusively. The only measure of demand you site is Manufacturer's New Orders, which does show an increase. However, most of it is due to airplanes, which are volatile by nature (and is partly fueled by public defense spending). Also, the best predictor of future growth in that category (Core capital goods), while growing, isn't back to 2007 levels yet. [1]
I think it's too early to say demand is back, and it's lack also explains unemployment well.
...because of the tight correlation between employment and demand...
This "tight correlation" is a conclusion of Keynesian economics, and is strongly dependent on an assumed correlation between production and employment.
The logic goes: production and employment are highly correlated (i.e., you can't increase production much without increasing employment). Weak AD reduces production, therefore stimulating AD can increase production and employment.
As my data shows, the correlation between production and employment is quite weak, and we can therefore not use employment as a proxy for demand.
I don't think what you are saying is the full story - demand hasn't recovered completely. For example, I believe real estate demand is very low (and real estate sales has major flow on effects)[1].
If you believe in Keynesian economics, it doesn't matter that real estate hasn't recovered. The only quantity that matters is aggregate demand and aggregate supply. (Employment should be slaved to AS.) Taking the Keynesian assumption that AD and production are monotonically related to each other, we can conclude that AD has recovered.
If you push theories in which you you treat real estate separately from the rest of the economy (i.e., you assume construction workers don't immediately go out and become nurses), you are a structuralist rather than a Keynesian.
In any case, the Keynesian assumption that employment increases with production is simply not true of the modern economy. This is quite easy to establish empirically - just compare graphs of production to graphs of employment.
By the way, here is more data on employment across the economy.
Taking the Keynesian assumption that AD and production are monotonically related to each other, we can conclude that AD has recovered.
I think most Keynesian have moved on from that simplistic view. Stagflation in the 1970s showed that the inflation/unemployment relationship could move, and few would argue against structural change having a similar effect.
In any case, the Keynesian assumption that employment increases with production is simply not true of the modern economy.
That's an effect, not a cause. Traditionally it has happened like that, but anyone who argued it had to be that way would be stupid.
I think we are strongly agreeing about the importance of structural change? (And hence I agree with you about the lack of a strong relationship between production and employment). I don't agree with you that demand has recovered though. Your data (http://research.stlouisfed.org/fred2/series/DGORDER) shows it still at levels around that in 2004/05.
You shouldn't look to real estate to evaluate demand. The housing bubble is the primary cause of the crisis. By most estimates prices have to dip another 10% in order for the market to return to its historical trend (which is to grow at the rate of inflation). There is no demand now because everyone knows housing is overpriced. That's a good thing.
We've resumed normal growth, but we haven't had any of the faster than normal catch-up growth that usually happens at the end of a depression and returns unemployment to normal. So by that measure the current high unemployment is to be expected.
Here in the US, we are not suffering from a crisis of demand at all. We are suffering from structural unemployment - demand and production have both recovered, but people remain unemployed.
http://news.ycombinator.com/item?id=2240468
I'd be very curious to see data indicating that the EU is in a different situation.