Eurozone crisis will last until late 2013, says Draghi
European Central Bank chief accuses politicians of living in a 'fairy world'
The president of the European Central Bank yesterday demanded that EU leaders leave behind the "fairy world" and forge a banking union, while warning that the eurozone's economic and debt woes won't get better until deep into next year.
Mario Draghi was speaking as the eurozone's jobless rate hit a record 11.7 per cent in October, up from 11.6 per cent in September, amid worsening conditions in crisis-racked Spain and Italy and disturbing signs that Germany could be tipped into recession.
Despite this, Germany's politicians did at least offer the continent some breathing room by approving a bailout payment of €44bn (£32bn) for Greece by a big majority. The package, giving Greece more time to cut its debt, was approved by European finance ministers earlier in the week.
Mr Draghi warned Europe's politicians that the continent remains mired in crisis. "We have not yet emerged from the crisis," he said. "The recovery for most of the eurozone will certainly begin in the second half of 2013."
The ECB will hold its regular monthly policy meeting next week, and is widely expected to leave interest rates on hold at 0.75 per cent.
But some economists think it will cut again next year, and Mr Draghi told governments that they must act if they want to end the crisis.
He stressed that the ECB's new bond-purchase programme, dubbed Outright Monetary Transactions (OMT), has made things better for the continent's worst debtors.
Under the programme the ECB stands ready to buy potentially unlimited amounts of sovereign debt, but Spain, the leading candidate for aid, has to first ask.
However, simply announcing the plan has eased pressure on both Spain and Italy, cutting around 2 percentage points from what they pay to borrow for 10 years.
Data yesterday also showed that Spain registered a €31bn inflow of capital in September, the first time in 14 months that international investors have put in more than they have withdrawn.
Mr Draghi said: "The confidence effect of the OMT announcement has been significant, and rightly so."
But he said eurozone members must still push ahead with reforms. He said that while austerity efforts by national governments would result in a short-term contraction of economic activity, "this budgetary consolidation is inevitable".
The eurozone jobless rate is a persistent source of worry for policymakers, and is getting worse as public sectors around Europe contract amid austerity-driven cutbacks.
At the same time, just over half of 862 European investors, analysts and traders surveyed by Bloomberg said they thought Germany's output will shrink, and 64 per cent said they expected the eurozone's sovereign debt crisis to worsen.
The German economy grew 0.2 per cent in the third quarter, against a 0.1 per cent fall in the eurozone.
While Chancellor Angela Merkel won a thumping majority for the Greek bailout, there were 11 abstentions, while a further 100 MPs, including several from her own coalition, voted against it.
That opposition deprived Ms Merkel of her so-called "Chancellor's majority" – a politically symbolic 311 votes in favour from MPs within her own coalition which would have signalled their clear endorsement of her policies.
Greece has been given a two-year extension to its spending cuts deadline, which will prolong its overspending.
- 1 Three of Pope Francis' relatives die in Argentina car crash, including two young great-nephews
- 2 Michael Brown shooting: Amnesty International sends team within US for first time as National Guard deployed
- 3 Reading Festival 2014: Tesco branch replaces salad with Jager and potatoes for vodka as campsite opens tomorrow
- 4 Here’s the damning letter Robin Williams wrote to his Mrs Doubtfire co-star's principal after they expelled her
- 5 Ferguson protests: 90-year-old Holocaust survivor Hedy Epstein ‘arrested’ by police during St Louis demonstrations
Syria conflict: President Assad finally turns on Isis as government steps up campaign against militant strongholds
Michael Brown shooting: Amnesty International sends team within US for first time as National Guard deployed
Iraq crisis: Islamic State's message to America - 'We will drown you all in blood'
Ferguson: In the heartlands of America, a descent into madness
Celebrity Big Brother 2014: Audley Harrison meets Kellie Maloney: 'Was Kellie really the best you could come up with?'
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Ukip MEP calls for reintroduction of death penalty on fiftieth anniversary of last deaths
Russell Brand calls for Israel boycott: Comedian urges big businesses that 'facilitate the oppression of people in Gaza' to pull funding
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
World peace? These are the only 11 countries in the world that are actually free from conflict
iJobs Money & Business
£700 per day: Harrington Starr: Quantitative Developer C++, Python, STL, R, PD...
£30000 - £44000 per annum + Bonus+Benefits+Package: Harrington Starr: Web deve...
£40000 - £65000 per annum + benefits+bonus+package: Harrington Starr: Senior A...
£35000 - £45000 per annum + benefits+bonus+package: Harrington Starr: Web deve...