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of capital in September, the first time in 14 months that international investors have put in more than they have withdrawn.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.Reuse content