ECB head says eurozone economy will stay ‘subdued and uneven’

PanARMENIAN.Net - European Central Bank head Mario Draghi says the eurozone economy will stay "subdued and uneven" for a while and emphasized that the bank has room to cut interest rates further to help growth.

Draghi said in a speech Thursday in New York that the upturn will be weak "for as long as it is meaningful for us to look into the future."

Analysts say Draghi wants markets to know that the bank is nowhere near withdrawing its stimulus efforts, unlike the U.S. Federal Reserve. The Fed's discussion of ending its bond-purchase stimulus has unsettled markets around the globe.

The economy in the 17 European Union member countries that use the euro as their currency grew 0.3 percent in the second quarter, beginning a modest recovery after six straight quarters of decline. The ECB has kept its benchmark rate at a record low of 0.5 percent, despite high unemployment.

Eurostat, the EU’s statistics office, said the unemployment rate was 12 percent in August, unchanged from the previous month and down modestly from the 12.1 percent peak recorded in the summer. In total, the number of unemployed dipped by 5,000 to 19.18 million.

The Eurostat figures mask huge divergences across the eurozone: While Germany has an unemployment rate of 5.2 percent, Greece and Spain have over a quarter of their workforce out of a job.

The situation among the young — that is, potential workers under the age of 25 — is even more acute. Greece and Spain, for example, have over half their youth unemployed. In Greece, where the latest figures available were for June, youth unemployment stood at a stunning 61.5 percent.

The bank has so far held off cutting the interest benchmark, but has discussed the possibility of offering additional long-term loans to banks as a way to help keep borrowing costs down. Two previous such offers in 2011 and 2012 put just over 1 trillion euros into the banking system.

An interest rate cut would in theory stimulate growth by making it cheaper for businesses to borrow money if they need it to expand their operations so they can fill more orders. But another cut might have limited effect since rates are already low, and many businesses don't want to risk borrowing in a slack economy.

Still, Draghi continued to hold the door open to a possible cut. He said the bank has promised rates will stay at the current level or lower "for an extended period" and that making such a vow of continued low rates "does not imply that we've reached the effective lower bound."