ECB sticks to austerity policy

CNC report from Brussels
Added On April 25, 2013

The European Central Bank has turned down suggestions that Europe should ease up on austerity.

While there is still room to cut interest rates, the bank says such a move would not necessarily help the economy much.

The vice president of the European Central Bank on Wednesday urged eurozone countries to continue the policy of fiscal consolidation.

The remarks came against the backdrop of a debate in Europe over whether austerity measures should be softened.

Vitor Constancio also hinted that the ECB may be willing to deliver another interest rate cut.

This echoes ECB President Mario Draghi saying that "we stand ready to act if the economic conditions continue to provide bad news."

Recent surveys and data have pointed to economic downturn in the eurozone.

But Constancio says quote "we certainly still have some margin of maneuver to take decisions."

The austerity debate was reignited this week when European Commission President Jose Manuel Barroso said that austerity policies were not sustainable.

But the commission later rejected suggestions that it was headed for a political U-turn on austerity.

Both Barroso and Constancio argue that austerity measures must go hand-in-hand with structural reforms to boost growth.

Constancio says they should be "ambitious, broad-ranging and with long-lasting effects."

He points to the calm on the financial markets as proof that austerity is working.

In the past, the market had pushed borrowing costs for Italy and Spain up to sky-high levels.

Constancio says the adjustment efforts have been positive and also contributed to the improvement in financial market conditions.

But Constancio acknowledges that the economic adjustment has "implied
high costs in terms of unemployment."