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ECB chief sees slow recovery, offers no new help

Associated Press Modified: May 3, 2012 at 12:30 pm •  Published: May 3, 2012

BARCELONA, Spain (AP) — European Central Bank President Mario Draghi offered little prospect that the bank would deliver more support for the struggling economies of the 17-country eurozone, instead urging governments to agree a growth strategy that would work alongside tough spending cuts.

Speaking after ECB policymakers met under tight security in hard-hit Spain, Draghi said Thursday that the best way to lasting recovery would be a long-term, Europe-wide push on deep economic reforms.

"We have to put growth back at the center of the agenda," he said at a news conference after the bank's governing council left its key interest rate unchanged at a record low of 1 percent.

However, Draghi went on to stress that he saw "absolutely no contradiction" between a broader agreement on longer-term pro-growth reforms and the austerity cuts that are now weighing on growth as governments try to bring down their borrowing costs on the world's debt markets.

He urged governments to engage in "decisive structural reforms" and to "give the sense that there is a joint effort, an overall effort."

Budget cuts and tax hikes have been introduced by eurozone governments to reduce debt are now seen as hurting growth and some European governments are calling for policies to focus more on stimulating economic activity.

These measures could include cutting red tape for businesses and reforming unbalanced labor market practices that make it hard to fire established employees.

Draghi made his comments after an ECB meeting in Barcelona — one of two the bank holds each year away from its Frankfurt headquarters to underline its status as a pan-European institution. They follow similar remarks made last week when he acknowledged the need for a "growth compact" to go alongside the fiscal treaty signed earlier this year tightening limits on government spending and deficits.

Unemployment across the eurozone rose to a new record of 10.9 percent, official figures showed Wednesday. Meanwhile eight of the 17 eurozone countries are in recession — characterized as two quarters of negative growth.

The eurozone economy will shrink 0.3 percent this year, the European Union's executive commission estimates, while Spain is currently dealing with a recession and a 24 percent unemployment rate as the government of new Prime Minister Mariano Rajoy introduces its own raft of tough austerity measures.

Fearing violent anti-austerity protests timed to coincide with the bank's Barcelona meeting, Spain deployed an extra 2,000 police and tightened border controls for the event.

Several thousand students protesting increases in college costs marched from the University of Barcelona to a part of the city near the heavily guarded hotel where the ECB met. There were no immediate reports of unrest.

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