Unemployment at new high in Europe, prices drop

Inflation across the 17 countries using the euro registered the largest monthly drop in four years in April, falling 1.2 per cent from 1.7 per cent the previous month. It was down to its lowest level since February 2010.

Unemployment broke through 12 per cent for the first time in March, with 19.2 million people out of work in the eurozone, 1.7 million more than a year ago.

Prices in the eurozone fell this month with unemployment hitting a new record high, bolstering the case for Europe easing up on austerity and cutting interest rates to inject life into its recession-hit economy.

Youth unemployment saw a sharp increase, hitting 24 per cent and leaving 3.6 million people under 25 looking for work. In Greece and Spain, over half of young people were jobless.

Spain's recession worsened in the first quarter, with the economy contracting by 2 per cent as against the same period a year ago, and by 0.5 per cent as against the final quarter of 2012.

According to analysts, the figures meant the eurozone's fourth-biggest economy had not grown since June 2011.

They added the latest evidence of the region's economic crisis would encourage those calling for the European Central Bank to cut interest rates when it meets tomorrow.

The main refinancing rate of the bank has been held at a record low of 0.75 per cent since July 2012.

Meanwhile, Moody's cut Slovenia's debt rating to junk status as German chancellor Angela Merkel defending her crisis strategy, pushed for twin goals of fiscal rigour and growth.

Merkel was speaking during a visit to Berlin by Italy's new prime minister Enrico Letta, who said this week that Italy was dying from austerity alone but in Berlin also pledged to continue on the path of fiscal consolidation.

On a more negative note Moody's warned that Slovenia might need a bailout.

Merkel is meanwhile facing increased opposition from France and southern Europe as also the International Monetary Fund, which had warned of a downward spiral of belt-tightening and recession.

However yesterday the German chancellor insisted it was not an either-or question.

She said for Germany, budgetary consolidation and growth were not at cross-purposes but had to go hand in hand to lead to greater competitiveness and more jobs.

According to Merkel, the aim was for "Europe to emerge stronger from the crisis" and to restore confidence, with each country handling its unique challenges.

Letta said that Italy, after two months of political deadlock was emerging stronger from the crisis and pledged the country would "stick to the path of budget consolidation and fixing public finances."