European Central Bank council member Ewald Nowotny yesterday said the euro region faces a recession this year, adding that the ECB mandate extends beyond price stability.
"It is my view that we could have stagnation in the euro region as a whole or recession in certain phases of the year," Mr Nowotny, who heads Austria's central bank, said in Berlin.
Mr Nowotny said the ECB had the primary mandate of securing price stability. Once that was achieved, the ECB was free to support economic growth as long as meeting the primary goal wasn't at risk. Central banks could not "watch as Rome burns", he said.
The Frankfurt-based ECB kept its benchmark interest rate unchanged at a record low of 1pc this month after two reductions. President Mario Draghi said while the economy was showing "tentative" signs of stabilising, "cost, wage and price pressures in the euro area should remain modest".
The IMF predicted that the economy of the euro area would contract 0.5pc this year as the debt crisis prompts governments and consumers to cut spending.
Mr Nowotny said the ECB had to fight inflation and deflation alike over the medium term. Fighting deflation was more difficult because there was an interest rate limit of 0pc, he said. (Bloomberg)