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Euro bank chief warns against tax hikes

BARCELONA - Ahead of crucial elections in France and Greece, Mario Draghi, president of the European Central Bank, warned governments Thursday that opting for the “easier road’’ of raising taxes to fill public coffers would not solve Europe’s problems.

Draghi said it was understandable that governments would be tempted to raise taxes “under extreme urgency.’’

But he emphasized that “past the urgency, this should be corrected,’’ especially in a European environment with “a high level of taxation.’’

Draghi would not discuss the politics of any specific country.

His comments came after a meeting of the ECB’s governing council on Thursday during which the central bank left its benchmark interest rate unchanged, at 1 percent, choosing not to react immediately to signs the eurozone economy was continuing to deteriorate. The decision had been expected by analysts.


While underlining that the outlook “continues to be subject to downside risks,’’ Draghi said the bank still expected the eurozone’s economy to “recover gradually in the course of the year.’’

The governing council met in Spain, the new center of the European debt crisis. At over 24 percent, Spanish unemployment is the highest in the eurozone.

Analysts did not expect the ECB to cut rates Thursday, but some have said a cut in coming months is more likely after a number of negative economic reports, particularly on unemployment. Joblessness in the eurozone rose to a high of 10.9 percent in March from 10.8 percent in February, according to figures released Wednesday.

But Thursday, Draghi deflated expectations of an imminent cut to interest rates, saying that members of the governing council had spoken generally about monetary policy but did not discuss a cut. His comments suggested the ECB saw a lower risk of inflation than before, making it easier for the central bank to respond to another escalation of the crisis.


Joerg Kraemer, chief economist at Commerzbank, said in a note that “In the end, the ECB would cut rates if the recession did not come to an end soon.’’

Draghi also dampened hopes the ECB would dispense another round of inexpensive, three-year loans to banks. It is too early to judge the effect of the most recent loans, which banks received March 1, he said.