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Eurozone faces systemic crisis, says EU's Barroso

Euro sign in front of ECB
Image caption Analysts are expecting more rate cuts by the ECB

European Commission President Jose Manuel Barroso has warned that the eurozone faces a "systemic crisis" that needs deeper integration to resolve.

He told the European Parliament in Strasbourg that further measures might be needed to tackle the debt crisis.

"Without this increased integration, convergence and discipline, we will not be able to sustain a common currency," he added.

His comments came as figures showed eurozone inflation was stable at 3%.

The rate of inflation across the 17-member zone in October remained unchanged from the month before, according to the EU statistics agency, as energy costs remained high.

The rate is still above the European Central Bank's target of just under 2%, but analysts suggested that the rate could fall in the coming months.

Eurozone 'vocation'

Mr Barroso warned that eurozone growth would be low and unemployment would remain at about 10% for the next two years.

Official figures released on Tuesday showed growth of only 0.2% in the eurozone area in the July-to-September period compared with the second quarter.

The European Commission president said deeper fiscal integration between eurozone members should not put the remaining 10 members at a disadvantage.

"Reinforcing the governance of the euro is also reinforcing our union," he added.

Referring to the other 10 non-eurozone EU members, he said: "Most of them, almost all of them, have a vocation to join the euro."

Mr Barroso warned that future treaty changes would be needed to strengthen integration, despite opposition from countries including Britain.

He said once this integration was achieved, it would be natural for the eurozone countries to issue debt together - what he called "stability bonds" or what the markets call eurobonds.

"Such bonds could, if well designed, strengthen financial stability and fiscal discipline in the euro area," said Mr Barroso.

Germany, which has the lowest financing costs in the eurozone, fiercely opposes any issuing of joint debt. The Commission will present a proposal on such bonds later this month.

'High uncertainty'

While inflation for the eurozone as a whole was unchanged, the overall figure masked wide variations between member countries.

The lowest rates were seen in the Irish Republic (1.1%) and France (2.5%).

Estonia, Slovakia and Portugal had the highest inflation rates, with figures of 4% or more.

Eurostat's figures also showed that across the 27-nation EU, the average inflation rate was 3.4%, with the highest rate in the UK at 5%.

One of the main drivers behind price rises was energy and fuel costs, with transport price inflation running at 5.8%. When energy prices were stripped out, inflation in the eurozone was 2%.

On 3 November, the European Central Bank (ECB) cut eurozone interest rates to 1.25% from 1.5%.

At the time, the new ECB president, Mario Draghi, told a news conference that eurozone growth was likely to remain weak, with the bloc facing an "environment of high uncertainty" given the current crisis in the financial markets.

Howard Archer, chief UK and European economist at IHS Global Insight, said survey data indicated that price pressures in the eurozone were "abating in the face of weakened economic activity and high and rising unemployment".

"Consequently, we expect the ECB to respond to weak eurozone economic activity and likely GDP contraction in the fourth quarter by following November's interest rate cut from 1.5% to 1.25%, with a further 25 basis points reduction to 1% within the next couple of months."

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