Record-high euro-area employment, below-target inflation raising expectations that European Central Bank will go beyond additional interest-rate cuts, consider US-style quantitative easing to stimulate economy

Cindy Allen

BRUSSELS , May 31, 2013 (Thomson Reuters Corp.) – * Unemployment rises to 12.2 percent in April * Inflation in May leaves room for ECB to act

Unemployment has reached a new high in the euro zone and inflation remains well below the European Central Bank's target, showing the size of the challenge EU leaders are facing in their efforts to revive the bloc's sickly economy.

Joblessness in the 17-nation currency area rose to 12.2 percent in April, Eurostat said on Friday, marking a new record since the EU's statistics office started collecting data on the countries in 1995.

With the euro zone also in its longest ever recession since its creation in 1999, consumer price inflation was far below the ECB's 2 percent target in May, although it ticked up to 1.4 percent from 1.2 percent in April.

That rise may quieten concerns about deflation, but the deepening unemployment crisis is a threat to the social fabric of the euro zone, with almost two-thirds of young Greeks unable to find work and southern Europe facing a 'lost generation'.

In France, Europe's second largest economy behind Germany, the number of jobless people rose to a record in April, while in Italy, the unemployment rate hit its highest level in at least 36 years, with 40 percent of young people out of jobs.

Expectations are rising for the ECB to act to revive the economy and go beyond another interest rate cut to consider a U.S.-style money printing programme known as quantitative easing.

"We do not expect a strong recovery in the euro zone," said Nick Matthews, a senior economist at Nomura International in London. "It puts pressure on the ECB to deliver even more conventional and non conventional measures."

ECB President Mario Draghi, who already saved the euro zone from breaking up last year with a plan to buy the bonds of governments in trouble, has so far preferred to leave the onus on euro zone governments to reform.

The European Commission, the EU's executive, told governments this week they must focus on reforms to outdated labour and pension systems to regain Europe's lost business dynamism, trying to shift its focus away from budget cuts towards growth.

But even if governments take on powerful unions and vested interests to enact reforms, they will take time to produce benefits and the impact of the euro zone's debt and banking crises have been sapping confidence from companies and households.

Private consumption saved Germany from slipping into recession in the first three months of this year, data showed on Friday, but retail sales still fell unexpectedly in April because of the cold European winter.

Meanwhile, French consumer spending dropped again in February, falling by 0.2 percent after contracting in January. French household purchasing power contracted in 2012 for the first time since 1984.

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