* Inflation falls to below ECB goal; rate cut seen Thursday
* Debt crisis leaves 19 mln unemployed in March
* EU Commission says no "austerity dogma", seeks growth
By Robin Emmott and Annika Breidthardt
BRUSSELS/BERLIN, April 30 Inflation in the euro
zone has fallen to a three-year low and unemployment has hit a
new record, cementing expectations of an interest rate cut by
the European Central Bank later this week.
With the bloc's economy mired in recession, inflation
tumbled to 1.2 percent in April, the lowest level since February
2010 and the biggest monthly drop in more than four years, the
European Union's statistics office Eurostat said on Tuesday.
That put the annual rate of increase in the cost of living
well below the ECB's target of close to, but below 2 percent,
raising pressure on the central bank to act to aid growth.
Euro zone unemployment meanwhile reached a record 12.1
percent of the working population in March.
EU leaders are already trying to shift away from the budget
cuts that have dominated the response to the debt crisis since
2009, and the data will raise the spectre of deflation as
companies slash prices to entice shoppers.
But the European Commission, which polices countries' debts
and deficits, defended its insistence on sustainable public
accounts that many economists blame for deepening the two-year
recession, saying it had "no austerity dogma".
"That is a caricature, our approach is a balanced one," said
Commission spokeswoman Pia Ahrenkilde Hansen.
Cutting interest rates to a new record low of 0.5 percent
would show investors the ECB is concerned about the poor state
of the bloc's economy, but the Frankfurt-based bank faces a
difficult balancing act accommodating a more resilient Germany.
German consumers were more upbeat going into May than at any
point in the past 5-1/2 years and data showed the unemployment
rate in April nearing post-reunification lows, a sign that
consumers may be positioned to help drive a recovery.
"It's a close call, but we expect a rate cut this week,"
said Sarah Hewin, a senior economist at Standard Chartered Bank.
"With inflation weaker than expected, unemployment rising
yet again and signs of a longer recession, it would be a
According to a Reuters poll last week, a narrow majority of
economists expect a 25 basis point cut on Thursday at the ECB's
meeting in Bratislava.
The ECB expects the euro zone's economy to start recovering
in the second half of the year, but recent data has cast doubts
on that forecast, especially with the German economy struggling
to rebound strongly from its fourth-quarter contraction.
"The news that the euro zone will remain in recession again
this year is clearly curbing economic optimism in Germany as
well," said Rolf Buerkl of GfK market research group that
published the May consumer climate data.
But a modest ECB rate cut is unlikely to be a game-changer
because borrowing costs are already low, and in southern Europe
banks are reluctant to lend to indebted households and to
companies struggling to sell their goods.
Spain's economy shrank for the seventh straight quarter in
the first three months of the year, figures showed on Tuesday,
suggesting its recession will stretch into 2014.
French consumer spending - the driver of its economy - fell
in the first quarter having declined for the first time in two
decades last year.
Italy's new Prime Minister Enrico Letta added his voice on
Monday to calls for a change to the EU's focus on austerity and
more pursuit of economic growth and jobs.
Some economists and politicians say austerity creates a
damaging cycle where governments cut back, companies lay off
staff, Europeans buy less and young people have little hope of
About 19.2 million people are now out of work in the bloc,
the highest level since the euro zone's inception in 1999 and
also since Eurostat began monitoring the countries in 1995.
But there is also division on just how far to soften the
targets, and while the Commission will give Spain, France and
others more time to reach its deficit goals, Berlin and the ECB
want to see countries put accounts on a better footing.