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ECB’s Liikanen Says Stable Prices Best Help to Job Creation

May 30 (Bloomberg) -- The European Central Bank’s best contribution to job creation is to ensure prices in the 17-country single currency area remain stable, governing council member Erkki Liikanen said.

“The functioning of the labor market and monetary policy are tightly intertwined,” Liikanen, who also heads the Bank of Finland, said in a speech in Tartu, Estonia, today. The central bank’s “primary objective remains to maintain price stability over the medium term. This is the best contribution of monetary policy to fostering growth and job creation in the euro area.”

The debt crisis has caused unemployment to increase in the euro area as waning demand prompts companies to cut jobs and pare spending. The Frankfurt-based bank’s benchmark interest rate is at a record-low 1 percent. The region’s economy will contract 0.3 percent this year before growing 1 percent in 2013, the European Commission forecasts.

The euro area has recovered about 1 million of the about 4 million jobs lost since 2008 and more than 20 percent of people aged 16 to 24 are unemployed in the region, Liikanen said. Young workers are the hardest hit as they are used as labor buffers when employers adjust the workforce, he said.

“Given the magnitude of the youth unemployment problem, European economies cannot afford to fail in relocating the unemployed young workers to new jobs,” Liikanen said. “Failure in this task would imply a lost generation and all the individual and macroeconomic costs that follow.”

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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