EU should press ahead on bank resolution, ECB man says

MEPs are expected to open negotiations with governments on the bank recovery and resolution directive in the coming weeks.

The legislation puts in place a hierarchy of savers and investors who would be expected to cover losses in the event of a Cyprus-style bank collapse.

Describing the adoption of the directive as being "of paramount importance," Constancio said it would provide "a clear tool-kit of powers and instruments in all member states."

Constancio was presenting the Frankfurt-based ECB's 2012 annual report, a year which saw the EU's GDP shrink by 0.6 percent and in which unemployment soared to "unprecedented levels."

Referring to ECB President Mario Draghi's pledge to do whatever it takes to prop up the single currency, Constancio said the promise had made a "huge impact on interest rates … and a market reduction in sovereign bond yields."

Launched in August, the ECB's Outright Monetary Transactions (OMT) programme has seen the bank buy large quantities of eurozone sovereign debt on the secondary bond markets,

He also left the door ajar for a possible interest rate cut, saying that the ECB "stood ready to act in any way it could, especially if the situation deteriorates."

The ECB has pegged interest rates at the historical low of 0.75 percent since July 2012. But with data published on Tuesday indicating a further reduction in manufacturing output, the bank is under pressure to loosen rates further at the next meeting of its governing council next week.

The ECB vice-president also distanced himself from recent comments by European Commission chief Jose Manuel Barroso implying that austerity policies had reached their limits and that governments could shift policy away from deficit reduction.

Reform programmes had "implied high costs in terms of unemployed net and should not be put into risk of unraveling now," he said.

Challenged by Portuguese MEP Elisa Ferreira, the Socialist group spokesperson's on the economic committee, Constancio said that "moving away from debt sustainability would lead to higher interest rates."

But he qualified the statement by adding that "we can talk about the speed but not the direction."