Eurozone set-up unsustainable, says Draghi

European Central Bank (ECB) president Mario Draghi says that eurozone leaders must decide what they want the bloc to look like in the future, because the current set-up is "unsustainable".

He said that the ECB could not "fill the vacuum" left by governments on creating growth or structural reforms.

EU economics commissioner Olli Rehn said more austerity was needed if the eurozone was to avoid disintegration.

New figures showed eurozone inflation slowed more than expected this month.

Inflation in the 17 countries that use the euro eased to 2.4% in May from 2.6% in April.

The figure is still above the ECB's target to keep inflation below 2%, but the lower-than-expected number could fuel calls for an interest rate cut next week.

Speaking to the European Parliament, Mr Draghi said: "Can the ECB fill the vacuum of lack of action by national governments on fiscal growth? The answer is no. Can the ECB fill the vacuum of the lack of action by national governments on the structural problem. The answer is no.

"The next step... is to clarify what is the vision a certain number of years from now. The sooner this is specified, the better it is."

Mr Rehn talked down the idea of European states issuing joint bonds, saying that austerity and closer co-operation were needed.

"We need a genuine stability culture and a much upgraded common capacity to contain common contagion," he told a conference.

"This is the case, at least if we want to avoid a disintegration of the eurozone and instead make the euro succeed."

Worries over the eurozone debt crisis - and in particular Spain's banking sector - have been hitting markets all week.

However, the markets were enjoying a respite on Thursday. The euro - which had fallen to near two-year lows against the dollar at $1.2358 - recovered slightly to $1.2410.

European stock markets were mostly positive, with London's FTSE 100 share index up 0.8%, and the Frankfurt and Paris indexes registering similar gains.

The pressure on bond yields also eased slightly, with Spain's 10-year bond yield - the rate of return demanded by investors - falling back to 6.61%, having reached 6.79% on Wednesday.

In other figures released on Thursday, Germany's unemployment rate fell below 7% as Europe's biggest economy continued to perform strongly.

The jobless rate dropped to 6.7% in May, from 7% in April, as the number of people unemployed fell by 108,000 to 2.86 million.

However, there was more bad news from Greece as figures showed that Greek retail sales volumes fell by 16.2% in March compared with a year earlier. This followed February's decline of 12.9%.