Draghi predicts 2012 eurozone recovery The European Central Bank still expects a gradual eurozone economic recovery in the second half of this year, Mario Draghi, its president, said after the euro's monetary guardian left interest rates unchanged at the record low of 1 per cent. Recent signs of a significant weakening in eurozone economic activity were not yet sufficient to justify a further loosening of monetary policy, Mr Draghi indicated after an ECB governing council in Barcelona, one of two meetings a year held outside Frankfurt, its home city. Interest rates remained at historically low levels and "accommodative," or supportive of growth. However Mr Draghi highlighted the "prevailing uncertainty" over the eurozone economic outlook - and was careful to leave room for manoeuvre should prospects fail to improve. Analysts said the ECB was likely to revise down next month its forecasts for eurozone growth, which could lead to a change of strategy. An eventual cut in interest rates is "definitely a scenario you should not rule out," said Jörg Krämer, chief economist at Commerzbank. Julian Callow, European economist at Barclays, added: "It's wait and see, but don't expect much." Within the ECB, some policymakers see little scope for monetary policy to provide significant extra economic stimulus - and that the responsibility for boosting growth prospects lies largely with governments. The impact of fiscal austerity on growth was discussed extensively by the 23-strong council and, in a concession to his critics, Mr Draghi acknowledged that fiscal measures were "weighing on near-term economic growth." Stepping up security More than 8,000 police were deployed to Barcelona as it played host to a meeting of the European Central Bank, with Spain temporarily reinstating controls on its border with France to avoid an inflow of possible anti-austerity protesters. The ECB meeting, where bankers debated how to revive growth in hard-hit countries such as Spain, was surrounded by a heavy security detail. Following spirited May day protests across Spain, police had already stepped up their presence in Barcelona. Pockets of violent demonstrations had taken place in the city during a nationwide general strike held at the end of March. While there were no disruptions reported around the ECB meeting, the Spanish ministry of interior had taken the threat of organised protests seriously enough to allow border guards to check any visitors passing into Spain from France during the preceding week. The Schengen agreement, which permits the free flow of citizens between the 27 members of the EU, can be temporarily suspended in the event of threats to national security or public order. Thousands of students protested on Wednesday against an increase in university tuition fees in the centre of Barcelona, which is expected to see many return to the Plaça Catalunya to mark the anniversary of last year's spontaneous May 15 demonstration. While the Madrid authorities have prohibited the return of protest campsites to the city's central square, the Catalan regional government has not banned the expected May 15 event from taking place. But the ECB argues fiscal consolidation remains essential to the eurozone's longer-term stability - and believes the impact on the business cycle has been less than might have been expected given the severity of some budget adjustments. "We have to put growth back at the centre of the agenda, without any contradiction with the need to continue, to persevere with fiscal consolidation," Mr Draghi said. The ECB's optimism about a eurozone turnaround has been challenged by April's unexpectedly bleak purchasing managers" indices showing the region had fallen deeper into recession. Eurozone unemployment has risen to the highest since the euro's launch in 1999, with the increase particularly felt in southern Europe and especially the young. Mr Draghi explained, however, that April's data were "not enough for us to change our baseline scenario, which foresees a gradual recovery in the second half of the year." Mr Draghi emphasised that the council had agreed unanimously that an "exit strategy" to unwind the exceptional measures the ECB has taken to combat the eurozone crisis was "premature." The ECB is not expected to repeat the offers of three-year liquidity it made in December and February - which saw it injecting more than €1tn into the eurozone financial system. But it has pledged to continue providing shorter term loans on an unlimited basis until the end of June - and that deadline appears certain to be extended. Mr Draghi dismissed suggestions that the effects of the three-year liquidity injections were wearing off, arguing their supportive role "will need time to unfold." The ECB's action had avoided severe credit crunch, and constraints on supply of credit to the real economy were becoming less serious, he said. He noted a strengthening in the deposit bases of banks in crisis-hit eurozone countries that had not been apparent even a month ago. Indicators of financial market uncertainty and volatility were also improving.