/www.bloomberg.com/ By Reed V. Landberg
Munich, Dec. 6 (Bloomberg) -- Europe's unemployment rate probably can't fall much further from its present level without pushing up inflation, a Bank of England policy maker said.
Stephen Nickell, who sits on the U.K. central bank's interest- rate setting committee, said the ``equilibrium'' unemployment rate in the dozen nations sharing the euro probably is about 8 percent, near the 8.3 percent current level.
``It's hard to see how average equilibrium unemployment in the euro-zone can be below 8 percent,'' Nickell wrote in a paper he's delivering today at the Ifo institute in Munich.
The comments suggest the European Central Bank won't be able to cut borrowing costs much further after it pared its benchmark lending rate a half percentage point yesterday to 2.75 percent.
The equilibrium unemployment rate refers to a theoretical level of joblessness that's compatible with stable inflation. The ECB is charged with keeping inflation to 2 percent a year.
Unemployment in the region rose to 8.3 percent in September from 8 percent through much of 2001. The jobless rate has fallen from as much as 11 percent at the beginning of 1997. The ECB lifted interest rates to as much as 4.75 percent at the end of 2001 from as little as 2.5 percent in mid 1999.
``The reduction in unemployment generated by monetary policy easing in the late 1990s hit the inflation constraint in 2000, and monetary policy had to be tightened to stop inflation rising further,'' Nickell wrote. ``This prevented euro-zone unemployment falling much below 8 percent.''