Thursday

30th Jun 2022

OECD calls for urgent EU action, warns of credit crunch

  • The Paris-based think-tank has issued a dire warning (Photo: oecd.org)

A bleak assessment from the Organisation for Economic Co-operation and Development (OECD) on Monday (28 November) warned that the eurozone crisis threatens the globe with a serious recession if left unresolved.

"The euro area crisis remains the key risk to the world economy," the Paris-based economic think-tank said in its biennial report, adding that the eurozone debt train crash could result in global liquidity seizing up.

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"If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption. Pressures on bank funding and balance sheets increase the risk of a credit crunch."


The body cut its projections for growth across all OECD or developed countries from 2.3 percent in its last report to 1.6 percent in 2012, while EU states dropped in its estimations from two percent to 0.2 percent for next year.

The group expects something of a recovery to 2.3 percent OECD-wide in 2013, but this would be a jobless recovery, with unemployment remaining at around eight percent for the next two years.

"Prospects only improve if decisive action is taken quickly," said the OECD's chief economist, Pier Carlo Padoan, upon the launch of the document.

Padoan went on to call on eurozone leaders to take decisive action to prevent the worst, notably a strengthening of the region’s rescue fund and the use of the European Central Bank as lender of last resort to troubled states.

"In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet."

"Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard," he said, in language that appeared to endorse more centralised fiscal-policy-making in the single currency area.


The economist however worried whether EU leaders would be able to resolve the problem in time.

"We are concerned that policy-makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy," he said.

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