23rd Mar 2019

Eurozone 'grinding to standstill', OECD warns

  • The ECB should expand its stimulus programme if the eurozone is to avoid 'grinding to a standstill', the OECD says (Photo: Images_of_Money)

The eurozone is “grinding to a standstill” and now poses “a major risk to world growth”, the Organisation for Economic Co-operation and Development (OECD) has warned in a report which urges the European Central Bank (ECB) to expand its stimulus programmes.

The stark warning is part of the biannual economic outlook report published on Tuesday (25 November) by the Paris-based think tank, whose members represent the world’s most advanced economies apart from China.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

“Intensified monetary support is critical to growth”, said Catherine L. Mann, the OECD’s chief economist and author of the Economic Outlook.

The report calls on the ECB to “further expand its monetary support including through asset purchases [quantitative easing]”.

“If demand does not pick up as projected, some economies, notably the eurozone, could get stuck in persistent stagnation".

The 18-country bloc is forecast to expand by 0.8 percent over the course of this year and by 1 percent in 2015, although both projections have been revised down this year as the eurozone’s fragile recovery has slowed.

The ECB has already launched new programmes offering cheap bank loans and buying private bonds in a bid to stimulate economic activity.

But ECB chief Mario Draghi signaled last week that he is prepared for the bank to start buying government bonds, a policy usually referred to as quantitative easing, and which essentially amounts to printing money.

Both the US Federal Reserve and the Bank of England launched similar programmes following the financial crisis.

However, such a programme, which could start as early as the new year, are unlikely to be well-received in Germany.

Angela Merkel’s government and the Bundesbank fear that buying government debt would remove incentives for governments to balance their budgets.

Elsewhere, the OECD expects the world economy to grow by 3.3 percent this year, followed by 3.7 percent in 2015.

For his part, Angel Gurria, the secretary general of the organisation, urged EU leaders to give countries more time to move into line with the bloc’s 3 percent deficit limit to give them a greater chance of recovery.

“It doesn’t mean you’re going to get away with murder,” Gurria told reporters.

“It means there has to be some accommodation. It’s about how you adjust to a change in circumstances".

France and Italy, the second and third largest economies in the eurozone, are the two countries under greatest pressure to adhere to the rules.

The European Commission is expected to announce this week whether to impose sanctions on France, whose budget plans for the next three years do not plan to hit the 3 percent threshold until 2017, two years later than agreed with Brussels.

However, the OECD offered praise for the eurozone’s bailout countries, pointing out that all of the bloc’s “vulnerable” countries now boast current account surpluses, and are now producing more than they consume.

“Those economies who have rebuilt their engines with sweeping reforms are starting to move up the field”, the report says.

Inequality reduces economic growth, OECD says

Rising income inequality has cost European economies up to 10 percent in lost economic output over the past twenty years, according to a new report by the bloc's leading economic thinktank.


Copyright and (another) new Brexit vote This WEEK

The UK parliament will likely hold a third vote on the Brexit withdrawal deal next week, determining the UK's departure from the bloc. In the meantime, the controversial copyright reform will be on the EU parliament's agenda.

News in Brief

  1. EU leaders at summit demand more effort on disinformation
  2. Report: Corbyn to meet May on Monday for Brexit talks
  3. Petition against Brexit attracts 2.4m signatures
  4. Study: Brexit to cost EU citizens up to €40bn annually
  5. NGOs demand France halt Saudi arm sales
  6. Report: Germany against EU net-zero emissions target
  7. Former top EU official takes job at law firm
  8. Draft text of EU summit has Brexit extension until 22 May


Copyright and (another) new Brexit vote This WEEK

The UK parliament will likely hold a third vote on the Brexit withdrawal deal next week, determining the UK's departure from the bloc. In the meantime, the controversial copyright reform will be on the EU parliament's agenda.


All about the European Parliament elections 2019

EUobserver's new magazine is meant to help readers prepare for the European Parliament elections, no matter their level of knowledge. You can download and read the entire magazine now.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  2. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  3. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  4. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  5. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  6. Nordic Council of MinistersNordic commitment to driving global gender equality
  7. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  8. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  9. Nordic Council of MinistersNordic talks on parental leave at the UN
  10. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  11. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  12. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID

Latest News

  1. Italy takes China's new Silk Road to the heart of Europe
  2. What EU leaders agreed on climate - and what they mean
  3. Copyright and (another) new Brexit vote This WEEK
  4. EU avoids Brexit crash, sets new date for 12 April
  5. Campaigning commissioners blur the lines
  6. Slovakia puts squeeze on free press ahead of election
  7. EPP suspends Orban's Fidesz party
  8. Macron is confusing rigidity with strength

Join EUobserver

Support quality EU news

Join us