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OECD calls for urgent action to resolve European debt crisis

November 28, 2011 |  9:53 am

OECD Chief Economist Pier Carlo Padoan
The Organisation for Economic Cooperation and Development on Monday called for "urgent action" to stop the European debt crisis, warning that it is the key risk to the world economy.

"Concerns about sovereign debt sustainability are becoming increasingly widespread," the OECD said in releasing its annual economic outlook in Paris. "If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption."

The OECD is an organization of 34 countries, including the United States, Japan, Canada and most of Europe, that promotes policies to improve economic and social conditions worldwide.

"We are concerned that policymakers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy,” said OECD Chief Economist Pier Carlo Padoan. "We see the U.S.  growth recovering only slowly, the Euro area entering into mild recession and Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”

The group's baseline economic outlook assumes that European policymakers take steps "to avoid disorderly sovereign defaults."  Even so, it projects that economic output in its member countries will slow to 1.6% next year from 1.9% this year. Unemployment will be at about 8% through the next two years.

The projections for the U.S. are weak growth of 2% in 2012 and 2.5% the following year. The OECD also warned that the failure of Congress and the Obama administration to agree on budget cuts poses "another serious downside risk" to the global economy.

The group is concerned that policymakers won't find ways to offset the $1.2 trillion in automatic spending cuts over the next decade that kick in because of the  failure of the congressional "super committee" to agree on deficit-reduction measures.


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Photo: Pier Carlo Padoan, chief economist of the Organisation of Economic Cooperation and Development, at a Monday news conference in Paris. Credit: Eric Piermont / AFP/Getty Images