Euro crisis imperils recovering global economy, OECD warns
Most major economies are enjoying growth and recovery after four years of turmoil but the improvements are uneven and the Eurozone crisis could spill outside Europe "with very serious consequences for the global economy," the Organization for Economic Cooperation and Development warned Tuesday.
The report by the chief economist for the bloc of developed nations urged its member countries that use the euro currency to consolidate lending and spread the pain of tight and expensive credit in nations like Greece, where austerity measures have forced deep cuts in jobs and government services and tapped out banks.
"The crisis in the euro area has become more serious recently, and it remains the most important source of risk to the global economy," wrote chief economist Pier Carlo Padoan. He noted the elections earlier this month that brought anti-austerity President Francois Hollande to power in France and toppled a Greek government committed to staying in the Eurozone but did not leave an alternative in place.
At a news conference in Paris, OECD chief Angel Gurria laid out a hopeful forecast for the United States and Japan, whose economies are predicted to grow by 2.4% and 2%, respectively, while the Eurozone, the 17 nations that use the euro, expects a 0.1% contraction.
Unemployment rates are also out of balance, with the United States expected to end the year with 8.1% jobless and Japan with 4.5% unemployed while the Eurozone expects 10.8% to be out of work. In some struggling euro nations, such as Spain, the jobless rate is 25%.
European Union leaders plan to meet in Brussels on Wednesday for an informal discussion on the economic crisis. Hollande is expected to propose issuing bonds backed by all Eurozone countries as a way to bring down high borrowing costs making it difficult for highly indebted countries such as Greece and Portugal to pay down their debts.
Writing for the 34-nation OECD -- which includes most of Europe, North America, South Korea, Japan, Australia and New Zealand -- Padoan appeared to back calls by Greek, French, Italian and other Eurozone leaders for a more balanced mix of austerity and growth strategies, such as investment in infrastructure that creates jobs and improves production and exports.
The annual economic outlook suggested the Eurozone embrace the idea being pushed by Hollande and others to issue jointly guaranteed government bonds to help recapitalize banks and enhance the availability of credit, boost European Investment Bank funding of infrastructure projects and accelerate single-market integration.
Otherwise, Padoan warned, with no growth expected this year in the Eurozone and recession in a number of countries expected to persist through 2013, "a combination of enduring financial fragility, rising unemployment and social pain may spark political contagion and adverse market reaction."
International Monetary Fund chief Christine Lagarde also called Tuesday for Eurozone members to take more responsibility for one another's debts.
"More needs to be done, particularly by way of fiscal liability-sharing," Lagarde said at a news conference in London. At the same time, she reminded indebted countries such as Greece that the IMF is a "rules-based" institution and expects bailed-out members to abide by their commitments to cut debt and spending.
Lagarde dismissed proposals for using stimulus funds to foster growth, saying the IMF doubts countries like Greece can afford it.
That thought was shared by Austrian Finance Minister Maria Fekter, who told the Oberoesterreichische Nachrichten newspaper that Hollande's growth investment proposals were "nonsense" and the kinds of borrowing policy that has plunged the Eurozone "into this whole mess in the first place."
-- Carol J. Williams in Los Angeles
Photo: Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, presents its 2012 economic outlook at the group's headquarters in Paris on Tuesday. Credit: Eric Piermont / AFP/Getty Images