Europe debt crisis threatens recovery, OECD warns

Image caption,
Growth is accelerating but instability in some eurozone countries is a threat

The eurozone must overhaul the management of its economy to ensure economic recovery and the survival of the euro, a global body has warned.

According to the Organisation for Economic Co-operation and Development (OECD), the recent debt crisis poses a threat to Europe's weak recovery.

"Bolder measures" needed to be taken to ensure the crisis is brought under control, the OECD said.

It forecast the eurozone's economy would grow by 1.2% this year.

That is better than the 0.9% growth estimate the OECD made in its last economic outlook in November.

"A gradual recovery is under way driven by economic policy stimulus, a rebound in world trade and improving financial conditions," the organisation, made up of 31 countries, said.

"[But] the sovereign debt crisis has highlighted the need for the euro area to strengthen significantly its institutional and operational architecture to dissipate doubts about the long-term viability of the monetary union," it said.

Interest rate warning

The report added that "bolder measures" needed to be taken to "ensure fiscal discipline".

Following the multi-billion euro bail-out package for Greece announced earlier this month, Germany has been among those calling for tougher measures for member states that do not manage their finances effectively.

The OECD appeared to agree, arguing for "closer surveillance" of public finances by regulators and more effective sanctions for countries that fail to reduce borrowing quickly enough.

Globally, OECD members are expected to grow by 2.7% this year, and 2.8% in 2011.

The grouping includes most major developed economies, but excludes fast-growing engines of growth such as India and China.

The UK is forecast to grow by 1.3% this year and 2.5% next year, the OECD said, stronger than many other world economies.

But the report warned that interest rates - so far kept at historic lows - would have to rise to control inflation.

It said the Bank of England should raise the cost of borrowing to 3.5% by the end of 2011 from its current level of 0.5%.

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