THE EURO zone is facing a “marked slowdown” to near-zero growth next year unless EU leaders work swiftly to implement last week’s summit promises, the Organisation for Economic Co-operation and Development (OECD) has warned.
Ahead of Thursday’s G20 summit, the OECD slashed its euro zone growth forecast to just 0.3 per cent from 2 per cent in May, warning that a sudden crisis could plunge the bloc deep into recession. Recession fears were fuelled further by data showing a record leap in euro zone unemployment to its highest level since the launch of the single currency.
OECD analysts praised last week’s summit proposals as “well-thought-out” but demanded “detailed information” on the next steps to avoid a spread of financial uncertainty throughout the bloc.
“It is important to clarify and implement fully and decisively the measures announced on October 26th to break the link between sovereign debt and banking distress,” said the Paris-based organisation.
Uncertainty about implementation could, the OECD warned, cause “a deterioration of financial conditions of the magnitude observed during the global crisis” and gross domestic product shrinkage of up to 5 per cent in the first half of 2013. Unemployment in the 17-country euro zone rose to 16.2 million in September, up 188,000 on August, according to data released yesterday by the European Union statistics body, Eurostat, the biggest monthly rise in two years.
Berlin officials echoed the OECD’s call for progress on the summit proposals, to increase the bailout fund capacity and recapitalise banks. “We now need to implement all elements of this package,” said Jörg Asmussen, state secretary in the federal finance ministry and incoming board member of the European Central Bank.
Outgoing ECB president Jean-Claude Trichet made a similar call for “immediate” action on the summit proposals. He used a final interview with CNBC to once again blame euro zone politicians’ profligacy for his bank’s controversial bond market intervention. In a separate interview with the BBC, Mr Trichet denied the euro zone crisis had forced EU leaders to approach China, cap in hand. “We are in a global world,” he said. “How do you think other countries in the advanced world are financed?”
Chinese president Hu Jintao refused to be drawn yesterday on whether Beijing will respond to EU overtures to invest in the euro zone bailout fund. “We are convinced that Europe has the wisdom and has the competence to overcome the current difficulties,” he said.
Meanwhile the Greek government has called a referendum on a new EU aid package. A weekend survey showed nearly 60 per cent of Greeks have a negative view of last week’s EU summit agreement.
Yesterday’s OECD statement called on G20 leaders meeting in Cannes to follow through on the adoption of their three-year-old “Action Plan”. “Today, the adoption and implementation of the Action Plan is just as imperative to restore confidence through decisive actions in specific countries and regions.”
