OECD optimistic that European policy makers will prevent crisis

In its latest Economic Outlook, the OECD runs the risk of being subject to the old joke about the economist stranded on a desert island with some tinned food who assumes he has a can opener.  While I agree with the OECD’s assessment, one cannot help wondering when reading it whether the OECD is putting too much faith in the ability and courage of European leaders:

The Outlook’s baseline scenario assumes that policy-makers take sufficient action to avoid disorderly sovereign defaults, a sharp credit contraction, systemic bank failures and excessive fiscal tightening. It sees GDP across the OECD countries slowing from 1.9% this year to 1.6% in 2012, before recovering to 2.3% in 2013. Unemployment in the OECD area is also projected to remain high for an extended period, with the jobless rate staying at around 8% through the next two years.

The OECD chief economist provides a concise summary of what needs to be done:

“Prospects only improve if decisive action is taken quickly,” said OECD Chief Economist Pier Carlo Padoan. “In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard,” he said.

This entry was posted in Macroeconomy. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s