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.