Euro zone crisis is a major threat to global economy, says OECD

Euro zone crisis is a major threat to global economy, says OECD

“There is a risk to the euro, let’s not deny that,” OECD Chief Economist Pier Carlo Padoan told Reuters in an interview. “But I would like also to say that there is a possibility of avoiding that risk.”

A worst case scenario of continued inaction in the euro zone and the failure of US lawmakers to agree a spending-reduction plan would usher in a devastating downturn for the world economy, the Paris-based OECD said.

In the absence of decisive action from euro zone leaders, the European Central Bank (ECB) alone has the power to contain the bloc's crisis, the OECD said.

“We are still seeing policy behind the curve,” Padoan told a news conference. “This cannot be accepted any more. Time is running out and every time we lose the occasion to act effectively the price or cost for having positive outcomes goes up,” he added.

Padoan said that the absence of credible action from policymakers was sapping households and companies' confidence as well as fueling damaging volatility on financial markets. While solid growth in big emerging economies would provide a boost, slumping global trade would drag on Chinese output, the OECD said.

Separately forecasting global growth of 3.5 per cent in 2012, Morgan Stanley warned in a report that, in a worst case scenario, policymakers’ inaction in both Europe and the United States could lead to much lower growth of 1.9 per cent, with recessions in many major economies.