OECD says EU should be ready to face the worst

Organization says EU urgently needs to boost its bailout fund and calls on its central bank to stem the crisis

PARIS—The Organization for Economic Cooperation and Development (OECD) says policy makers around the world must be prepared to “face the worst” as the economic impact of Europe’s debt crisis threatens to spread around the developed world.

The Paris-based OECD says continued failures by EU leaders to stem the debt crisis spreading from Greece to Italy “could massively escalate economic disruption” and end in “highly devastating outcomes, according to its latest economic outlook.

The update also recommends boosting the EU bailout fund and called on Europe’s central bank (ECB) to do more to stem the crisis.

Potentially, the ECB has unlimited financial firepower through its ability to print money.

But Germany finds the idea of monetizing debt unappealing, warning that it lets the more profligate countries off the hook for their bad practices.

It  also conjures up bad memories of hyperinflation in Germany in the 1920s.

The OECD now forecasts the eurozone economy to be in a six-month recession lasting through the first quarter of 2012, followed by a slow recovery that will leave the 17-nation bloc with only 0.2 per cent growth next year.

It expects the U.S. to grow by two per cent next year and 2.5 per cent in 2013, while the Japanese economy is forecast to grow two per cent next year and 1.6 per cent in 2013.