EU Readies Small Steps, and Mulls Big Ones -European leaders meeting on Wednesday are expected to announce limited measures aimed at softening the bite of austerity on the euro zone's troubled economies, but behind closed doors they will wrestle with deeply controversial policies that could overhaul the currency area's faltering economic machinery.With political crisis in Greece threatening to fray the euro zone, German opposition to these more-ambitious changes will be tested anew by countries with shakier public finances, such as Spain, Italy and France, officials said. Decisions are unlikely at this meeting. Enormous political and technical problems would need to be solved before governments could back major ...wsj
May 22, 2012
Eurozone crisis 'threat' to global economy
OECD reports says eurozone economies will shrink further which will increase the chances of recession and unemployment.
The eurozone financial crisis could threaten the global economy, according to Organisation for Economic Development and Co-operation.
The 17-nation eurozone will see its economies shrink by 0.1 per cent, before rebounding to 0.9 per cent next year, the Paris-based organisation said in its latest report released on Tuesday.
Pier Carlo Padoan, the OECD chief economist, said "the crisis in the euro area has become more serious recently, and it remains the most important source of risk to the global economy".
"There is a risk of serious recession which could be sparked off by events like Greece, if that happens it could affect the global economy."
Padoan told Al Jazeera: "There is a risk of serious recession which could be sparked off by events like Greece, if that happens it could affect the global economy".
Growth across the organisation's 34 members, generally the wealthiest in the world, would ease this year to 1.6 per cent from 1.8 per cent in 2011 and then reach 2.2 per cent in 2013, the report said.
The OECD revised its forecast for US economic growth this year to 2.4 per cent from 2.0 per cent, and sees 2.6 per cent growth in 2013.
It forecast eurozone unemployment to rise to 10.8 per cent this year and 11.1 per cent next year.
Recession, "rising unemployment and social pain may spark political contagion and adverse market reaction" with countries outside the eurozone also at risk of being hit, he said.
Soaring tensions
While the eurozone gained some breathing space at the beginning of the year from the European Central Bank pumping over a trillion euros into banks, tensions have soared in recent weeks after inconclusive elections raised the spectre of a Greek exit from the euro.
"The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth," OECD’s Padoan said.
What happens if Greece leaves the euro?
This comes as EU leaders meet in Brussels on Wednesday to contemplate measures to boost growth.
It called for further monetary easing in the eurozone and said that the central bank may need to intervene again to stabilise banks and government bond markets.
Padoan also noted the backlash against austerity measures across Europe, which has seen street protests and led to the election of Francois Hollande.
In elections earlier this month, the majority of Greeks voted against those parties backing the drastic austerity measures that had been agreed with the EU.
"Elections in a number of euro-area countries have signalled that reform fatigue is increasing and tolerance for fiscal adjustment may be reaching a limit," he said.
The OECD is an organisation that consists of 34 countries, including the US and Western European nations.
But emerging economies such as China and Brazil are set for a cyclical upswing, the OECD said in its latest twice-yearly Economic Outlook report.
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