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Cogito Ergo Non Serviam
OECD Says Europe is World's "Single Biggest Downside Risk"
If there were any doubt that Europe's austerity-driven attempt to fix its finances has failed, the Organization for Economic Development and Cooperation has removed it. The OECD has said the eurozone crisis is the "single biggest downside risk facing the global outlook." The OECD issued a new report this morning that suggests growth in the eurozone will be a negative 0.1% this year and will rebound to a positive 0.9% next year, lagging both the US and Japan. The OECD specifically recommends government spending to fix this.
The document states what this journal has maintained for a long time, austerity is not going to get eurozone economies moving again. Specifically, the OECD stated, "On the eve of a European Union summit in Brussels, the OECD suggested Leaders could stimulate growth by:
- comprehensive structural reforms in areas such as education, innovation, competition and green growth.
- further enhancing the firewall to prevent contagion of the euro zone financial crisis;
- boosting the European single market, to support additional economic activity;
- increasing European Investment Bank funding for infrastructure projects;
- making better use of European Central Bank balance sheets."
In addition, the organization warned: "Failure to act today could lead to a worsening of the European crisis and spillovers beyond the euro area, with serious consequences for the global economy. Avoiding such a scenario requires action to be taken both at country and supranational level."
OECD chief economist Pier Carlo Padoan said that the political dimension is beginning to weigh heavily on markets. "Elections in a number of euro-area countries have signaled that reform fatigue is increasing and tolerance for fiscal adjustment may be reaching a limit," he said. "Rising unemployment and social pain may spark political contagion and adverse market reaction," which could affect nations outside the eurozone, he noted.
In other words, the eurozone's unemployment rate, which the OECD expects to remain at 10.8% this year and above 11% next year (a record-high since the founding of the euro in 1999), is starting to matter more than shaving a tenth of a percentage point from the debt-to-GDP ratio.
Tomorrow, there is an informal summit of European Union leaders in Brussels. The German government has already laid the groundwork for rejecting the OECD's investment suggestions. German Finance Minister Wolfgang Schaeuble told the press after a meeting with his new French counterpart Pierre Moscovici that the eurobonds that would result from "making better use of European Central Bank balance sheets" would be the "wrong prescription at the wrong time." As for greater EIB funding for infrastructure projects, "We have always said that as a first step we need solidity in European finances, and that is the fiscal compact," said Steffen Kampeter, a deputy finance minister. The fiscal compact is about cuts alone.
Can it really be that the German government does not understand its nation's own self-interest? Tomorrow should prove interesting but not in a good way.
© Copyright 2011 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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