LONDON, UK – The European Union needs to increase its financial firewall to €1 trillion to restore market confidence in the euro zone, revive growth and prevent the spread of fiscal contagion, the head of the Organization of Economic Cooperation and Development (OECD) said Tuesday.
“The mother of all firewalls should be in place,” Angel Gurría said at a press conference in Brussels, warning that the current level of commitment among European governments to the Continent’s rescue funds for indebted countries was insufficient, according to The New York Times.
The OECD secretary general said the EU’s bailout capacity was not big enough to impress fragile finance markets, pointing out that the 17-member euro zone’s banks remain weak, debt levels are continuing to rise, and fiscal targets are far from guaranteed.
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He called for decisive action from the bloc’s finance ministers when they meet later this week in Copenhagen, The Guardian reports.
“Europe is stalling. It needs to get out of first gear and make growth the number one priority,” Gurría said, adding:
“Weak financial conditions, fiscal consolidation and economic adjustment are restricting demand in the short-term before the long-term benefits on stability and growth are felt. Decisive action to restore confidence and support demand is needed now.”
Gurría also called for a more ambitious overhaul of labor and product markets, education and taxation systems, saying such changes would drive growth in the short term.
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Despite the Paris-based think tank’s repeated calls for a euro bailout fund of around €1 trillion ($1.3 trillion), euro zone finance ministers will probably agree to a firewall closer to €700 billion when they meet on Friday, Reuters reports.
They are expected to endorse a combination of the 17-member currency bloc’s two rescue funds, the European Financial Stability Facility (EFSF) and the permanent European Stability Mechanism (ESM), in order to sway the International Monetary Fund (IMF) into backing debt-riddled European nations.
Germany, the euro zone’s largest economy, signalled on Monday that it would support boosting the bloc’s firewall resources to around $700 billion (€929 billion), but only until loans of around €200 billion promised to Portugal, Ireland and Greece have been paid back, according to the Associated Press.
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