OECD Calls For €1 Trillion ‘Mother of All Firewalls’
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The eurozone remains stuck in a delicate balance in its recovery phase, but the risk of contagion remains extremely high. According to the Organization for Economic Cooperation and Development, eurozone leaders need to increase the financial firewall to 1 trillion euros to boost market confidence.
Speaking at a news conference in Brussels, Angel Gurria, secretary-general of the Paris-based organisation said that the existing firewall is not sufficient given the current state of the eurozone economies.
The eurozone remains stuck in a delicate balance in its recovery phase, but the risk of contagion remains extremely high. According to the Organization for Economic Cooperation and Development, eurozone leaders need to increase the financial firewall to 1 trillion euros to boost market confidence.
Speaking at a news conference in Brussels, Angel Gurria, secretary-general of the Paris-based organisation said that the existing firewall is not sufficient given the current state of the eurozone economies.
According to the OECD’s annual eurozone report released yesterday, weaker states in the currency bloc will need at least 1 trillion euros in aid to give policymakers ‘breathing space’ and to focus on growth and restoring competitiveness.
Gurria said:
[quote] 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… It is something you are telling the markets: “I’ve got the firepower and by God if I need to I am going to use it.” So anybody that is speculating is going to lose their shirt. [/quote]The European Commission has been pushing for the merger of the European Financial Stability Facility and its predetermined successor, the European Stability Mechanism.
Should the merger receive the approval from EU regulators this weekend, the combined firepower of the two funds would create a 940 billion euros firewall.
Europe’s paymaster, Germany, said on Monday it would support the plan to boost the funds’ lending capacity, but only to a limit of 700 billion euros. Germany is insisting that Greece, Ireland, Portugal, repay 200 billion euros in existing debt.
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Yet, chairman of eurozone financial ministers, Jean-Claude Juncker, said opponents such as Germany risk leaving the euro exposed to future contagion from financial markets.
Agreeing, Gurria said:
[quote] When dealing with markets, you must overshoot expectations. The mother of all firewalls should be in place, strong enough, broad enough, deep enough, tall enough, just big. [/quote]
In its report, the OECD said that austerity measures need to strike a balance between what is realistic and politically feasible, or risk losing credibility.
Despite the bitter prescription and gloomy prognosis, the OECD is expecting the eurozone to grow by 0.2 percent this year, rather than an outright contraction.
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