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Risks remain in euro area: OECD

December 13, 2010 17:49 IST
Cautioning that risks remain in the 16-nation euro area, Paris-based OECD has called for more financial reforms in many member countries to ensure sustainable growth.

A group of mostly developed nations, the Organisation for Economic Cooperation and Development (OECD) said euro area is seeing modest recovery, which is expected to be "muted".

Apart from experiencing a severe recession, the euro area -- a grouping of 16 nations that share a common currency euro -- is now grappling with spiralling debt crisis.

A modest recovery (in euro area) is now underway, although risks remain. Financial conditions have strengthened.

Activity has picked up, but recovery is likely to be muted. "Fiscal consolidation is necessary, although it may drag on growth in the short-term," OECD said in a report.

The Paris-based grouping stressed on need for a "coherent and forward looking reform agenda" to tackle build up of large economic, fiscal and financial imbalances in the region.

Going by OECD estimates, euro zone is projected to see an OECD annual economic growth of 1.5-2 per cent over the coming two years.

Many euro zone nations, including Greece and Ireland, are faced with intense debt crisis, forcing their respective governments to seek bailouts from the European Union and the International Monetary Fund.

The spreading euro area crisis has even raised concerns of hurting the fragile global economic recovery.

"Excessive economic, financial and fiscal imbalances built up in some euro area countries during the upswing, hindering the efficient operation of the monetary union, and led to growing vulnerabilities," the report noted.

Among others, OECD has suggested stronger financial regulations and better fiscal discipline through reforms of euro area budget rules and creation of national fiscal councils, to ensure economic stability in the region.

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