OECD urges eurozone to put brake on deficit cuts if outlook worsens

Eurozone nations should be prepared to ease up on deficit reductions to avoid pushing the single currency area into a deeper slump, the Organisation for Economic Co-operation and Development argued yesterday.

The Paris-based think-tank issued the call as it unveiled its latest growth forecasts, which showed the eurozone contracting by 0.1 per cent in 2013, after a 0.4 per cent shrinkage this year.

"Euro area member countries should implement fiscal consolidation measures as planned. But if activity weakens more than expected in their fiscal programmes, they should allow the automatic stabilisers to work," the OECD said. "To avoid loss of credibility for individual countries acting alone, this should be announced in co-ordination."

The think-tank also said that the European Central Bank should cut interest rates further. OECD chief economist Pier Carlo Padoan told Reuters: "We recognise that one of the causes of the slowdown is fiscal tightening." In an apparent reference to Germany, he added: "If the situation deteriorates further, those countries with fiscal space should use it, by possibly adding some stimulus or further discretionary easing."

The call from the OECD represents a policy reversal. In May 2011, it approved of the ECB's decision to raise interest rates, and urged the Bank of England and the US Federal Reserve to follow. The advice echoes the warning from the International Monetary Fund that the impact of spending cuts could be three times higher than the IMF previously calculated.

Monday night's deal on Greece's debt between European finance ministers and the IMF won a cautious welcome yesterday. Stock markets rose, and the euro climbed to a three week-high.

The German parliament will vote this week on the new agreement, which will reduce Greece's debt pile by €40bn (£32bn). The measures, which include a cut in the interest rates on Greece's loans, will reduce the country's debt-to-GDP ratio to 124 per cent in 2020 and 120 per cent in 2022.

Meanwhile, politicians in Portugal yesterday passed a budget for 2013 that promises a third year of recession for the country.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
News
i100
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas