PARIS (AP) — The Organization for Economic Cooperation and Development said Monday policy makers around the world must “be prepared to face the worst,” as the economic impact of Europe’s debt crisis threatens to spread around the developed world.
The Paris-based OECD said in its latest Economic Outlook that continued failure by EU leaders to stem the debt crisis that has spread from Greece to much-bigger Italy “could massively escalate economic disruption” and end in “highly devastating outcomes.”
The half-yearly update also recommended urgently boosting the EU bailout fund and called on Europe’s central bank to do more to stem the crisis.
“The ECB has the means to provide a credible measure to avoid further contagion in the sovereign bond markets,” the OECD’s chief economist Carlo Padoan said. “And if you ask me if that is the lender of last resort function, I would say yes.”
Many think the ECB is the only institution capable of calming frayed market nerves and Merkel’s continued dismissal of a greater ECB role knocked market sentiment and stocks all round Europe fell again after a morning rebound.
Potentially, the ECB has unlimited financial firepower through its ability to print money. However, Germany finds the idea of monetizing debts unappealing, warning that it lets the more profligate countries off the hook for their bad practices. In addition, it conjures up bad memories of hyperinflation in Germany in the 1920s.