OECD warns Eurozone leaders of weak banks and markets

The Eurozone debt crisis is not over despite calmer financial markets this year, the OECD said, with a warning that the bloc’s banks remain weak, debt levels are still rising and fiscal targets are far from assured.

A Reuters report said the Organization for Economic Co-operation and Development considers the 17-nation area needs ambitious economic reforms and there can be no room for complacency.

“Market confidence in euro area sovereign debt is fragile,” the Paris-based economic think-tank said, in a report on the state of the euro zone’s health. “The outlook for growth is unusually uncertain and depends critically on the resolution of the sovereign debt crisis.”

In a departure from forecasts by the International Monetary Fund and the European Commission, the OECD sees 0.2% growth in the bloc in 2012, rather than an outright contraction.

While international economists are divided over just how deep any downturn will be this year, most agree that weak business confidence and budget austerity is eating into the purchasing power of European households, driving up unemployment and leaving Asian and US demand holding the key to growth, Reuters said.

Two years into the euro zone’s sovereign debt saga, EU leaders’ commitment to fiscal discipline and the European Central Bank’s stimulus of €1trn to banks has cooled the panic in money markets late last year that drove Italian and Spanish bond yields to record levels.

Euro zone government debt is likely to reach 91% of economic output next year, well above EU limits for a healthy economy, even as the bloc enacts some of the deepest austerity programmes in half a century.

The OECD, which tracks industrialised economies to promote growth, cautioned that deficit-cutting goals needed to strike a balance with what was realistic and politically possible, or the EU’s enforcement systems could lose credibility, Reuters reported.

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