Euro zone governments have been warned by the Organisation for Economic Co-operation and Development that they need to be more aggressive in cutting public sector deficits and reforming labour laws.
The OECD, in its latest regional survey, said European leaders must respond to the fact that inflexible economies achieve less growth.
Jean-Philippe Cotis, the group’s chief economist, said Germany is the only country pursuing an ambitious policy of deficit cuts while others are just relying on the natural decrease in deficits that comes from higher rates of economic growth.
The OECD is holding to a growth forecast for 2006 of 2.6% and 2.2% in 2007. That would put the euro zone ahead of Japan and close to the United States, in contrast to last year when it trailed both.
The think tank said it is “misguided” to blame the euro for the region’s low growth potential, adding: “The economic problems are mainly structural; the solutions therefore are largely in the hands of individual member governments.”