The debt crisis in the recession hit eurozone is the biggest threat to the global economy, according to the Organisation for Economic Cooperation and Development.
As a result the OECD has slashed global growth forecasts.
The latest report predicts a contraction of the eurozone economy for at least the next two years.
The think-tank urged central banks to prepare for monetary easing, if the politicians fail to find a way out of the financial mire.
The report is based on the assumption that Europe’s debt crisis can be contained and the US can avoid a fiscal cliff recession:
Angel Gurria is the OECD general secretary:
“Europe was not supposed to bail anybody out, in fact it was not only not foreseen it was forbidden. So now we have a situation in which these gaps have been filled. We have created a common currency, but we did not create a banking union and we did not create a fiscal union, now we have gone back to fill those gaps and for these reasons I am saying Europe can come out of the crisis stronger, but of course that means bold courageous decisions”
The OECD concludes that fiscal cuts have severely damaged growth.
Our correspondent in Paris says:
“The outlook confirms that also 2013 will be a difficult year. There is room for optimism is, but only on condition that Governments fully implement structural reforms.”