* ECB should try U.S.-style asset purchases, OECD says
* Euro zone economy to shrink 0.6 percent in 2013
* OECD cuts forecasts for France, Greece, Italy, Portugal
By Robin Emmott
BRUSSELS, May 29 The European Central Bank,
which shored up the euro zone last year, needs to act again to
lift the bloc out of recession, the OECD said on Wednesday,
calling for bold steps beyond just interest rate cuts.
The 17-nation euro zone is suffering its longest economic
downturn since its creation in 1999, weakened by public debt and
banking crises that have nearly shattered the currency area.
Still waiting for a recovery almost a year after the ECB
offered to do "whatever it takes" to save the bloc, the
Organisation for Economic Co-operation and Development said in a
report that the bank must consider new ways to help, including a
U.S.-style quantitative easing programme.
"Europe is in a dire situation," OECD chief economist Pier
Carlo Padoan told Reuters. "We think that the euro zone could
consider more aggressive options. We could call it a euro
zone-style QE," he said, referring to the policy of printing
money for asset purchases to revive growth.
The OECD's call echoes that from a top U.S. Federal Reserve
official earlier this month and adds to expectations the ECB
will consider "non-standard monetary policy measures".
The ECB has run its own bond purchases programmes in the
past but has always withdrawn an equivalent amount of money from
markets - in effect not printing new money - to ensure its
interventions have no impact on the money supply for fear of
pushing up the rate of inflation.
But euro zone inflation is well below the ECB's 2 percent
target level at 1.2 percent in April, and indebted Greece is
already seeing deflation, along with non-euro country Latvia
which is due to become the bloc's 18th member next year.
The OECD did not go into details about whether the ECB
should emulate the Fed, which is buying $85 billion worth of
bonds every month, but the Paris-based body warned that a
failure to move and strengthen banks was a "major risk".
Predicting an economic contraction of 0.6 percent in the
euro zone's economic output this year, the OECD said the ECB
should also consider cutting its deposit rate below zero because
interest rates are already at a record low.
That would mean charging commercial banks for holding their
money overnight, encouraging banks to lend out money to
businesses and households rather than hold it at the ECB.
Such a move might help counter the lack of bank lending in
southern Europe, where companies and consumers are often seen as
too risky and banks prefer to keep their money in Frankfurt.
In its report, the OECD's economic forecasts were generally
more pessimistic than those of the European Commission and euro
zone governments, forecasting that France, Europe's second
largest economy, would contract 0.3 percent this year. That
compares to the EU executive's -0.1 percent estimate.
The OECD is also more downbeat about Greece's growth
prospects than the country's international lenders. The OECD
says the Greek economy will contract for a seventh consecutive
year in 2014, by 1.2 percent, compared with the Commission's
forecast of 0.6 percent growth.
That has implications for Athens' ability to return to
market, as a weaker-than-expected economy might require more
emergency loans from the euro zone and the International
Monetary Fund, the OECD said.
Portugal could also shrink 2.7 percent this year, greater
than the government's -2.3 percent forecast and a worsening
compared to the OECD's previous estimate of a 1.8 percent drop
in gross domestic product, although the OECD still expects a 0.2
percent recovery next year.
The OECD also cut its forecasts for Italy from projections
made less than a month ago, saying the economy would contract by
1.8 percent this year. The recession that has already lasted for
seven straight quarters will extend to the end of the year
before growth edges up by 0.4 percent in 2014, it said.
For the OECD's global growth forecasts: