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OECD: Europe risks vicious debt cycle

Tuesday, May 22, 2012 - 02:14

May 22 - The Organisation for Economic Co-Operation and Development has called on EU leaders to ease the pace of austerity, warning aggressive budget cuts could suck the currency area into a downward spiral that could spill over into the global economy. Joanna Partridge reports.

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Walking out of class for 24 hours. These Spanish students are taking part in a day-long strike, called by Spain's biggest unions. Over a million people working in education in Spain are expected to protest against austerity measures, which have slashed 1/5th of this year's education budget. Pilar Molto says her school has 30 fewer teachers this year. SOUNDBITE: Pilar Molto, High school physics and chemistry teacher, saying (Spanish): "Teachers are being affected, in general, by the lack of resources and investment." The teachers and students aren't the only ones complaining about the effects of austerity - politicians like new French President Francois Hollande are promoting job creation and growth instead. Now the OECD has called on EU leaders to ease the pace of austerity. The Paris-based organisation warned that aggressive budget cuts are aimed at reducing debt, but could suck the region into a downward spiral which could also threaten the global economy. Pier Carlo Padoan is the Chief Economist at the OECD. SOUNDBITE: Pier Carlo Padoan, Chief Economist, OECD, saying (English): "Europe needs to rebalance. Some European countries are growing and some European countries are in recession, so you need to rebalance that by allowing more growth in the south and that requires more competitiveness. But that can be helped a lot by measures in the north, by letting wages increase, and also EU-level measures to support demand and investment." The think-tank's economic forecast is bleak. It predicts the euro zone's economy will shrink by 0.1% this year, and expects unemployment to hit a new record of just over 11% of the working population. The OECD also signalled its support for growth measures proposed by Hollande and other politicians - including eurobonds. EU leaders are holding an informal meeting on Wednesday, where they're expected to agree on more measures to fight the crisis. While German Chancellor Angela Merkel still opposes eurobonds, it's clear Europe's leaders are coming under increasing pressure to foster growth and restore market confidence. Joanna Partridge, Reuters

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OECD: Europe risks vicious debt cycle

Tuesday, May 22, 2012 - 02:14