OECD: EU Bailout Money Must Be $1 Trillion Euros

OECD Secretary-General Angel Gurría became the latest leader to say that Europe’s economic and sovereign debt trouble could be great enough to overwhelm current bailout amounts reserved by the region’s nations to rescue troubled sovereigns. He sees the chances of serial government financial failures as real and potentially imminent. He warned about the problem today.

In a statement about his views he said:

Euro area finance ministers meeting this week need to boost the firepower of the European stability funds to at least one trillion euros.

The current level of commitment to the rescue funds is not enough to restore market confidence. A credible financial firewall will provide governments with the breathing space they need to focus crucially on revitalising Europe’s economic growth and competitiveness.

Weak financial conditions, fiscal consolidation and economic adjustment are restricting demand in the short-term before the long-term benefits on stability and growth are felt. Decisive action to restore confidence and support demand is needed now.

His organization’s reviews of regional economies have yielded the view that “Europe is stalling. It needs to get out of first gear and make growth the number one priority.”

Gurría’s statements are at odds with the proponents of austerity, led by Germany, which believe that only cost cuts by troubled EU nations can bring an end to national debt problems. On the other side of the argument, with Gurría, are those who say that, without stimulus, Europe will enter a deep recession. That recession will drive down tax receipts so much that the drop will overwhelm any austerity savings. Then, there will have to be another round of austerity measures, and perhaps another. Some of the economically weakest nations will have to make their governments into shells of what they were just two years ago.

Gurría does not add much to the debate about austerity and stimulus. However, he holds an important enough position that his views are a powerful reminder that the longer the debate goes on, and the closer Europe gets to a new recession, the more likely it is that the debate becomes an academic one.

Douglas A. McIntyre