The Organisation for Economic Co-operation and Development (OCDE) urged the European Central Bank (ECB) yesterday to take immediate and significant measures to stop the economic crisis from worsening further still. In the presentation of a report on global economic perspectives, which is published twice annually, OCDE Chief Economist Pier Carlo Padoan said that the ECB needs to intervene in a big way in order to stop the economy from spiraling into a depression. For its part, Germany opposes the intervention.
The OCDE believes that Spain should rapidly recover its banking sector losses, recapitalize banks that stand a chance of surviving and close those that don't, without letting any shortages not already accounted for negatively impact the government's solvency level. "We can't let unrealized losses jeopardize national solvency," said Andrés Fuentes, an economist from the OCDE in charge of the report chapter that covers Spain. OCDE Secretary General Ángel Gurría said, "Europe needs to show some big time fire power, surprise some people and leave the markets speechless. So that the markets say: 'Dang. If they wanted fifty, then we have to put 100 on the table.'"
Options being considered by the OCDE include the ECB buying more government bonds on the secondary markets as Greece weighs whether it will continue to use the euro and Spanish banks wait to learn about their future. Gurría added the possibility of issuing a eurobond and insisted on using all possible tools to avoid Greece dropping the euro. Other options include the ECB injecting more funds into the banking system and allowing the recovery fund created through the European Stability Mechanism to offer loans directly to the Central Bank, which it is not permitted to do at this time.
Further, interest rates could be cut, because their growth is practically flat, inflationary pressures are backing off and governments are under heavy pressure to improve their financial standing.
