Euro crisis needs "mother of all firewalls": OECD

Tue Mar 27, 2012 8:22am EDT
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By Robin Emmott

BRUSSELS (Reuters) - Euro zone finance ministers need to impress finance markets with the size of their rescue fund for indebted countries when they meet later this week, the head of the OECD said on Tuesday, advocating "the mother of all firewalls".

Investors and many European officials want ministers to agree a combination of the 17-nation currency area's two rescue funds to nudge the International Monetary Fund into backing debt-stricken European economies, should they need help.

"When dealing with markets you must overshoot expectations," said Angel Gurria, the secretary general of the Organization for Economic Co-operation and Development (OECD).

Gurria said an impressive firewall was crucial because the euro zone's public debt crisis was not over despite calmer financial markets this year, warning that the bloc's banks remain weak, debt levels are still rising and fiscal targets are far from assured.

Despite his repeated calls for a euro bailout fund of around 1 trillion euros ($1.3 trillion), the bloc's finance ministers look more likely to agree to a level nearer 700 billion euros when they meet on Friday in Copenhagen.

"The mother of all firewalls should be in place, strong enough, broad enough, deep enough, tall enough, just big," Gurria said, flanked by the EU's top economic official Olli Rehn.

Euro zone finance ministers are expected to agree on combining the European Financial Stability Facility (EFSF) with its permanent European Stability Mechanism (ESM). German Chancellor Angela Merkel signaled for the first time on Monday that she was prepared to consider boosting the firewall's resources.

As the euro zone economy flounders for the second time in just three years, the OECD said in a report the 17-nation area needed ambitious economic reforms and there could be no room for complacency.   Continued...

Dimitris Stamatakos, 36, sits in a field on land he is renting near his home in the village of Krokeae in the Peloponesse area of Greece, March 18, 2012. Before the crisis Stamatakos was able to make a living by selling olives that he farmed on the land he owns, now he is forced to labour for neighbouring farms and do odd jobs to earn his living. The crisis is also putting a strain on his marriage to his wife Voula, 32. He says, "I row with my wife a lot about money. She thinks I should be doing more. What more can I do? I'm just getting by." Picture taken March 18, 2012. REUTERS/Cathal McNaughton