OECD Urges Structural Reforms in the Eurozone

Eurozone countries must make more structural reforms to consolidate a nascent economic recovery in the area, the Organisation for Economic Cooperation and Development recommended Thursday.

   In a survey on the 12 nations sharing the single European currency in 2006 -- Slovenia became the 13th member this week -- the OECD said structural rigidities were holding back growth and encouraging inflation.

   "After several false starts, the economic recovery has taken hold," said the OECD, a policy research body for 30 leading industrialised countries based in Paris.

   "If in addition structural reforms continue, the expansion will become durable and self-sustaining, a prospect also supported by sound corporate and household balance sheets and favourable financing conditions," it said.

   The organisation tempered any optimism by warning that annual economic growth in 2007 and 2008 was only projected at around a modest 2.25 percent.

   "With the recovery underway, attention can shift back to the euro area's longer-term challenges: subdued potential growth and a lack of resilience due to structural shortcomings," the survey said.

   "Structural rigidities tend to reduce growth, make inflation more persistent and reduce the economy's ability to absorb shocks," it went on.

   The OECD urged the countries to make wages more flexible, boost competition -- particularly in the "protected" services sector -- and to integrate and develop their financial markets.

Source: AFP

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