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OECD issues European recession warning

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Jeremy Hobson: There’s a new warning this morning from the Organization for Economic Cooperation and Development or OECD. It says the 17 nations that use the euro are at risk of falling into a severe recession. The OECD is calling on the European Central Bank, that’s Europe’s version of the Federal Reserve, to do more to stem the crisis.

Marketplace’s European correspondent Stephen Beard is with us live from London with more. Good morning Stephen.

Stephen Beard: Hello Jeremy.

Hobson: So what exactly could the European Central Bank do?

Beard: Well, what the bank has already done is pump more than a trillion dollars into the European banking system in the form of low interest, three year loans. Now that held the debt writers at bay over the winter, but the effect is now waning because of the political turmoil in Greece and the political change in France. The vote against austerity stirred up the crisis again. Now the European Central Bank could pump in more money, but a longer term fix, which the OECD is pushing for and the French favor, are euro bonds.

Hobson: Euro bonds — this is a term that has come up before.

Beard: That’s right. This is where the 17 governments that use the euro raise money together, they borrow as one, they pool their credit worthiness if you like. That means they could all raise money at the same relatively low interest rate. So Greece, Spain, Portugal would be able to borrow at a rate much closer to the German level. And one plan is that euro bonds could raise money to pump into the euro zone banks to stop them going bust.

Hobson: But Stephen, this is not the most popular idea across Europe, right?

Beard: No, no, certainly not in Germany. The Germans hate the idea because their borrowing costs would go up. They feel that countries like Greece would be leeching off their credit worthiness. They are also worried about moral hazard. If you allow countries like Greece to borrow more easily, we’ll be back at square one.

Hobson: Marketplace’s Stephen Beard in London, thanks a lot.

Beard: OK Jeremy.

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