By Nick Mann | 27 March 2012

Eurozone stability funds should be increased to at least €1 trillion as part of ‘decisive action’ to stabilise vulnerable economies, the secretary general of the Organisation for Economic Co-operation and Development said today.

Angel Gurria said the current level of commitment to the rescue funds was not enough to restore market confidence and more money was needed to provide governments with the breathing space they needed to revitalise 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,’ Gurria said. ‘Decisive action to restore confidence and support demand is needed now.’

Germany was yesterday reported to have dropped its opposition to increasing the total bailout funds for Europe to in excess of €690bn. However, it is understood to remain opposed to the permanent European Stability Mechanism offering more than €500bn in total.

Gurria welcomed recent measures taken to strengthen fiscal discipline, provide liquidity and enable growth, particularly in Greece, Italy, Portugal and Spain, but said the challenges remain ‘daunting’.

His comments came as he unveiled the OECD’s economic surveys of the euro area and European Union. The eurozone survey identified ‘difficulties’ for public finances in most countries using the single currency.

Countries under financial assistance programmes should stick to the headline targets agreed as part of their programmes, while those facing ‘close market scrutiny’ should continue to meet agreed budgetary targets and be prepared for further fiscal consolidation if necessary.

‘Achieving prudent debt-to-gross domestic product rations will take many years of tight fiscal policy and would be facilitated by stronger growth,’ it said.

Making ‘ambitious’ structural reforms with changes to product and labour markets, tax systems and education would help to rebalance economies, boost growth and bring down unemployment, it added.

For the European Union as a whole, the OECD said a ‘step change’ in commitment to the single market was needed. National regulations and poor implementation of EU rules are holding back cross-border economic activity, growth and job creation and undermining the EU economy’s efficiency and competitiveness.

An annual review should be carried out for each EU member state to identify the obstacles to the single market’s operating as it should, it added.