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Tuesday, Nov 27, 2012 4:43 PM UTC

Europe’s debt crisis is greater threat than the “fiscal cliff”

The newest OECD report warns both Europe and the U.S. against swift austerity measures

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Topics: Eurozone, Fiscal cliff, Austerity, OECD, European Union, European Financial Crisis, , ,

Europe's debt crisis is greater threat than the This Oct. 6, 2012 file photo shows Spanish protestors holding a banner reading "public services, no financial cuts, no privatization" (AP Photo/Andres Kudacki, File)

While Democrats and Republicans prepare to wedge themselves over “fiscal cliff” fulcrums, a new report suggests that economic concerns should also be focused beyond U.S. borders. According to the Organization for Economic Co-operation and Development (OECD), Europe’s debt crisis remains a far bigger threat to the world’s economy, including U.S. recovery, than the “fiscal cliff.”

“After five years of crisis, the global economy is weakening again. The risk of a major contraction cannot be ruled out,” OECD chief economist Pier Carlo Padoan said Tuesday in the organization’s semi-annual Economic Outlook report. The Paris-based OECD advises its 34-member governments on economic policy.

Padoan did note the importance of avoiding the “fiscal cliff” (or, as Paul Krugman prefers to call it, the “austerity bomb”), which could otherwise create a “large negative shock” in the global economy. However, the OECD chairman warned the world’s major economies could all go back into recession if eurozone nations do not bring their crisis under control. “We believe that the European crisis represents the largest risk to the global economy,” he said. He warned both Europe and the U.S. against sharp spending cuts, urging instead for programs of fiscal stimulus.

Padoan’s line on the “fiscal cliff” echoed that of many Democrats and moderate Keynesian economists warning off a swift push for austerity.  According to the Guardian, “Padoan said that it was important for the U.S. to reduce its debts in the medium term but that too rapid a reduction runs ‘a very high risk of pushing the economy back into recession’.”

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Natasha Lennard is an assistant news editor at Salon, covering non-electoral politics, general news and rabble-rousing. Follow her on Twitter @natashalennard, email nlennard@salon.com. More Natasha Lennard.

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