EUROZONE WILL HAVE TO REBALANCE, WARNS OECD

Brussels, December 14- The eurozone must embark on biting reforms to sort out its public finances even though doing so risks undermining the fragile recovery, the Organisation for Economic Co-operation and Development (OECD) has warned.

"Fiscal consolidation is necessary, although it may drag on growth in the short term," the Paris-based think-tank said.

The ongoing debt crisis across the eurozone, which has seen worries about countries' solvency push borrowing costs to record levels, requires "detailed and credible multi-year plans", according to its latest report.

Economies will have to be rebalanced, which will be difficult for some big importers as prices and wages will have to "adjust" to help shift resources from domestically-focused sectors that grew too big in boom years, the report said.

The OECD also wants a permanent crisis management framework to be put in place, as well as independent fiscal councils to assess nations' economic health. The European Central Bank should unwind its monetary stimulus measures as soon as "upward risks" to price stability - defined as 2pc inflation - emerge, the think-tank said.

It is now forecasting growth across the eurozone at 1.7pc this year and the next before rising to 2pc in 2012.

EU leaders meet in Brussels on Thursday for a two-day summit at which they will decide their next steps to tackle the crisis.

Pier Carlo Padoan, the OECD's chief economist, appeared to back the idea of a eurobond issuing debt backed by all the euro nations although he avoided specifics.

"Imagining that there is a European dimension to financial markets, including bond markets, is a good idea," he said following the report. "Let me put it that way”.

Separately, the OECD's view for the UK was unchanged in October, with its leading indicator, a measure designed to identify economic turning points, reflecting a "stable pace of expansion".

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