Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said policy makers in the euro area should push ahead with deficit cuts and avoid the “false dilemma” of the austerity debate.
“You need fiscal consolidation in many countries and at the same time you need to plant the seeds of future growth,” Gurria said today in an interview at the World Economic Forum in Davos, Switzerland. “Let’s go for the reforms, accelerate the reforms, so we can consolidate the recovery.”
The International Monetary Fund cut its growth forecast for the 17-nation euro area yesterday, predicting a second year of contraction as the region’s governments seek to reduce public borrowing and revamp their economies in the wake of a sovereign debt crisis. Gurria said that increasing flexibility of both labor and product markets is key to reviving growth.
“If you really want to go for a durable recovery, you really have to go for the fundamental measures,” Gurria said. “Some of these take a long time to get results but today, paradoxically, your best short-term policies may be your best long-term reforms. The announcement and communication of where you want to go may be your best bet.”