Economic recovery in the world’s richest countries is accelerating thanks to a “substantial” rebound in trade and growth in Asia, but austerity measures are needed to reduce deficits, as Europe’s debt crisis proves, said the Organization for Economic Cooperation and Development.
The OECD is a watchdog for 31 of the world’s most developed economies.
The group raised its forecasts for economic growth in its member countries to 2.7 percent this year, up from its forecast of 1.9 percent last November.
However, serious risks to the global economy include Europe’s sovereign debt crisis and a possible boom-bust scenario in emerging markets such as Brazil, India and China, said the OECD.
The OECD lifted its forecasts for Japan, the United States and the eurozone countries, but Japan and the U.S. are expected to outpace Europe.
The European Union’s top financial chief proposed that banks should pay a levy to help pay for future bailouts, lifting the burden of rescues from taxpayers.
European governments are currently battling a debt crisis that has caused the euro to slide sharply against the dollar. The crisis was partly caused by the huge price states paid to rescue their financial systems over the past two years.
Greece is considering privatizing state assets to chip away at a debt mountain that brought it close to bankruptcy, with the prime minister and his cabinet also looking for ways to boost competitiveness.
Faced with a bloated budget deficit and massive public debt, the center-left government has cut pensions and salaries, raised consumer taxes and declared war on tax evasion. Many of the harsh austerity measures were taken in order to unlock a €110 billion ($134 billion) rescue package of loans from other countries that use the euro and the International Monetary Fund.
Italian Prime Minister Silvio Berlusconi bowed to market concerns about his country’s high debt load and bloated public sector, springing €24 billion in spending cuts on an unsuspecting public just weeks after ruling out painful measures.
But unpopular austerity may not be enough to keep markets soothed — and keep Italy from falling victim to Europe’s government debt crisis — if the government doesn’t make deeper structural changes that stimulate growth, analysts say.
Italy’s benchmark index rose 2.2 percent on the day, while Britain’s FTSE 100 rose 2 percent, Germany’s DAX rose 1.6 percent and France’s CAC-40 closed up 2.3 percent.
Asian markets got a jolt from Wall Street’s late-hours rally Tuesday. Japan’s benchmark Nikkei 225 stock average closed 0.7 percent higher after tumbling 3.1 percent to a six-month low Tuesday.
South Korea’s Kospi index gained 1.4 percent, Australia’s S&P/ASX 200 index rose 1 percent, Hong Kong’s Hang Seng index rose 1.1 percent and benchmarks in mainland China, Singapore, India, Indonesia and Taiwan also gained.
U.S. Treasury Secretary Timothy Geithner said the European Union has a good plan for tackling its debt crisis but that it needs to act soon.
The European Union has drafted a $1 trillion rescue package for eurozone countries aiming to avoid a rapid fall in the euro and protect countries from bankruptcy.
Geithner endorsed the European program at a brief news conference with Britain’s Treasury chief, George Osborne.
Romania will go ahead with sweeping wage, pension and benefits cuts despite unions’ threats to stage a general strike, Prime Minister Emil Boc said.
The announcement came as the government prepares to adopt measures promised to the International Monetary Fund to reduce the budget deficit to some 6.8 percent of gross domestic product.
Spain will introduce a new tax for the country’s highest-income earners in the next few weeks, part of a wider effort to raise money and cut a swollen deficit, Prime Minister Jose Luis Rodriguez Zapatero said.
Zapatero’s Socialist government recently approved public sector wage cuts and other spending reductions in a bid save €15 billion ($18.33 billion) this year and next to bring Spain’s deficit down and calm jittery markets.
German consumer confidence is slipping amid concerns about Europe’s debt crisis and the volatile euro.
Germany’s GfK institute said its forward-looking overall indicator for June stands at 3.5 points, down from 3.7 in May.
Canada’s finance minister introduced legislation that would create a single securities regulator for the nation.
Canadian Finance Minister Jim Flaherty said Canada is ill-served by 13 regulators with 13 different sets of rules. The International Monetary Fund and the Organization for Economic Co-operation and Development have urged Canada to create a single regulator.