The chief economist of the OECD has warned that the economic recovery in Europe is very fragile and looks dangerously unbalanced.
Speaking at the World Economic Forum in Davos, Switzerland, Jean-Philippe Cotis said that the impact of the rising value of the euro against the dollar is enough to wipe out all of the gains in economic momentum achieved in recent months.
He said that if the euro were to appreciate further against the dollar it would put the European economy in the danger zone and policy action would be unavoidable in Europe.
Mr Cotis said such action would possibly have to include a cut in European interest rates as well as intervention on the foreign exchange markets by the European Central Bank to hold down the value of the euro.
He said he was not recommending this course of action to the European authorities yet because it would be far better if Asian countries relieved some of the pressure on the euro by allowing their own currencies to rise against the dollar.
But Mr Cotis admitted that such an agreement was unlikely and Europe might well find itself pushed into a corner. Policy makers would then have to contemplate every possible action to keep the fragile economic recovery sustained. The OECD chief economist also said that a cut in European interest rates now would not result in higher inflation and would signal to financial markets that the European Central Bank was trying to boost domestic demand.
