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OECD: Eurozone dragging global economy

Mario Draghi, president of the European Central Bank,

Mario Draghi, president of the European Central Bank, unveiled a new program to buy bonds from struggling countries. (Sept. 6, 2012) Photo Credit: Getty

Europe's debt crisis is pushing the 17-country eurozone toward recession and dragging down the global economy, the Organization for Economic Cooperation and Development said Thursday.

Even growth in traditional economic powerhouse Germany is slowing, and the OECD's interim assessment said that Europe's largest economy could slip into recession by the end of the year.

"The negative elements of the global economy . . . stemming mostly from Europe are there, and they are somewhat stronger than they used to be a few months ago," OECD chief economist Pier Carlo Padoan told reporters.

He said the good news was that the global economy was not in recession, but that avoiding one would depend on what politicians do in the coming months and he pushed especially for more action by the European Central Bank. Padoan said he was encouraged by recent progress in Europe to get a handle on the crisis.

In a related development yesterday, the president of the ECB unveiled a new program to buy government bonds from the region's struggling countries with the aim of lowering their borrowing costs. Mario Draghi said the program will have no set limit on how much it can buy. Stocks in the United States and Europe soared on the news.

High borrowing rates are at the heart of the European crisis and have forced several countries to seek bailout loans. Now, larger economies, like Italy and Spain, are suffering high rates. Many experts worry that Europe can't afford to rescue them but also can't afford to let them fail.

Padoan also dismissed concerns -- mostly coming from Germany -- that ECB intervention could push up inflation. He said it wasn't clear that bond-buying would increase inflation and that, at any rate, Europe needed more inflation.

In May, the OECD, which monitors economic trends for the world's most developed economies, said the eurozone could contract by as much as 2 percent this year. Yesterday's assessment didn't offer a comparable prediction, and Padoan wouldn't say if he thought such a severe contraction was likely.

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