OECD: Reform of labour law and tax key to recovery

THE OECD (Organisation for Economic Cooperation and Development) said EU states should loosen labour laws and adjust tax systems to bolster the recovery from this severe economic slump.

Structural changes “provide the main available policy lever to speed up the global recovery” after the recession left a “permanent scar” of lost growth, OECD chief economist Pier Carlo Padoan wrote in a report.

The OECD said this week an economic recovery among the world’s most-advanced economies is gathering strength. In the US and Italy, growth may accelerate from the first quarter, while Germany, Canada, France and Britain may see a slowdown, it forecast.

“Monetary policies have been stretched to their limits and public budgets are in need of consolidation,” Padoan said.

Pressure from the bond market is “strengthening the case for action”.

The ECB raised its main interest rate for the first time since 2008 to fight rising inflation.

Portugal yesterday followed Greece and Ireland, saying it needs an EU-led bailout due to record high borrowing costs.

ECB policymakers in Frankfurt lifted the benchmark interest rate to 1.25% from a record low of 1%.

“Reforms that boost employment levels are likely to be helpful to fiscal consolidation,” the OECD wrote. They include “increased spending on and reform of active labour market policies, reduced labour market dualism through job-protection reform and improved design of social transfer programmes.”

While unemployment in the 17-nation eurozone fell in February to 9.9% from a revised 10% in January, European companies may be reluctant to recruit more staff as the euro- region economy shows signs of slowdown. Economic confidence dropped in March and manufacturing growth weakened.

“Unsustainable public finances have also made many other types of structural reforms more urgent,” such as improvements in tax systems, which could ease deficits, the OECD said.