BRUSSELS -- With the United States and financial markets pressing for decisive action, European leaders will meet Wednesday on their regions widening debt crisis amid a new forecast that suggests the broad eurozone will finish the year in recession.
The Organization for Economic Cooperation and Development, the Paris-based statistical arm of wealthy nations, issued an outlook that projects that the economy of the entire eurozone will contract 0.1 percent this year. It also predicted that next years growth would be just 0.9 percent.
The OECDs projections added to the sense of urgency surrounding what was billed as an informal dinner among European leaders in Brussels to discuss ways to stimulate growth. But the leaders remain far apart on the biggest issues, and its unclear whether theyll agree on steps that would ease the pain of policies that have called for cutting government budget deficits but not for stimulating the economy.
The prospect of a European recession is grim news for the United States and its tenuous economic recovery. Many American corporations sell and manufacture in Europe, and the wealthy region has been a primary market for U.S. exports.
U.S. stocks already have been staggering in the past month over the prospect of a prolonged debt crisis in Europe, leaving Americans and their retirement plans poorer in the process.
"The European area remains the single most serious risk to the global economy, and recent events have increased that risk," said Pier Carlo Padoan, the OECDs chief economist.
President Barack Obama was blunt Monday when he called for stronger action from Europe to stimulate its economy.
Acting forcefully rather than in small bite-sized pieces and increments, I think, ends up being a better approach," Obama said during a news conference at the close of a NATO summit in Chicago.
The accumulation of European economic problems has been accelerating in recent weeks. Last week, Moodys Investors Service downgraded the creditworthiness of 16 Spanish banks most of them loaded up with bad home loans and Spains creditors began to worry that the indebted Spanish government wont be able to prop up its banks and sagging economy. The Spanish government announced this week that it would have two independent firms conduct stress tests on its banks in a bid to reassure investors.
The OECD forecast came as Europeans debate whether they should continue a course of fiscal austerity lowering deficits by cutting spending and raising taxes or boost spending to stimulate the economy.
The OECD made clear Tuesday that it supported issuing Europe-wide bonds, championed by new French President Francois Hollande. Hes expected to bring up the issue at Wednesdays dinner despite stiff opposition from a group of nations led by Germany.
You have to put all the instruments on the table, OECD Secretary-General Angel Gurria said.
Hollande, Italian Prime Minister Mario Monti and some other European leaders back the eurozone bonds debt guaranteed by all 17 countries that use the euro as a way for Greece and other debt-ridden nations to raise cash more cheaply.
But the plan represents a red line for Angela Merkel, the chancellor of Germany, whose relatively stable economy would have to underwrite the common bonds and which views the proposal as akin to better-off nations picking up the tab for countries that mismanaged their finances.