An influential think tank on Tuesday warned that the eurozone risks falling into a "severe recession" unless Brussels tempers neoliberal EU deficit rules with a growth pact.
Organisation for Economic Co-operation and Development (OECD) chief economist Pier Carlo Padoan called on member states and the European Central Bank to issue jointly-guaranteed bonds to help recapitalise banks and increase resources available for infrastructure projects.
"Such moves could pave the way to a broader issuance of euro-bonds," Mr Padoan said.
He warned that a failure to shore up banks and lower interest rates would result in "a severe recession in the euro area with spillovers in the rest of the world.
"The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth."
Mr Padoan made his comments as the OECD released its twice-yearly global economic outlook. It forecasts a eurozone contraction this year, followed by a feeble recovery in 2013.
It shows austerity-obsessed Europe falling behind the United States, where government stimulus measures have served to fuel growth.
"There is now a diverging trend between the euro area and the US, where the US is picking up more strongly while the euro area is lagging behind," Mr Padoan said.
The OECD raised its forecast for US growth this year to 2.4 per cent, and to 2.6 per cent for 2013.
It predicts that the eurozone will shrink 0.1 per cent this year and grow 0.9 per cent in 2013.
EU leaders are due to meet in Brussels on Wednesday to discuss how to revive growth.
But the leader of Greek far-left party Syriza warned that heaping more economic pain on Greece will hurt all of Europe.
"Greece is a link in a chain. If it breaks it is not just the link that is broken but the whole chain," Alexis Tsipras told a packed news conference in Paris.
Mr Tsipras called for the "complete refounding of Europe based on social cohesion and solidarity."
Syriza is leading in Greek opinion polls ahead of the June 17 elections.
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