Rich countries must strengthen financial market regulation and bring down their oversized government deficits, two of the biggest new challenges to have arisen from the global economic crisis, the OECD said Wednesday.
In a 30-nation report, the chief economist of the Paris-based Organization for Economic Cooperation and Development said restoring public finances to health will be a "daunting task" for most OECD governments.
There was no specific mention of Greece's fiscal crisis in the report entitled "Going for Growth," an annual overview of economic reforms, but the OECD recommended cutting social spending as a general tool to reduce government debt.
Its policy prescriptions for Greece included reducing incentives for early retirement, privatization, and easing employment protection — measures that could be difficult to swallow for a public already balking at painful spending cuts. The Greek government is trying to reduce its deficit from 12.7 percent of gross domestic product to regain market confidence.
OECD Chief Economist Pier Carlo Padoan said all governments facing ballooning deficits should seek efficiency gains from public spending, particularly in education and health, and avoid "harmful" labor and capital taxes.
He also said that the response to the crisis has left "new challenges in the form of moral hazard and weak competition" in the financial sector.
"Regulators across the OECD need to step up ongoing efforts to strengthen financial market regulation," he said in the 250-page report.
The OECD recommends that firms which pose a greater systemic risk be subject to "special measures" because they could be more tempted by risky behavior.
This includes raising capital and liquidity requirements and deposit insurance premiums. They could also be required to provide plans on how their complex financial structures would be resolved in case of default.
Another "difficult" option would be to limit the size of such institutions, the report said.
International and U.S. financial accounting standards boards need to agree on "simpler and more comparable rules," the report said.
For the U.S., the report recommended that the health care reform before Congress and the Obama administration's financial regulation reform plans be "swiftly implemented."
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