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OECD economist - Tax hikes inevitable

Source: Reuters - Tue 22th Dec 2009

European governments will have to raise taxes in coming years to deal with the colossal debt mountains built up during the financial crisis, the chief economist of the OECD told a newspaper on Tuesday.

Pier Carlo Padoan told French daily Le Figaro that growth alone was unlikely to be strong enough to enable euro zone governments to cut their burden while a return to high inflation, which would also melt debt away, was not desirable.

"That leaves cutting public spending and raising taxes" he said. "In my opinion, cutting spending won't be enough. An increase in taxes is inevitable" he said.

The Paris-based Organisation for Economic Cooperation and Development expects the euro area to grow by 0.9 percent in 2010, well below the 3.4 percent growth rate it forecasts for the world economy as a whole.

Padoan said France and Germany, which the OECD expects will post 1.4 percent growth next year, were set to emerge from the crisis.

"But the euro zone as a whole will come out of the crisis with the same problems it went in with" he said, adding that the United States was better placed because it had made important structural reforms and stepped up investment.

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