The euro zone needs to undertake "ambitious structural reforms" to boost growth and overcome its protracted debt crisis, the Organisation for Economic Co-operation and Development said as it issued a grim 2012 economic forecast for the currency bloc.

In a report released yesterday, the body warned fiscal consolidation paired with banks' reluctance to lend could lead to further economic pain in the short term, with growth of just 0.2 per cent expected this year. "Europe is stalling," said Ángel Gurría, OECD secretary-general. "It needs to get out of first gear and make growth its number one priority."

Mr Gurría said Europe needed to continue the programme of fiscal consolidation agreed in the aftermath of the euro zone crisis.

Governments led by Spain have argued austerity measures imposed by the EU make it impossible to bolster their economies.

Speaking in Brussels with European commissioner for economic and monetary affairs Olli Rehn, Mr Gurría said euro zone countries "with fiscal breathing space" might be better off limiting budget cuts to boost economic growth, should conditions worsen. But countries receiving bailouts or in the line of fire of the bond markets, such as Greece, Ireland or Spain, could not now afford to relax, the report argued. If anything, they should be ready to pursue further consolidation measures.