Eurozone finance ministers meeting this week will need to boost the firepower of the European stability funds to at least $1.3 trillion, said Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development.

The Paris-based OECD sent out a fresh warning on Tuesday that the European Union's economy will contract in the short run and that its long-term growth prospects are also dim.

Gurria said the current level of commitment to the rescue funds is not enough to restore market confidence, and a credible financial firewall will provide governments with the breathing space they need to focus on revitalizing Europe's economic growth and competitiveness.

"Weak financial conditions, fiscal consolidation and economic adjustment are restricting demand in the short-term before the long-term benefits of stability and growth are felt," Gurria said.

"Decisive action to restore confidence and support demand is needed now."

"The recent measures already taken to strengthen fiscal discipline, provide liquidity and implement growth-enhancing reforms - particularly in Greece, Italy, Portugal and Spain - are important advances toward a brighter economic outlook, but the challenges remain daunting," Gurria said.

A report released by the OECD on Tuesday calls for an ambitious program of reforms in product and labor markets, tax systems and education to rebalance the economies, restore competitiveness, boost growth and bring down stubbornly high levels of unemployment - particularly among the young.

It argues many reforms would stimulate growth in the short-term.

"Europe is stalling. It needs to get out of first gear and make growth the No 1 priority," said Gurria.

The OECD says national regulations, rigidities and poor implementation of existing EU rules are frequently holding back cross-border economic activity, growth and job creation, and are undermining the EU's economic efficiency and competitiveness.

Greater progress is needed in opening service markets. The report calls for an annual review, for each country, of the obstacles to fully benefiting from the market of 500 million consumers.

According to the OECD, the eurozone crisis originated from the build-up of excessive financial, fiscal and economic imbalances in the eurozone and the global credit cycle.

The OECD's gloomy forecast follows the European Commission's own prediction in February, pointing to stagnation of the EU economy and to a mild recession in the eurozone.

But the European Union said modest growth is predicted to return in the second half of the year. Meanwhile real GDP is expected to stagnate in the EU and to shrink by 0.3 percent in the eurozone in 2012.

fujing@chinadaily.com.cn