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Study: Slow Economic Growth Forecast for Countries Using Euro Currency

The 12 European Union countries forming the continent's euro zone face a mediocre short-term economic future according to a new report issued by the Paris-based Organization for Economic Cooperation and Development.

The OECD says unemployment, government spending limits, lack of labor mobility and inadequate funding for research and development are among the obstacles to economic growth in the 12 European Union countries that adopted the euro. As a result, it says, the euro zone is unlikely to meet its goal of becoming the world's most dynamic and competitive economy by 2010.

Not only has the economic downturn lasted longer than expected, says senior OECD economist Paul Vanden Noord, the leading author of the study, but the short-term prospects for Europe are not likely to brighten.

"We also believe that the optimism that was widespread in 1999, 2000 about the longer-term growth potential of the euro-area economies, now with the downturn of the economy, looks less credible," he said. "We think that the best way to boost the economy would be to embark on structural policies in three main areas."

Those areas, according Mr. Vanden Noord, include greater competitiveness, more innovation and more flexible employment policies.

Efforts by France and Germany to revamp their costly pension system drew praise from Mr. Vanden Noord.

"The idea has gradually sunk in that the way to boost the economy is precisely by changing the institutionalized mechanisms like early retirement, and pensionable age, and what have you. And France and Germany have indeed now pursued this route," he said.

But Mr. Vanden Noord says the budget deficits of the two countries are still too high.

Mr. Vanden Noord says the 10 new European countries expected to join the EU in the coming months should not be overly worried about the region's mixed economic outlook. The current downturn, he says, is is part of an typical economic cycle.