Europe needs to boost its bailout fund to at least €1 trillion ($1.3 trillion) to boost market confidence, and enact a series of reforms to bolster growth, according to the Organization for Economic Co-operation and Development.

OECD secretary-general, Angel Gurría, said Tuesdy that euro area finance ministers, who are meeting this week, need to boost the firepower of the European stability funds. The current level of commitment to the rescue funds is not enough to restore market confidence, he warned.

And, the group says that a credible financial firewall will provide governments with the breathing space they need to focus on revitalising 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 on stability and growth are felt,” Gurría said. “Decisive action to restore confidence and support demand is needed now.”

Gurría noted that recent measures taken to strengthen fiscal discipline, provide liquidity and implement growth-enhancing reforms, particularly in Greece, Italy, Portugal and Spain, are “important advances towards a brighter economic outlook, but the challenges remain daunting,” he added.

The OECD also calls for reforms in product and labour 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 that a much bigger commitment to the single market is needed, and says that national regulations, rigidities and poor implementation of existing EU rules are frequently holding back cross-border economic activity, growth and job creation; undermining the EU economy’s efficiency and competitiveness. Greater progress is also needed in opening services markets, it says, and the EU should encourage migration in order to help workers and firms to achieve the most productive job matches.

Finally, it also highlights the need for Europe to make fundamental changes to financial supervision and regulation. It says that Europe needs an effective system of crisis resolution and excessively close ties between domestic banks and governments need to be undone.

The OECD suggests that many of these reforms would stimulate growth in the short-term too. “Europe is stalling. It needs to get out of first gear and make growth the number one priority,” said Gurría.