BRUSSELS: The eurozone should boost the firepower of its debt emergency fund to one trillion euros ($1.33 trillion) to ensure it can meet the needs of any distressed nation, the OECD said on Tuesday.
"The European firewalls should be expanded further and made more credible to restore confidence," the Organisation for Economic Cooperation and Development said in a report on the eurozone economy.
"To ease market tensions, the funds should be available on a scale sufficient to withstand possible future requests for financial assistance," it said.
Eurozone finance ministers are meeting on Friday and Saturday in Copenhagen to decide whether to increase the size of its debt rescue mechanism amid resurgent concerns about the financial health of Spain.
The OECD said the refinancing needs of vulnerable eurozone nations could top 1.0 trillion euros over the coming two years and in addition contributions may be necessary to recapitalise banks.
"Although it is unclear that funds on this scale would ever need to be drawn down, the availability of credible firewalls may enhance confidence," the report said.
"Ultimately, the scale and form of funds needed will depend on how confidence returns, as well as economic and financial developments."
The future size of the eurozone's rescue mechanism has been the source of fierce debate in the 17-nation monetary union despite international pressure for a bigger firewall.
Eurozone governments have debated whether to combine the lending capacity of the temporary European Financial Stability Facility (EFSF), used to rescue Portugal, Ireland and Greece, with the permanent European Stability Mechanism (ESM).
German Chancellor Angela Merkel, in an apparent shift of position, said on Monday that Berlin was open to combining 500 billion euros from the ESM with 192 billion euros already promised to debt-ridden countries within the EFSF.
This option would give the eurozone nearly 700 billion euros on paper, but in reality it would have a lending capacity of 500 billion euros since the rest is already committed to Greece, Ireland and Portugal.
The European Commission has proposed other options, including one that would give the eurozone a rescue fund totalling 940 billion euros. This option, however, is unlikely to be agreed.
The OECD said that "increasing the firewalls must be balanced against the impact it has on the public finances of the countries providing fiscal support to the arrangements."
Germany, Europe's biggest economy, is the main contributor to bailouts in the eurozone.