"Europe's handling of the economic crisis threatens to roll-back decades of social rights," said Natalia Alonso, head of Oxfam's EU office.
"Aggressive cuts to social security, health and education, fewer rights for workers and unfair taxation are trapping millions of Europeans in a circle of poverty that could last for generations. It is moral and economic nonsense."
"The only people benefiting from austerity are the richest 10 percent of Europeans who alone have seen their wealth rise.
"For example, the gap between rich and poor in the UK and Spain could become the same as in South Sudan or Paraguay," added Alonso.
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If left unchecked, austerity policies could put between 15 and 25 million more Europeans at risk of poverty by 2025, said the agency.
"This would bring the number of people at risk of poverty in Europe up to 146 million, over a quarter of the population, warned Oxfam ahead of a EU finance minister meeting in Vilnius.
"There are alternatives to austerity. Ahead of (Friday's) EU finance ministers' meeting, we're calling on European governments to champion a new economic and social model that invests in people, strengthens democracy and pursues fair taxation.