EU proposes 200 bln euro stimulus package

27 November 2008

BRUSSELS – The European Commission proposed on Wednesday a sweeping stimulus package worth EUR 200 billion to jolt Europe’s economy out of recession, EU sources said.

The sum, the equivalent of 1.5 percent of the European Union’s gross domestic product, was more than the EUR 130 billion minimum which commission chief Jose Manuel Barroso had said previously he was looking for.

Of the 1.5 percent total, 1.2 percent would come from EU governments and the rest would come from EU funding, one of the sources said on condition of anonymity.

Draft proposals of package, which did not contain the figures, urged EU members to loosen the purse strings and ease some taxes in the face of the worst economic downturn in decades.

While governments will be given greater leeway on fiscal discipline, they will be expected to return to cutting their public deficits from 2011 at the latest.

Governments should step up spending to focus on initiatives such as handouts to the poor and the unemployed, longer jobless benefits and more money for investments in small and mid-sized firms, according to the draft proposals

The package also includes plans to bring forward spending at the EU level on social programmes and investment in green technology for the car and building sectors.

"Only through a significant stimulus package can Europe counter the expected downward trend in demand, with its negative knock-on effects on investments and employment," said the draft document, obtained by AFP.

"Therefore, the commission proposes that member states agree a coordinated budgetary stimulus package which should be timely, targeted and temporary, to be implemented immediately," it said.

The European Commission is to submit the proposals to EU heads of state and government at their 11-12 December summit in Brussels and asked finance ministers to ensure that it is followed up afterwards.

While Brussels has been drafting pan-European recovery plans, a growing number of individual EU countries have pressed ahead with their own national packages.

Austria, Britain, France, Germany, Hungary, Italy, the Netherlands and Spain already have plans of their own in various states of preparation.

German Chancellor Angela Merkel warned against a "race" between EU states over the size of their economic stimulus measures and said that Berlin — one of the few European states with strong finances — was already doing enough.

"We should not fall into a race of billions (of euros)," Merkel said in a speech to the German parliament.

Earlier this month Berlin unveiled measures aimed at boosting Europe’s largest economy that Merkel says are worth EUR 32 billion and should constitute Germany’s contribution to the EU measures.

Whatever form the EU package ultimately takes it will probably look small by comparison with similar measures underway in other major economies with the incoming US administration working on plans reportedly worth as much as USD 700 billion (EUR 542 billion).

[AFP/Expatica 2008]