Home News EU to tackle stimulus plan as divisions persist

EU to tackle stimulus plan as divisions persist

Published on 10/12/2008

BRUSSELS – EU leaders aim to put the final touches on economic stimulus plans at a summit on Thursday and Friday in the face of simmering tensions between Germany and its French and British partners.

With the spectre of recession looming large, the European Commission wants EU heads of state and government to sign up to its proposed plans to pump EUR 200 billion into the European economy.

The plan, a smorgasbord of national and EU measures worth 1.5 percent of the 27-nation European Union’s gross domestic product, would ramp up public investment across Europe and allow for some taxes to be eased.

With Germany uneasy about pumping so much taxpayers’ money into the economy, European Commission chief Jose Manuel Barroso stressed that the stimulus target was vital to be "credible" as the incoming US administration plans a major spending hike.

"I will insist … that we have the 1.5 target as a signal that we mean business when we speak of the fiscal stimulus," Barroso told journalists on Tuesday.

Although EU finance ministers last week gave their backing "in principle" to plan, divergences still remain between European governments over how ambitious it should be.

Luxembourg Prime Minister Jean-Claude Juncker, who chairs regular meetings of eurozone finance ministers, said last week that it was too early to commit to a specific stimulus target.

Paris, which holds the European Union’s current presidency, and London have united in a push for an extensive package, with France planning a EUR 26 billion stimulus and Britain EUR 23 billion.

Germany, one of the few EU countries heading into the current downturn with strong public finances, has been fighting off pressure to make a bigger effort to boost the European economy.

The German government, which is itself divided over how best to tackle recession, has refused to contribute more than the EUR 31 billion over two years that Berlin judges necessary to revive the German economy.

The divergences rose to the surface ahead of the summit with Berlin irked that Chancellor Angela Merkel was not invited to a meeting of Britain’s Prime Minister Gordon Brown, French President Nicolas Sarkozy and Barroso on Monday in London.

German Foreign Minister Frank-Walter Steinmeier, Merkel’s sometimes political rival, criticised the absence of Merkel, head of Europe’s largest economy.

"I don’t think it’s good that the three are meeting alone and that the chancellor is not there. There will certainly be some squabbles before the next European summit," he said Monday on German television.

Brown, Sarkozy and Barroso insisted there was no disagreement with Germany on how to tackle the financial chaos.

"Our positions have become much closer in the last few weeks," Sarkozy said.

Barroso said on Tuesday he was confident after consultations with Merkel that "Germany will make a very important contribution in terms of the European response to the crisis".

In the face of some countries’ reticence to commit to ambitious stimulus targets, Barroso said that governments would likely find next year that they had no choice but to do more than they are currently planning to get the economy going.

[AFP / Expatica]