EU struggles to get stimulus package on the rails

3 December 2008

BRUSSELS – The European Union struggled on Tuesday to get a sweeping economic recovery package on the rails, with member states giving lukewarm backing to a proposed 200-billion-euro stimulus plan.

In a first reaction, ministers welcomed European Commission proposals but only "in principle," according to a document agreed at a meeting in Brussels.

On Monday, their counterparts from the 15 countries sharing the euro also stopped short of commiting outright to the economic stimulus target.

With the spectre of recession looming large, the European Commission called last Wednesday for a sharp boost to public investment and social spending across Europe while giving embattled consumers a range of tax breaks.

The overall package, drawn from a series of national and EU programmes, is supposed to be worth about EUR 200 billion or 1.5 percent of the 27-nation European Union’s gross domestic product.

Stopping short of formally committing to the target, the EU ministers said they "agree that a package of the magnitude of 1.5 percent of GDP would provide a significant stimulus to our economies."

With many EU countries due to present stimulus plans in the coming days and weeks, Luxembourg Finance Minister Jean-Claude Juncker said on Monday that it was premature to speak of an overall EU target as proposed by the commission.

"We have got to wait until all the national plans come in before we can get a figure," said Juncker, after chairing a meeting with his counterparts from the eurozone countries. "I wouldn’t overemphasise the figures."

The European Commission aims to secure backing for the package from EU heads of state and government when they meet in Brussels at a 11-12 December summit.

While a consensus has emerged on the need to coordinate action across Europe, countries such as Germany refuse to contribute more than what they deem necessary to get their national economies moving and no more.

German Finance Minister Peer Steinbrueck, who has criticised the commission proposals as "ineffective populist measures," rejected pressure on Berlin to contribute more than the EUR 31 billion it has already announced in two separate packages in September and October.

"While only a little while ago it was a remarkable amount, today that is apparently no longer the case with EUR 31 billion," Steinbrueck told reporters.

He also said that calls for Germany, one of the few EU countries heading into the current downturn with strong finances, to contribute more to an EU stimulus package would also be inconsistent with Berlin’s recent efforts to wipe out its budget deficit.

Some economists also have their doubts about the EU proposal, noting that EUR 130 billion would come from national plans in Germany, France, Britain and Italy and the rest from EU funding.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia acknowledged there was "not, unfortunately, a total consensus" on the commission’s plan.

[AFP/Expatica]