Europe struggles for unity in face of recession

1st February 2009, Comments 0 comments

Despite promises to tackle recession together, EU governments are scrambling -- each in their own corner -- to come up with new measures to revive their economies, threatening the bloc's unity.

BRUSSELS - Since the start of the year, Germany has launched a new economic recovery plan, Britain unveiled a fresh rescue package for its banking sector and a number of countries are putting together plans to help their carmakers.

The hodge-podge of various measures contrasts with the spirit of unity that led EU leaders as recently as December to agree on a 200-billion-euro stimulus plan to snap the European economy out of recession.

Although most of the package is made up of national measures, leaders made much of the fact that Europe's efforts to beat recession would be closely coordinated in order to reduce waste and avoid distortions to markets.

However, the new wave of government actions since then has left some worried that EU states risk causing more harm than good by failing to coordinate.

"I think we should improve the way we monitor the implementation of the recovery plan and the financial packages for the support of the financial sector," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.

"Based on this monitoring, it will be useful to increase the coordination, because all these kinds of programmes and schemes can create ... distortions in the level playing field," he told a conference in Brussels last week.

The banking sector is once again at the centre of governments' attention, with Britain announcing earlier this month an insurance scheme to relieve banks of the impact from the toxic assets ravaging their balance sheets.

Belgium meanwhile is considering a so-called good-bank bad-bank scenario where lenders' toxic assets would be hived off and put into a separate state-owned institution, relieving banks' balance sheets.

Germany too is considering a range of measures for its banks, but has so far ruled out the creating a bad bank.

Almunia warned that before rushing to set up bad banks, European governments must first agree on what assets would qualify for such schemes and what prices should be paid for them.

"We need to have this discussion before going into the discussion about the possibility of these instruments," he said.

But while some governments are moving fast to prop up their banks, some people consider a second wave of rescues to be unnecessary, adding to the cacophony.

"I don't see the need for a second set of big, huge massive bank plans," last week, Luxembourg's Premier and Finance Minister Jean-Claude Juncker said last week.

"It goes without saying that any new initiative will be examined in detail in the Eurogroup," added Juncker, who heads the group of eurozone finance ministers.

After Europe saw the weakest new car sales in 15 years in 2008, governments including France, Germany, Portugal, Spain and Sweden are mulling measures for the auto industry, one of the biggest employers on the continent.

Measures under consideration range from incentives for scrapping old cars to encourage purchase of new vehicles, to tax breaks, public procurement initiatives and outright state investment in carmakers.

Amid the smorgasbord of ideas, EU Industry Commissioner Guenter Verheugen has ruled out a further relaxation in state aid rules to allow governments to prop up their struggling car industries, warning against a "race to subsidies."

On the economic front, governments are also taking up different approaches, with London cutting value added tax to boost consumption, Berlin mulling big infrastructure investment and Paris looking into aiding companies.

"Each country is tempted to act according to its national specificity," French secretary of state for European affairs Bruno Lemaire said last week, calling for "more coordination on economic stimulus plans."

AFP/ Expatica

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