EU prepares to unveil economic stimulus package

25 November 2008

BRUSSELS – The European Union scrambled Monday to put the final touches to a coordinated economic stimulus package designed to drag the continent’s economies out of recession.

As the European Commission prepared to unveil wide-ranging plans on Wednesday for Europe-wide government spending and tax relief, London was busy announcing its own package focused on cutting tax on goods and services.

An EU official said that the commission would propose that other EU countries follow Britain’s example and cut value added tax to encourage consumers to keep shopping.

The EU official, speaking on condition of anonymity, said that "the idea is that if consumption is doing badly and cutting VAT can have an effect on consumption, then it’s a measure to encourage."

Launching a GBP-20-billion (EUR-23.5-billion) economic stimulus package, London said on Monday it would cut value added tax on goods and services to 15 percent from 17.5 percent.

However, there is little chance of a coordinated cut in VAT rates, which can not go to less than 15 percent under EU rules, because Germany and France are opposed to the idea, according to German Chancellor Angela Merkel.

"A general cut in VAT is the response chosen by some countries but is not the right answer for France and Germany," Merkel said on Monday after meeting in Paris with French President Nicolas Sarkozy.

Commission chief Jose Manuel Barroso said over the weekend that the overall value of the EU plan "will certainly not be below" 1 percent of the bloc’s gross domestic product (GDP), although details remained to be finalised.

The commission’s package will also include plans to step up the allocation of EU funding for poor European regions and help people get back to work, according to the spokesman for regional policy Dennis Abbott.

The package will also focus on specific industries hit hard by the crisis such as the construction and car-making sectors, with plans to aid the development of green cars or energy efficient buildings.

The commission, the European Investment Bank and governments will be called on to finance the plans.

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

Prior to London’s announcement on Monday, the Dutch government said on Friday it was preparing a EUR-six-billion economic stimulus plan to help the country cope with the global financial crisis.

Austria, France, Germany, Hungary, Italy and Spain also have plans in the works.

However, all their initiatives are likely to be dwarfed by a vast package that US president-elect Barack Obama has called for in order to create 2.5 million jobs and end the economy’s current "vicious cycle" of crisis.

The Washington Post reported Monday that Obama and his Democratic allies in Congress are preparing plans for a second massive economic stimulus programme that could total as much as USD 700 billion (EUR 542.5 billion) over the next two years.

The newspaper said that if approved, the amount would be one of the biggest public spending programmes aimed at propping up the economy since President Franklin D Roosevelt’s New Deal.

[AFP / Expatica]