Under draft proposals seen by Reuters, the European Union's executive arm explicitly cites the scope for further interest rate cuts, and suggests a variety of possible stimulus policies ranging from tax cuts to increased social benefits.
The total volume of the package will be decided at a final Commission meeting on Wednesday, with Germany and France pushing for a target of one per cent of the bloc's total gross domestic product (GDP), or some 130 billion euros (S$252 billion).
That figure compares with the US Federal Reserve's plan announced on Tuesday to support home and other lending with a US$200 billion consumer finance facility and pledges to buy debt and mortgage securities backed by government-sponsored entities.
The EU move is a bid to bridge gaps between those EU states already embarking on national growth plans - such as Britain, Germany and France - and others including some east European capitals who protest they cannot afford such fiscal largesse.
'This budgetary stimulus should be foreseen for a maximum period of two years (2009-2010), following which member states' budgets should commit to reverse the budgetary deterioration,' said the draft.
Any significant stimulus, along with the fall in revenue and rise in spending that accompany an economic slowdown, is likely to lift deficits in France, Britain, Ireland, Italy, Greece and Portugal to well beyond the EU ceiling of 3 per cent of GDP.
The draft suggested temporarily increased benefits to low-income households and the unemployed, or a temporary lengthening of benefit pay-outs, as possible measures.
It further said a temporary, across-the-board Value Added Tax (VAT) cut could also boost consumption, but did not propose a coordinated cut for the whole 27-nation bloc - something that Berlin has signalled it could not support.
While the bulk of the stimulus must ultimately come from EU member states themselves - who are set to debate the package at a Dec 11-12 summit - the Commission will also redirect and accelerate central EU funds to needy areas.
The hard-pressed auto sector can expect increased funding to help it producer more environmentally-friendly cars in line with the EU's goal of tackling climate change, although such support will likely fall way short of industry calls for up to 40 billion euros of soft loans. -- REUTERS
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26 November 2008
Channel News Asia
EU launches US$259b stimulus package
Posted: 26 November 2008 2106 hrs
BRUSSELS - The European Commission called on Wednesday for a 200 billion euros (US$259 billion) stimulus package to snap Europe's economy out of recession through spending hikes and tax breaks.
"Coordinated European action can and will make a difference," commission chief Jose Manuel Barroso stressed as he unveiled the wide-ranging package.
"Business as usual is not an option."
Of the total, 170 billion euros will come from national government budgets and about 30 billion euros from the budgets of the EU and the European Investment Bank.
Barroso said the bulk of the measures would be rolled out as soon as the beginning of next year and the rest over the course of 2009 and 2010.
The combined national and EU campaign, worth the equivalent of 1.5 per cent of the European Union's Gross Domestic Product (GDP), exceeded the 130 billion euros that Barroso had mooted as a possible target in recent days.
The European Commission will urge member states to formally sign on to the plan at a December 11-12 summit and asked finance ministers to ensure that it is followed up afterwards.
"I expect this package to receive strong support from European governments," Barroso said.
While Brussels has been drafting pan-European recovery plans, a growing number of individual EU countries have pressed ahead with their own national packages.
Germany, Europe's biggest economy, has voiced skepticism about EU-wide initiatives and German Chancellor Angela Merkel warned on Wednesday against a "race" between European states over the size of their stimulus measures.
"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 that Merkel says are worth 32 billion euros and should constitute Germany's contribution to the EU measures.
Usually the guardian of budgetary rigour, the European Commission urged the 27 EU governments to step up spending and craft targeted tax breaks in the face of the worst recession in decades.
While it would be up to governments to decide on the balance between spending and tax initiatives, the commission urged them to focus on measures to help the poor and investments that would benefit Europe in the long term.
It said governments should consider cutting cutting employers' social charges and the commission planned to bring forward spending under an EU social fund that can be used to soften the blow of mass layoffs.
The commission also called for increases in research and development spending, citing the car and construction industries, and particularly for energy-efficient technologies.
Despite its call for increased spending, the commission said that governments would still be expected to respect the EU's fiscal rules, which give considerable leeway in tough economic times but over time call for budget deficits to be kept below 3.0 per cent of GDP.
The EU package remains dwarfed by similar measures taken in the United States while the incoming administration of President-elect Barack Obama is reportedly working on plans worth as much as 700 billion US dollars.
"I see a significant risk that Europe's fiscal policy response to the crisis might be too slow and insufficiently ambitious, mirroring the cautious monetary policy response," said economist Marco Annunziata at Italian bank Unicredit.
The commission noted that there is "scope for further reductions in interest rates" in light of fast deteriorating economic conditions.
- AFP/ir
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