Brussels - The European Union on Wednesday called on member
states to help the bloc avoid a deep recession by mobilizing 200
billion euros (260 billion dollars) in extra spending and tax cuts.
'Exceptional times call for exceptional measures,' said the head
of the EU's executive, European Commission chief Jose Manuel Barroso.
According to Barroso, the bulk of the money - 170 billion euros -
should come from national governments, with the remaining 30 billion
being made available by the European Commission and the Luxembourg-
based European Investment Bank (EIB).
By combining national initiatives and EU funds, the European
Economic Recovery Plan should amount to about 1.5 per cent of the
bloc's gross domestic product.
'(The figure of) 1.5 per cent is a significant amount, but most
will be distributed at the national level, and the question is how
much will qualify as genuine stimulus and how much will be devoted to
shoring up competitivity in key sectors,' Simon Tilford, chief
economist at the London-based Centre for European Reform told
Deutsche Presse-Agentur dpa.
The EU plan aims to boost demand, save jobs and help restore
confidence in the aftermath of the global credit crunch, which
analysts say has pushed the world's biggest economic bloc into a
prolonged downturn, with unemployment predicted to rise by 2.7
million over the next two years.
In its communication, the commission says governments should
coordinate their responses in order to 'swiftly stimulate demand and
boost consumer confidence', safeguard the most vulnerable members of
society and help transform the EU into a low-carbon economy.
Because the envisaged extra spending and tax cuts will inevitably
lead to higher budget deficits, officials in Brussels say the strict
rules governing the EU's Stability and Growth Pact will be applied
'judiciously'.
The guardian of the pact, Economic and Monetary Affairs
Commissioner Joaquin Almunia, explained that his office would apply
'flexibility' when deciding whether to sanction countries that exceed
the 3 per cent of GDP upper limit by only a few decimal points.
At the same time, Barroso and Almunia rejected calls for the pact
to be changed, saying any such move risked undermining confidence in
the EU's common currency, the euro.
According to the plan outlined on Wednesday, governments are
encouraged to improve their countries' competitiveness by lowering
labour taxes and boost private consumption through temporary cuts in
value added tax (VAT).
This follows a move by the British government, which on Monday
announced that it would cut the country's VAT on consumer goods from
17.5 per cent to 15 per cent until the end of 2009, as part of its
own 20-billion-pound (30-billion-dollar) fiscal stimulus package.
However, the EU's two largest economies - Germany and France -
have already indicated that they will not follow the British example.
Meanwhile, the EIB is to mobilize 30 billion euros in loans for
small- and medium-sized companies and the commission is to spend 5
billion euros on linking national energy grids and promoting
broadband communication networks.
The EIB will also provide 4 billion euros in cheap loans to help
Europe's struggling carmakers produce cars that do less damage to the
environment. The sum is only a tenth of what the European Automobile
Manufacturers' Association had been asking for.
Governments, for their part, should focus their investments on new
infrastructure, on improving energy efficiency and on reducing
pollution.
The plan does not create a common EU recovery fund, meaning any
money made available by member states will be spent domestically.
And while Germany has already said it will do its share by
mobilizing 32 billion euros, or 1.2 per cent of its GDP, it remains
unclear how some of the EU's less well-off nations will benefit.
Latvia and Hungary, for instance, have both had to resort to
outside help in dealing with the global credit crunch.
The plan now has to be approved by EU leaders meeting for a summit
in Brussels on December 11-12.
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