(eca106) BACKGROUND: EU plans to combat economic crisis

Mar 19, 2009, 11:46 GMT

Brussels - European Union leaders are discussing measures to combat the global economic and financial crisis at their two-day summit ending Friday. Here are some of the most important points already decided or up for debate:

- 400-BILLION-EURO (540 BILLION DOLLARS) ECONOMIC RECOVERY PACKAGE: Only half of this sum relates to extra stimuli. The other half involves non-discretionary public spending such as unemployment benefits, which tend to increase during times of crisis.

The member states' combined economic relief programmes are expected to total about 170 billion euros. The European Commission plans to add a further 5 billion euros from the EU budget on a number of projects, mainly in the energy sector. However, Germany and several other countries have voiced opposition to such a plan, disagreeing either on the source of funding or on the proposed list of projects.

- REDUCED VAT RATES: Member states can reduce Value Added Tax for labour-intensive service sectors such as hairdressers or restaurants. France pushed particularly hard for such a measure, but Germany has said it will not follow suit.

- CAR INDUSTRY: EU countries caught up in the crisis have said they want to work together and avoid damaging each others' industry. This means no national rescue efforts will be undertaken without prior consultation among European partners.

- TOUGHER RULES FOR CREDIT RATING AGENCIES: Rating agencies in the European Union will be subjected to mandatory regulation and supervision. The agencies issue ratings on the creditworthiness of issuers of debt obligations such as national governments or companies.

- RULES FOR HEDGE FUNDS: Binding rules are planned for highly speculative hedge funds, which up till now have been only indirectly supervised by the banks who lend them money. The European Commission is to publish its proposals soon.

- SUPERVISION OF BANKS AND INSURANCE COMPANIES: No super-regulatory body is planned for the financial sector in the immediate future. The Commission favours strengthening and expanding current supervision for banks, insurance companies and securities.

- TOXIC ASSETS: EU Commission guidelines call for credit institutes to disclose their impaired assets and write them off according to a coordinated evaluation of their worth before the state steps in with financial assistance, insurance schemes, or buys them up by establishing a 'bad bank'.

- EXECUTIVE PAY: The Commission plans to present its proposals by the summer, covering among other things bonus payments to business and financial sector executives that could lead to excessive risk-taking.

- IMF: Plans call for the International Monetary Fund to be strengthened with financial means to ensure it is in a position to respond more quickly and effectively in helping countries in serious financial difficulties. A figure of 500 billion dollars has been floated.

- TAX HAVENS: The EU wants firm action, including sanctions if necessary, against uncooperative and non-transparent financial centres. Several European countries, among them Austria, Luxembourg and Switzerland, have promised to relax their strict rules on bank secrecy, but may resist further moves.

- BAIL OUT FUND: The EU is ready to increase its emergency fund from 25 billion euros to help member states facing liquidity problems. It is currently negotiating an aid package for Romania. Hungary has already received 6.5 billion euros and Latvia 3.1 billion euros from the fund.