EU Executive Proposes Massive Economic Stimulus

European Commission will seek backing for a €200 billion plan that would act as "targeted, timely and temporary" catalyst for the European economy.

The European Commission has unveiled plans for a €200 billion economic recovery plan, equivalent to 1.5% of the EU’s total gross domestic product, a move that it described as an “exceptional response” to a “period of exceptional economic crisis.”

European Commission President José Manuel Barroso said that €170 billion for the stimulus package would come from member states national efforts and €30 billion from the budgets of the EU and the European Investment Bank.

He said that the key principles of the recovery plan, which will be presented to EU finance ministers next week and EU leaders on December 11th and 12th, are that measures at national level should be “targeted, timely and temporary.” EU governments would, for example, temporarily be permitted to run deficits above the 3% of GDP limit set down in the Maastricht treaty.

National governments would be free to decide how they contributed to the overall stimulus package. “The measures member states are introducing should not be identical, but they need to be co-ordinated,” he said.

Barroso said that what the commission was proposing was a “tool box” of possible measures. As different countries are in different economic situations, with some recording strong growth while others suffering from shrinking output, “avoiding one-size-fits-all solutions” is critical, he said.

“Everyone is suffering from the crisis and needs treatment – but not everyone needs the same treatment,” he said. National governments’ contribution to the stimulus plan would depend on their individual economic situation, he said.

Speaking alongside Barroso, Joaquín Almunia, the European commissioner for economic and monetary affairs, pointed out that some member states – such as Poland and Slovakia – were still recording positive growth while in Germany, Italy and France growth was at “a standstill.”

“It would be a complete mistake for the commission to propose a harmonised response while there are different points of departure,” Barroso declared.

The plan recommends a number of actions to stimulate demand, including temporary cuts in VAT and a lowering of taxes on labour to help maintain unemployment.

National stimulants

The Commission plan follows the announcement by a number of EU countries of economic stimulus packages intended to ward off the looming recession and lift consumer demand and business confidence out of their current slump. The German government last week announced a package of tax cuts and spending plans worth €50 billion, or around 0.5% of GDP over two years, and the UK has outlined a €23.5 package of tax cuts worth around 1% of its GDP.

Barroso said that national measures needed to be closely co-ordinated in order to stimulate demand as much as possible. “The full effects of the benefits of this package will only be reached as part of co-ordinated European response,” he said.

The bulk of the stimulus package will be deployed in 2009, Barroso said. On top of the €170 billion stimulus provided by member states’ actions, an extra €14.4 billion would come from the EU’s budget. This money would be made available by advancing €6.3 billion payments for structural and cohesion funds and using €5 billion of unspent funds for priority projects, such as trans-European transport and energy networks and ensuring all EU citizens have broadband internet access by 2010.

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