- The Washington Times - Wednesday, November 26, 2008

BRUSSELS, Belgium (AP) – The European Commission urged EU governments Wednesday to jointly combat the economic slowdown with 200 billion euros ($256.22 billion) in spending and tax cuts to boost growth and consumer and business confidence.

If fully enacted, its two-year “European Economic Recovery Plan” would see the 27 EU governments spend 1.5 percent of the bloc’s gross domestic product to halt the slowdown that has already pushed some European nations into recession.

Of the 200 billion euros spending plan, 170 billion euros – 1.2 percent of the EU’s GDP – would come from national governments and run the gamut from outright tax breaks to credit guarantees for ailing industries, to soft loans to exploit new green technologies.

The remainder would be financed from the EU budget and the European Investment Bank. The latter would boost lending for regional development projects by 15 billion euros.

“Exceptional times call for exceptional measures,” said European Commission President Jose Manuel Barroso.

Germany, Europe’s largest economy, welcomed the plan as “appropriate.”

Government spokesman Thomas Steg said Berlin will insist that as public spending rises the European Commission must cut governments some slack over the sound-spending rules that underpin the stability of the euro.

Mr. Barroso promised the European Commission would do so in the years ahead.

The EU leaders are to discuss the proposals at a Dec. 11-12 summit in Brussels.

The spending plan’s price tag is much larger than the euro130 billion the EU executive had been discussing in recent weeks.

Mr. Barroso told reporters it was “realistic,” adding that national plans unveiled to date – notably Germany’s euro32 billion outlay – were too modest.

“The situation will require from member states a much bigger offer than they hope to get away with,” Mr. Barroso told a news conference. “We may even need more” than 200 billion euros to keep the EU economy from derailing.

The EU plan comes a day after the Paris-based Organization for Economic Cooperation and Development said the financial crisis will likely push the world’s developed countries into their worst recession since the early 1980s.

The Paris-based group said economic output will likely shrink by 0.4 percent in 2009 for the 30 market democracies that make up its membership, against the 1.4 percent growth prediction for 2008.

The European Commission echoed the OECD’s conclusion that now is the time for significant fiscal measures – including tax cuts – provided they were “timely, targeted, temporary and coordinated.”

On Nov. 14, the zone of 15 EU nations that share the euro as their currency officially entered a recession, recording a 0.2 percent drop in economic output for two successive quarters.

The proposed recovery plan made no mention of a bailout for European carmakers who have asked for 40 billion euros ($51.2 billion) in EU aid.

It included only 5 billion euros (S$6.4 billion) for a “European green cars initiative.” Mr. Barroso said plans for a $25 billion federal bailout for US car makers threaten to violate global trade rules.

He said national spending plans must focus on green and clean energy technologies, research and innovation, including in the car and construction industries.

Differences over fiscal measures have emerged among governments. Germany and France reject cuts in their value-added (sales) taxes – for fear of losing revenue – while Britain is cutting its to 15 percent from 17.5 percent to encourage British consumers to keep spending money.

Mr. Barroso said it was inevitable to see such differences given the varying economic outlooks across the EU.

In 2009, Slovakia, Bulgaria, Romania and Poland are expected to book economic growth of up to 4 percent or more, whereas negative growth of as much as 2.7 percent will be seen in Latvia, Britain, Ireland, Spain and Estonia. France, Italy and Germany will likely be at a standstill next year, according to EU projections.

The EU economic stimulus report said:

– The EU will be “flexible” in judging public spending. It now limits budget deficits in euro zone nations to 3 percent of GDP. That ceiling stays but the European Commission will impose less strict deadlines.

– Governments must consider extending jobless benefits, cutting VAT and labor taxes and provide guarantees for loan subsidies to offset higher risk premiums.

– Economic reforms must be enacted across the EU to make European economies more competitive through retraining programs, slashing red tape and financial aid for research and development projects.

– The economic downturn and credit squeeze must not scare Europe away from pushing ahead with ambitious climate change targets. It said the push to slash greenhouse gas emissions and promoting clean and renewable energy offers new economic opportunities creates jobs.

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