Brussels, 26/11/2008 (Agence Europe) - On Wednesday 26 November, the European Commission adopted a far-reaching and ambitious recovery plan for growth and jobs, according to Commission President José Manuel Barroso. As announced (see EUROPE 9790), the plan has two sections: a budgetary impulse that is appropriate, temporary, targeted and coordinated, and investment in the Lisbon Strategy's sectors for the future. It adopts an approach that combines national and Community levers, which is a “tool box” but which goes “far beyond”, Barroso told press, stating that acting together does not need to mean uniformity. The measures that member states were currently taking or would take in the future would not be identical, but had to be coordinated, he said, only thus would they increase demand everywhere.
Budgetary stimulus. The Commission says the budgetary section of the plan should be worth €200 billion (1.5% of EU GDP), shared €170 billion (1.2%) for member states' national budgets and €30 billion (0.5% for the European Investment Bank (EIB) and the European budget (see below). “Economic prospects are deteriorating, the risks raised in our forecasts at the start of November are materialising and the financial crisis is not yet over,” said Joaquin Almunia, in defence of this budgetary impulse, which requires special monitoring, each country having more or less room for manoeuvre after years of good growth. Member states will, by the end of December, have to submit updated stability or convergence programmes containing the recovery measures put in place and those planned to counter the deterioration in public finances. The Commission will then carry out an analysis, in the light of its updated economic forecasts and provide indications on the strategies set out with three objectives: - ensuring the reversibility of measures increasing deficits in the short term; - improving budgetary policy-making in the medium term; - and ensuring long-term sustainability of public finances through reforms curbing the rise in age-related expenditure. The Commission will assess the situation in each member state and submit further proposals (recommendations specific to each country) on 16 December to speed up the structural reforms provided for the in the Lisbon Strategy.
10 priority initiatives. With regard to the action from the four Lisbon Strategy priorities, the Commission proposes to: 1) launch a employment support initiative through the European Social Fund (ESF) and the Globalisation Adjustment Fund (to strengthen active policies on the labour market, redirect support towards the most vulnerable, increase efforts to develop skills and, if necessary, provide Community funding for projects during this period); 2) create demand for labour (possibly through a reduction in employers' social charges to promote the employability of lower skilled workers and the adoption, before the 2009 Spring Summit, of the directive making reduced VAT rates for labour-intensive services permanent); 3) improve access to finance for business (the EIB has significantly increased its loans to SMEs and the Commission is planning a simplification package to speed up its state aid decision-making, a temporary rise to €2.5 million in the capital investment security threshold and, also temporarily, giving member states greater room for manoeuvre in granting companies loans); 4) reduce administrative burdens and promote entrepreneurship (including by removing the requirement on micro-enterprises to prepare annual accounts, facilitating access to public contracts and ensuring that public authorities pay invoices within one month); 5) increase investment to modernise Europe's infrastructure (in particular, trans-European energy interconnections and broadband infrastructure projects, as well as trans-European transport (TEN-T) projects) 6) improve energy efficiency in buildings; 7) promote the rapid take up of “green products” (the Commission will suggest reduced VAT rates for eco-friendly foods and services); 8) increase investment in R&D, innovation and education; 9) develop clean technologies for cars and construction (through public-private partnerships for green cars - with total funding of at least €5 billion - energy efficient buildings - the estimated funding for this partnership is €1 billion - and “factories of the future” - with funding of €1.2 billion); and 10) develop high speed internet for all.
No harmonised solution on indirect taxation. It would be an error to have a single, harmonised solution for a uniform reduction in VAT across the EU, Barroso said. He said it should be left to member states to act as best suited their own situation (as long as VAT reductions were temporary). Governments knew how citizens would react to a reduction in VAT and would be able to judge if this would encourage greater spending, rather than saving. Barroso said that it was not a case of everyone in Europe applying the same economic policy, but of coordinating what was being done in member states.
No plan for car industry. Mr Barroso confirmed that, “we are not proposing a specific plan” for the car industry, “because we believe it will be counterproductive”. The EU will therefore wait and, “see what is announced in other parts of the world, because some things appear to contravene WTO rules”. The plan, on the other hand, includes additional EIB loans for green cars and transversal measures promoting energy saving.
SGP flexibility . The budget stimulus, which is expected to be temporary (no longer a reference to two years maximum) will lead to some member states overshooting the public deficit reference value, confirmed the Commission, which intends to “judiciously” apply the Stability and Growth Pact (SGP). Member states will therefore have to make a commitment to following a line that is appropriate to consolidating medium term objectives (MTO) at the end of this difficult period. Excessive deficit procedures will be closely linked to developments in the economic situation and the Commission's analysis of exceptional circumstances (and based on its own forecasts). In order for a deficit to not be considered excessive, despite having exceeded the 3% threshold, it will have to see whether exceptional circumstances apply (this is the case with negative annual growth in GDP or circumstances that are exceptional and out of the member state's control). In order to benefit from clemency under the SGP, slippage must be close to the 3% reference value (by a few decimals) and should only be temporary (forecasts must demonstrate that the deficit will fall below the reference value when the unusual circumstances or serious recession have receded). If, however, excessive deficit is detected and a procedure opened, the adjustment deadline laid down should also take into account specific circumstances (correction must normally be made at the end of the second or third year following disclosure of excessive deficit but these deadlines can be revised).
Revision of financial perspectives. In 2009, there will be €14.4bn in the EU budget for the economic recovery plan. The Commission intends to mobilise a €5bn envelope in 2009-10 for trans-European energy interconnections and broadband infrastructure projects. The Commission thinks that it is “unlikely” that the Community budget will spend all the amounts planned for 2009-10. Sources close to Dalia Grybaushaité, the European Commissioner for the budget said that it is therefore proposing to fund this €5bn by “redistributing” the money not used in 2009-10, especially in section 2 (where agricultural spending is located). To this end, the Council and Parliament will have to agree of a review of the financial framework (as they have in the past on funding Galileo). The Commission hopes that the European Council will support this proposal on 14 December (definitive adoption of the 2009 budget by the parliament is planned on 18 December). In additional to this €5bn, the recovery plan includes: €6.3bn under social and cohesion policy in the form of advances planned for 2009 but which will be paid out earlier (1.8bn under the European Social Fund and 4.5bn from Structural Funds), 2.1bn in funding from existing credit lines for green cars, more energy efficient buildings and high-speed internet, €500 million from advanced funds for trans-European transport (TEN-T projects) and a further €500 million for other projects. EIB intervention will rise to €15.6bn in 2009 (with an identical amount in 2010).
How will it be received by member states? Mr Barroso explained that, “we have made our proposal, we will now discuss it with member states” (Heads of State and governments will give their verdict during the European Council on 11-12 December). Barroso said that the scale of the plan was realistic and “a stimulus of less than 1% will not be sufficient…is not credible…the final figures will be much closer to our figure than that presented by some member states” (Germany had suggested a plan with funding that went up to €130bn). Germany (which has just adopted its own national plan of €32bn, 1.3% of German GDP) thinks that the Commission plan is appropriate in its main guidelines but is critical of several details. A spokesperson for the government stressed that for the measure it want to fund out of the European budget, the Commission will have to be content with “already existing funds”. The spokesperson also reiterated that Berlin is opposed to any decrease in VAT, even for specific sectors like hotel and catering. He also declared that they should not weaken the SGP. The United Kingdom welcomed the Commission plan and stressed that it replicates measures in its own national recovery plan (£20bn) unveiled on Monday 24 November by the Chancellor of the Exchequer, Alistair Darling. The Spanish movement says that the plan is welcome and said that some of the measures proposed had already been applied in Spain. The movement of José Luis Rodriguez Zapatero is expected on Thursday 27 November, to announce new national measures for stemming the economic slowdown. (A.B./trans/rt/rh)