Brussels, 02/12/2008 (Agence Europe) - On Monday 1 December, there was just one topic discussed by eurozone finance ministers - the Eurogroup's approval for the setting in place of a coordinated economic recovery plan. Although monetary policy and automatic stabilisers can help, the economic situation will not improve without an active budgetary policy, ministers agreed, while deferring any evaluation of measures that are already being taken or that will be taken. One of the measures - reduction of VAT rates - was at any rate ruled out by all countries of the eurozone. Although the general direction of the Commission's proposal was accepted by most delegations, the debate mainly covered ways to evaluate national measures and take into account the specific situations prevailing in each member state. The count will be done afterwards, in the hope that it comes close to 1.5% of GDP (€200 billion) as the Commission proposed (EUROPE 9791).
Effect of economic stabilisers. Speaking after the meeting, Eurogroup President Jean-Claude Juncker explained: “Monetary policy cannot have sufficient impact to respond to the crisis”. He stressed the spontaneous regulatory effect of member states' budgets. “All member states will allow automatic stabilisers to come into plan in 2008 and 2009”, which is not a neutral response as the impact of these stabilisers is exactly double what it could be in the United States, he told the press. Such mechanisms ease the economic situation, as states' budgets spontaneously bear a share of the difficulties. Thus, in difficult periods and pending recovery, tax receipts will diminish but spending, especially social spending, will continue to be borne by member states, which will leave their budgets tending towards deficit. However, in addition to monetary policy and the effect of automatic stabilisers, “a strong reaction due to economic policy is needed”, Mr Juncker stressed.
Overall support for Commission's plan. “We all felt that, generally speaking, the Commission's proposals are along the right lines and that tracks drawn out by the Commission are astute”, Mr Juncker said, specifying that all national plans comply with and will abide by the framework suggested by the Commission. “Concerning the qualitative elements of the approach common to us, we shall place emphasis on public investment of which some, as long as it is ready, can be advanced”, he added. At the quantitative level, things are not so clear. Mr Juncker felt it was still too early to evaluate measures adopted or announced by member states. “We agreed to wait until all national plans are presented before making the final evaluation (…) and we shall see in 2009 what the impact of the different national measures taken will be”, he explained. He went on to add: “What is important is that everyone must agree with the general direction of the Commission's proposals (…) with the necessity of having a strong economic policy reaction (…), allowing automatic stabilisers to come into play (…) and placing emphasis on investment”. He then said: “Once we have knowledge of all the national plans, we shall see what figures exactly we have reached, given that it is more important to coordinate national plans so that their goals do not differ rather than come to a theoretical and forward-looking agreement on an exact figure. We shall see what happens at the autopsy”. Mr Almunia was of the view that the final figure will be very close to that evoked by the Commission.
Follow-up of national measures and Stability and Growth Pact. Measures taken in the context of budgetary stimulus should be temporary, targeted, taken at the right time and coordinated, stressed Joaquin Almunia, Commissioner for Economic and Monetary Affairs, who recalled how this will be followed up. Member states should thus present (by the end of December 2008) updated stability and convergence programmes containing measures for recovery already set in place, as well as those contemplated for later use to counter the deterioration in public finance. The Commission will analyse these elements and develop updated economic forecasts on 19 January. It will then decide whether it is necessary to open excessive deficit procedure against states that do not comply with the 3% limit, unless this difference remains close to the threshold (“a few decimals, and not many decimals”, according to Mr Almunia). Some speak of a temporary threshold of 3.5% (“one year no more”). The case of countries that may have excessive deficit procedure opened against them will most likely be examined during the Eurogroup meeting and the Ecofin Council in March 2009. “No minister has asked for the pact to be suspended or buried” and all have “stressed the need to apply the pact with all its elements of flexibility as reformed in 2005”, Mr Juncker thrust home.
No reduction in VAT in eurozone. No Eurogroup member state wished to set out along the road towards a reduction in the normal VAT rate. “Member states of the eurozone will not be cutting their VAT rates”, Mr Juncker said. Such an approach is up to each member state but its impact depends so much on factors of elasticity that one cannot be certain of the result on prices and hence on consumption. (A.B./transl.jl)