Brussels, 09/12/2008 (Agence Europe) - To ensure a strong, united, fast and coordinated response to the threat of recession in Europe, the European Council of 11-12 December will need to endorse the Economic Recovery Plan unveiled by the European Commission on 26 November 2008 (see EUROPE 9791). The member states have already agreed on the plan's broad outlines but doubt remains in some areas, like the exact scale of recovery being aimed at and how EU measures are to be funded (see EUROPE 9795).
The scale of likely budget measures. Taking account of the individual situation of each member state, the European summit's draft conclusions document suggests budget measures to boost the economy equivalent to at least 1.5% of EU GDP but the exact figures remain a moot point. On Tuesday 9 December 2008, Jose Manuel Barroso said he would be insisting on the 1.5% target as the EU had to be seen to be taking things seriously when talking about measures to boost the economy. Barroso told reporters that he was certain the plans announced by the member states were only the first stage. He stressed that nothing had been settled at this stage, even in Germany, which has said it is planning to stick for the moment to its €31 billion two-year plan. Barroso said that 1.5% was not cast in stone but was intended to give an idea of scale. The issue would be discussed again next year, he said, because it was highly likely that things would have to change but at this stage, the Council wanted to demonstrate that it was taking matters seriously and stress the scale of measures required. Barroso said he did not doubt Angela Merkel's determination to contribute to the EU recovery plan, to which Germany would be making a considerable contribution.
Making the most of unused EU funding. Barroso said the Economic Recovery Plan made the most of unused EU funding, expecting around €5 billion to be unused in the 2008 budget, which the Commission could use to fund measures at EU level. He therefore hoped that the European Council would take a more ambitious line than EU finance ministers. At the recent ECOFIN Council, several countries argued for current caps and budget headings to be retained, which would prevent unused money being used in 2009 and 2010. The draft conclusions document only mentions the need for economic recovery decisions to be taken in full respect of the current financial perspectives (budget), leaving options open on the earmarking of €5 billion for big trans-European energy grid connection programmes and broadband infrastructure. The Commission would then draft balanced proposals to ensure all member states benefit from the measures, explained Barroso. Some interconnection projects would be more regional than others, he conceded, but stressed that they would all contribute to the EU dimension in some way.
Guidelines on the common EU approach. Measures have already been taken left, right and centre, but the draft conclusions document notes that greater and more coordinated efforts are required to match the sheer scale of the crisis. Rather than listing possible measures for the member states (which some might see as an undesirable benchmarking), the conclusions include a series of guidelines for state measures. The guidelines establish that measures to boost demand could be targetted at the worst affected industries (cars and construction). Depending on national circumstances, public spending could be increased, fiscal pressure could be carefully reduced, and there could be a reduction in social security costs, support for certain types of company and direct aid for the most vulnerable households. The measures would be accompanied by greater input into Lisbon strategy structural reforms (focussing on higher funding for investment and infrastructure, improving companies' competitiveness, providing greater support to SMEs, promoting job creation and R&D, innovation and education). No mention is made of a temporary cut in standard value added tax rates along the lines of the VAT reduction recently announced by the United Kingdom.
Consolidation of public finance in the long-term. The draft conclusions document notes that the Stability and Growth Pact is still the cornerstone of the EU's budgetary framework, allowing economic recovery measures to be introduced that are coherent with the long-term aim of a sustainable budget, requiring a rapid return to reducing public deficits that have temporarily been allowed to grow.
Call on banks to aid the real economy. Little action is being taken on the area of greatest concern - supporting the real economy - and the European Council is therefore expected to urge banks and other financial institutions to make full use of the aid that has been provided to them to maintain and sustain lending to the real economy and pass central bank interest rate cuts on to borrowers. (A.B./trans.fl)