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28th Mar 2024

Brussels plans €130 billion stimulus package

  • The package would see each member state commit one percent of GDP (Photo: EUobserver)

A massive €130 billion prime-the-pump operation to stimulate the European economy is currently being planned by the European Commission.

First revealed by German weekly Der Spiegel's online edition, the EU executive is constructing a package that would see each of the 27 member states commit one percent of their GDP to fiscal stimulus measures to pull the bloc out of its downturn and stave off the greater threat of deflation.

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The plan would see the commission itself commit some money, although the EU executive itself has limited funds, and so member states themselves would have to provide the bulk of the cash, according to a source close to the commission discussions who spoke to the German magazine.

A German economy ministry spokeswoman on Wednesday (19 November) confirmed to Le Monde that such a plan was in the works.

"That represents one percent of gross domestic product for each member state," the unnamed official told the French paper.

The commission hopes to finish drafting the plan by next Wednesday (26 November), with European leaders considering the package at the final 2008 summit on 11 December.

The move may run into resistance from some member states, whose public finances have little room to manoeuvre without borrowing the money for such an initiative, particularly at a time when the economic crisis is putting pressure on government revenues.

Until now, Germany has strongly resisted pan-European measures, although it has already adopted domestic stimulus measures amounting to €32 billion over two years - equivalent to just over one percent of GDP. It is unclear whether this already announced sum would be included in the commission's plan or be considered in addition to the EU package.

A stimulus package of such size would be a major turnaround for most European leaders, who from long ago abandoned support for such Keynesian financial strategies on both the left and right side of the political spectrum.

However, the downturn has been of so considerable a scale and speed - the eurozone officially entered its first-ever recession last Friday - that liberal hostility to government intervention is crumbling across the board.

The ideas of British economist John Maynard Keynes - who advocated government interventionism - provided the theoretical backbone of western European countries' post-war economic strategies, but were abandoned to a greater or lesser degree by the 1980s.

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