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28th Mar 2024

EU recovery plan lambasted as 'bad PR'

EU finance ministers offered a less than enthusiastic welcome to the European Commission's plans for a €200 billion fiscal stimulus package for Europe's faltering economy, welcoming the idea of a recovery package but rubbishing the plan on offer as nothing but a public relations manoeuvre.

"We discussed and welcome in principle" the commission's proposal, the finance chiefs of the 27-country bloc said in a joint statement, adding: "We agree that a package in the magnitude of 1.5 percent of GDP would provide a significant stimulus to our economies."

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  • EU finance ministers say that the investment of some 1.5 percent of EU's GDP would be appropriate for the bloc's economic recovery (Photo: European Community)

But according to insiders following the meeting on Tuesday (2 December), there was little enthusiasm to commit to the commission's scheme, with many ministers describing the trumpeted €200 billion figure as being "so unclear that it does not mean anything but a bad PR attempt," one diplomat told EUobserver.

During the discussion on the package, ministers pointed out that the EU functions in a different way than the US - where president-elect Barack Obama is expected to announce a stimulus plan worth €550 billion to €800 billion ($700 billlion to around $1 trillion) in the new year.

The ministers said there are "automatic stabilisers" in Europe such as social policy expenditure on unemployment, which already ensure an automatic stimulus in member countries during the low points of the economic cycle.

From this perspective, they argued that the commission's ideas on how national governments should pump in new money to support the most vulnerable citizens do not necessarily correspond with EU reality.

Opposition to VAT cuts

Concerning the concrete measures to be included in the national stimulus proposals, the ministers chose not to make any specific decisions, mainly due to an almost unanimous opposition to VAT cuts, as adopted by Britain.

"Several member states would have liked to openly back some concrete ideas on the preferred instruments for the national recovery packages, but they disagreed to support the idea of VAT cuts," the diplomat said.

He added: "But the UK did not want to see this measure missing on the list, so as to avoid criticism at home for taking this approach. So the conclusion was not to include any preferable measures."

At the same time, France, currently at the helm of the EU's six-month rotating presidency, pressed for the inclusion of lower taxes for some types of services, as originally proposed by the commission, but also failed to see this aspect included in the ministerial conclusions.

While the commission mainly had in mind permanently lower VAT for labour-intensive services, such as hairdressers or shoe and bicycle repairs, Paris has been trying to achieve EU-wide backing for a tax cut on restaurant services.

The final verdict on the shape of the EU's recovery plan is due to be delivered by the bloc's leaders at the Brussels summit of heads of state and government on 12-13 December.

The French finance minister, Christine Lagarde, said that the statement endorsed by the top political leaders might still need to be translated into concrete details by ministers at an extraordinary meeting on 18 December, but her counterparts were not keen on the idea, according to diplomats.

Flexibility on state aid

Regarding the EU's recovery scheme for the financial sector, ministers conceded that despite member states having committed to securing €1.8 trillion in government guarantees and €280 billion in re-capitalisation schemes, "the crisis has not yet abated."

The finance chiefs called on the EU executive to "allow for flexibility in the implementation of state aid commitments of member states" and "adopt guidance on re-capitalisation measures."

"In the face of a financial market crisis of this scale, we cannot proceed in a bureaucratic fashion," German finance minister Peer Steinbrueck said, with his Swedish colleague, Anders Borg, adding: "We need to call off these legions of state aid bureaucrats."

Prior to the Brussels meeting, the commission expressed a number of objections to several national bank rescue schemes, with the French plan a target of particular concern.

But competition commissioner Neelie Kroes defended her approach on Tuesday, suggesting the banks should be asked to make more commitments to lend to the real economy.

The Dutch commissioner also stressed that the various national bail-out plans cannot deliver any unfair advantage for a sector or financial institution in one member state over their competitors beyond their borders.

"Swiftly dial back" interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

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