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29th Jan 2023

EU leaders to discuss response to economic crisis

EU leaders are meeting in Brussels on Thursday and Friday to discuss the best ways to get out of the economic crisis. But despite some calls to spend more to support the bloc's ailing economies, most of the attention is expected to be focused on the need for better regulation of the financial sector and on "fine-tuning" the existing European economic stimulus package.

The two-day summit comes just as the International Monetary Fund presented the outlines of a gloomy forecast for this year, saying the world economy would shrink by some 0.6 percent, instead of growing 0.5 percent as previously thought.

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In the face of the persisting economic turmoil, France and Germany's leaders sent a letter to the Czech EU presidency and to the president of the European Commission on Tuesday reiterating what they see as an urgent need to reform the financial system.

"The top priority is building up the new global financial architecture. The European Union must affirm a common position and take the lead in this process," French President Nicolas Sarkozy and German Chancellor Angela Merkel wrote.

"The European Union shall propose that all hedge funds and other private pools of capital which may pose a systemic risk to be brought under appropriate registration, regulation and supervision," they added.

The EU summit will also aim to reach a common position among the 27 leaders on that issue ahead of a G20 meeting in London on 2 April.

"We are determined to reach at the London Summit concrete results for further action to strengthen international financial regulation," Ms Merkel and Mr Sarkozy wrote.

In a document the bloc's leaders are to adopt at the end of their two-day meeting, a specific annex has been dedicated to the EU's position for the G20, calling for more regulation of the financial markets and for better international coordination in order to ensure a quicker economic recovery and prevent further crises.

Spend more or regulate more?

France and Germany's letter came after recent calls from Washington that governments around the world should focus more on additional fiscal measures than on regulation as a reaction to the global turbulence.

On Wednesday, European Commission President Jose Manuel Barroso also advised the bloc's 27 members to spend more to stimulate their economies.

"If member states are in a position to do more, they should do more," he told reporters in Brussels.

But most EU states – not least France and Germany – estimate that the bloc is already spending enough.

The EU committed €200 billion in a recovery plan last year (around 1.5 percent of GDP), but it argues that it is in reality to spend about €400 billion (around 3.3 percent of GDP) in 2009 and 2010, including non-discretionary public spending, such as unemployment benefits - or the so-called "automatic stabilisers."

Its energy and broadband projects, worth up to €5 billion, have proven to be the most contentious element of the EU's economic recovery package.

No agreement has been reached so far on how this money should be allocated, and the issue is likely to push aside any debate on possible spending increase.

EU leaders are expected to "fine-tune" the €5 billion package at the summit and reach an agreement on the projects that should be included in it. "We are on the right track," one Czech diplomat said.

The bloc is also considering "topping up" a €25 billion emergency package for non-eurozone member states, notably from central and eastern Europe, hit hard by the crisis.

EU leaders are to tell the bloc's finance ministers and the European Commission to "rapidly examine the possibility of increasing the ceiling for the Union's support facility for balance-of-payments assistance."

Social issues

Part of their dinner on Thursday will also be dedicated to the preparation of a special summit on social affairs in Prague on 7 May.

"The rapid increase of unemployment is central to our concerns," the draft of the EU leaders' final statement reads.

With recent figures confirming the soaring unemployment levels in the EU – the average jobless rate reached 7.6 percent in January this year, Mr Barroso on Wednesday called on the bloc's leaders to "focus their minds on employment issues."

A general strike has been called on Thursday in France to protest against the worsening economic situation, with the previous one seeing more than one million people on the streets in January.

Energy security will also figure among the topics discussed at the summit, with a gas row between Russia and Ukraine earlier this year affecting the deliveries to many EU countries.

"Energy security is a key priority which needs to be enhanced by improving energy efficiency, diversifying energy suppliers, sources and supply routes, and promoting the Union's energy interests vis-à-vis third countries," read the draft conclusions of the summit.

Meanwhile, Irish Prime Minister Brian Cowen is to brief his counterparts on the state of play of Ireland's preparations for a second referendum on the Lisbon Treaty, while the Czech Republic is also to inform the other EU leaders on the state of its own ratification process.

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