10th Aug 2022

EU urges world leaders to keep cash flowing for now

  • "The bonus bubble burst tonight," said Swedish Prime Minister Fredrik Reinfeldt (r) (Photo: The Council of the European Union)

European Union leaders have agreed that their message for the G20 meeting next week is that the global economic recovery is still too fragile to begin a roll-back of economic stimulus packages.

However, they believe that the turnaround does suggest that now is the time to begin drafting plans for a withdrawal of government support.

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"The G20 should reaffirm its determination to continue implementing coordinated policy measures in order to develop the basis for sustainable growth and to avoid a repetition of the present financial crisis. Efforts must be maintained until recovery is secured."

The presidents and prime ministers of the EU's 27 member states European Union met in Brussels on Thursday evening for an informal dinner to prepare a common position to take to next week's G20 meeting of the world's leading industrialised and developing countries.

The meeting will take place in Pittsburgh, USA, from 24-25 September and is to assess progress in tackling the worst economic crisis since the 1930s.

The leaders also believe that when stimulus measures are withdrawn, this must be done in a co-ordinated fashion so as not to create competitive imbalances between countries.

The 27 EU chiefs are also ready to proved the International Monetary Fund with an additional €50 billion atop the €75 billion already agreed.

The EU leaders in Pittsburgh also will push for a clampdown on executive pay. Under the European plan, bonuses would be linked to the performance of a financial institution and guaranteed pay-outs should be avoided.

Bonuses would also be restricted to a certain proportion of the individual's pay or the bank's revenues or profits.

After the meeting, Fredrik Reinfeldt, the prime minister of Sweden - which currently chairs the EU's six-month rotating presidency - said the days of an excessive bonus culture were over.

"The bonus bubble burst tonight," he said.

"The banks, some of which owe their very survival to taxpayers money should not consider this crisis only a minor setback and return to business as usual," he warned. "This would be a provocation against the citizens of Europe. Bank profits should not be viewed as private gains and their losses as public responsibility."

He also addressed the question of a so-called exit strategies, saying that they would be the main topic for Pittsburgh.

Some leaders such as the UK's Gordon Brown has emphasised that to pull the plug on stimulus too quickly is to pull the plug on the recovery.

"On the one hand, we see signs of a stabilisation of global growth," Mr Reinfeldt told reporters. "On the other hand, governments are faced with historically large deficits - some 20 percent of the GDP of G7 countries, according to some studies."

"So exit strategies need to be designed now but implemented later," he added. "We need to get public finances back on track."

European Commission President Jose Manuel Barroso said after the summit that the EU's objective for the G20 was "nothing less than a new world economic model for sustainable economic growth."

The leaders will also take a strong message to the G20 ahead of the UN talks on climate change in Copenhagen in December, he said.

"Our message to the rest of the developed world is that we need to talk figures. Our message to the developing world, is that if you are serious, we are there to help - not with a blank cheque, but with a fair proposal."

"No money, no deal," he added brusquely. "But at the same time, if there are no actions, no money," he said, referring to the industrialised north's expectation that poor countries commit to climate mitigation measures as well.

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