European Union finance ministers yesterday threw their weight behind a public spending plan that would inject 200bn over two years to help fight recession in the bloc's economy but stopped short of endorsing a deep cut in value-added tax.
European Union finance ministers yesterday threw their weight behind a public spending plan that would inject 200bn over two years to help fight recession in the bloc's economy but stopped short of endorsing a deep cut in value-added tax.
The ministers commended a recovery plan drafted by the European Commission as an effective way to stimulate the economy of the 27-country EU, which retrenched by 0.2% in the second and third quarters.
A final decision on the spending package will be made by EU leaders who meet in Brussels on December 11-12.
The plan foresees public spending "in the magnitude of 1.5%" of the EU gross domestic product. But the finance ministers rejected allowing cuts in sales taxes to below the minimum level of 15%.
Britain has cut its value-added tax charged at the point of sale from 17.5% to 15% until the end of 2009. But Germany and France oppose such a measure, fearing it will shrink state revenues and do little to encourage shoppers to spend.
"You must explain to me whether they would really buy a DVD player for 39.60 instead of 39.90," German finance minister Peer Steinbrueck said.
EU governments agreed to more than double a crisis fund to help EU member states in financial trouble, from 12bn to 25bn. They said the international economic situation justified a higher limit for loans to the 11 of the EU's 27 nations that do not use the euro.
The European Economic Recovery Programme that the finance ministers backed is to provide for scores of billions of euros in 2009 and 2010 in targeted public spending, credit guarantees, loan subsidies and financial aid for clean and green industries.
If fully implemented, it will lead to spending 200bn in 2009 and 2010. Of that, 170bn - or 1.2% of the EU's GDP - would come from national governments, the remainder from the EU budget and the European Investment Bank.
The EU's long-term financing arm would see its lending for regional development projects rise by 15.6bn to 60bn each in 2009 and 2010.
Of that increase, 4bn would help European car manufacturers produce cleaner cars.
In recent weeks, Germany, Britain and France have already laid out spending plans of 31bn, 23.8bn and 19bn respectively. Their outlays would count for a large share of the EU total of 200bn.
Meanwhile, EU competition commissioner Neelie Kroes, facing pressure from member states to approve state aid to ailing banks, said the EU executive would approve new rules shortly.
Kroes said after meeting EU finance ministers that the Commission expected banks that received state aid to give commitments to the funds to increase lending.
In economic news, European producer prices dropped the most in 22 years in October, a sign that inflation will slow further and give the European Central Bank leeway to extend its interest-rate cuts to tackle the recession.
Factory prices fell 0.8% from September, the biggest fall since October 1986, the European Union statistics office in Luxembourg said.
The drop, which was due to a slump in oil prices, reduced the European annual producer-price inflation rate to 6.3% from 7.9%.
