Usually the guardian of budgetary rigour, the European Union's executive arm will urge members to loosen the purse strings and ease some taxes in the face of the worst economic downturn in decades, according to draft proposals. -- PHOTO: REUTERS
BRUSSELS- THE European Commission proposed on Wednesday a sweeping stimulus package worth 200 billion euros (S$391 billion) to jolt Europe's economy out of recession, EU sources said.
The sum, the equivalent of 1.5 per cent of the European Union's gross domestic product, was more than the 130 billion euro minimum which commission chief Jose Manuel Barroso had said previously he was looking for.
Germany's Merkel warns against EU stimulus race
BERLIN - CHANCELLOR Angela Merkel warned EU partners on Wednesday against competing to produce big stimulus packages for their economies and defended her plans for Germany as policies of 'measure, middle ground and reason'.
The European Commission is to urge the bloc's 27 member states later on Wednesday to unite on a two-year programme to revive their struggling economies even if it means busting the region's national deficit target.
Of the 1.5 per cent total, 1.2 per cent would come from EU governments and the rest would come from EU funding, one of the sources said on condition of anonymity.
Draft proposals of package, which did not contain the figures, urged EU members to loosen the purse strings and ease some taxes in the face of the worst economic downturn in decades.
While governments will be given greater leeway on fiscal discipline, they will be expected to return to cutting their public deficits from 2011 at the latest.
Governments should step up spending to focus on initiatives such as handouts to the poor and the unemployed, longer jobless benefits and more money for investments in small and mid-sized firms, according to the draft proposals. The package also includes plans to bring forward spending at the EU level on social programmes and investment in green technology for the car and building sectors.
'Only through a significant stimulus package can Europe counter the expected downward trend in demand, with its negative knock-on effects on investments and employment,' said the draft document, obtained by AFP.
'Therefore, the commission proposes that member states agree a coordinated budgetary stimulus package which should be timely, targeted and temporary, to be implemented immediately,' it said.
The European Commission is to submit the proposals to EU heads of state and government at their December 11-12 summit in Brussels and asked finance ministers to ensure that it is followed up afterwards.
While Brussels has been drafting pan-European recovery plans, a growing number of individual EU countries have pressed ahead with their own national packages.
Austria, Britain, France, Germany, Hungary, Italy, The Netherlands and Spain already have plans of their own in various states of preparation.
German Chancellor Angela Merkel warned against a 'race' between EU states over the size of their economic stimulus measures and said that Berlin - one of the few European states with strong finances - was already doing enough.
'We should not fall into a race of billions (of euros),' Dr Merkel said in a speech to the German parliament.
Earlier this month Berlin unveiled measures aimed at boosting Europe's largest economy that Dr Merkel says are worth 32 billion euros and should constitute Germany's contribution to the EU measures.
Whatever form the EU package ultimately takes it will probably look small by comparison with similar measures underway in other major economies with the incoming US administration working on plans reportedly worth as much as US$700 billion (S$1.05 trillion). -- AFP
