Under draft proposals seen by Reuters, the European Union's executive arm explicitly cites the scope for further interest rate cuts, and suggests a variety of possible stimulus policies ranging from tax cuts to increased social benefits.

The total volume of the package will be decided at a final Commission meeting on Wednesday, with Germany and France pushing for a target of one per cent of the bloc's total gross domestic product (GDP), or some 130 billion euros (S$252 billion).

That figure compares with the US Federal Reserve's plan announced on Tuesday to support home and other lending with a US$200 billion consumer finance facility and pledges to buy debt and mortgage securities backed by government-sponsored entities.

The EU move is a bid to bridge gaps between those EU states already embarking on national growth plans - such as Britain, Germany and France - and others including some east European capitals who protest they cannot afford such fiscal largesse.

'This budgetary stimulus should be foreseen for a maximum period of two years (2009-2010), following which member states' budgets should commit to reverse the budgetary deterioration,' said the draft.

Any significant stimulus, along with the fall in revenue and rise in spending that accompany an economic slowdown, is likely to lift deficits in France, Britain, Ireland, Italy, Greece and Portugal to well beyond the EU ceiling of 3 per cent of GDP.

The draft suggested temporarily increased benefits to low-income households and the unemployed, or a temporary lengthening of benefit pay-outs, as possible measures.

It further said a temporary, across-the-board Value Added Tax (VAT) cut could also boost consumption, but did not propose a coordinated cut for the whole 27-nation bloc - something that Berlin has signalled it could not support.

While the bulk of the stimulus must ultimately come from EU member states themselves - who are set to debate the package at a Dec 11-12 summit - the Commission will also redirect and accelerate central EU funds to needy areas.

The hard-pressed auto sector can expect increased funding to help it producer more environmentally-friendly cars in line with the EU's goal of tackling climate change, although such support will likely fall way short of industry calls for up to 40 billion euros of soft loans. -- REUTERS