Europe plans €200bn fiscal stimulus package

The European Commission has announced a fiscal stimulus plan that will cost €200bn (£170bn) or 1.5% of Europe\'s GDP.

The initiative, revealed on November 26, follows the ann-ouncement on November 25 of an $800bn US plan to rescue the country’s debt securities market, and can be compared with UK chancellor Alistair Darling’s borrow and spend initiative announced on November 24, which equates to just over 1% of UK GDP.

According to a UK government spokesman, Prime Minister Gordon Brown supports the EC proposal as vindicating the gov- ernment’s decision “to take bold action”.

However, not all EU members states are sold on the idea of borrowing exceeding 3% of GDP – the European Union limit that has now become a flexible benchmark – and there’s some reluctance to follow the UK’s measures which will see its deficit grow to 8% of GDP.

Critics are also concerned about the lack of clarity in the plan, which is vague about how much new money is really on the table, how binding the agreement will be on the 27 member states and how the cost of meeting the 1.2% of GDP target will be shared out.

The EC recovery plan has two main elements. First, it offers what are termed “short term measures to boost demand, save jobs and help restore confidence”. The second element involves “smart investment to yield higher growth and sustainable prosperity in the longer term”.

The plan calls for a targeted fiscal stimulus of around €200bn, or 1.5% of EU GDP, in both national budgets (around €170bn – 1.2% of GDP) and EU and European Investment Bank budgets (around €30bn – 0.3% of GDP).

With amazing originality, EC president José Manuel Barroso said: “Exceptional times call for exceptional measures.”

The EC will ask the European Council to endorse the plan when it meets on December 11-12.