The European Union has done enough for now to stimulate its economy, EU Commissioner for Economic and Monetary Affairs Joaquin Almunia said on Sunday, without ruling out further moves.
“We cannot afford to spend the next two decades absorbing the debt” from fiscal stimulus spending, Almunia told a conference in Brussels organized by the German Marshall Fund.
The United States has been calling on the EU countries to step up their economic stimulus efforts so as to support demand for the good of a world recovery. But EU leaders rejected any additional stimulus after they concluded a two-day summit in Brussels on Friday, worried that more government spending will push deficits high beyond the EU limit.
Under the EU rules, member states should keep their deficits below 3% of their gross domestic product (GDP). Almunia said that what the EU has to do now is to implement the stimulus packages already planned, but he did not rule out further moves. “Given the present uncertainty, no one will exclude that further decisions will be required,” he said.
Concerning the Group of 20 (G20) developed and emerging economies summit in London on April 2, Almunia said reform of the global financial system would be the EU’s main priority.
Trans-Atlantic divergence emerged ahead of the G20 summit, with the EU focusing on financial reform while the US on more economic stimulus. The summit, a follow-up to the previous one in Washington last November, is a key global bid to work out of the financial and economic crisis.
Addressing the same conference, World Bank President Robert Zoellick warned on Saturday that 2009 will be a “very dangerous year” for the world economy. “2009 is going to be a very dangerous year,” Zoellick said. “It is indeed serious, and there are issues that go beyond the economic to political and social stability.”
Zoellick said the World Bank expects the world economy to shrink between 1% and 2% this year, worse than the latest forecast released by the International Monetary Fund. “We have not seen a figure like that globally since World War II, which really means since the Great Depression,” he said.
The IMF forecast on Thursday that the world economy will contract between 0.5% and 1% this year. Zoellick warned that injecting money into the economy without fixing the credit systems will inevitability lead to another crash, calling it a “sugar high.”
“The issue now that is most important are the bad assets and recapitalizing the banks, and the reason I use ‘sugar high’ was that it is like if you have to have stimulus, it gives you a boost, but unless you get the credit system working again, it will drop off,” he said.
Zoellick proposed that the G20 should establish a review process to determine whether further stimulus measures are needed. (Xinhua)