European Union finance ministers will agree next week to phase out aid measures for banks, industries and the labor market that were introduced to fight the economic crisis, a draft statement showed.
“If left in place too long these measures could hinder adjustment processes within and across sectors by distorting price and cost signals and by introducing wrong incentives,” said the draft copy of the statement, obtained by Reuters, which is to be issued after next week's meeting.
The 27 EU finance ministers meet on March 16 to discuss Greece's financial problems and exit strategies from fiscal stimulus measures worth hundreds of billions of euros that were agreed in late 2008 to battle the crisis.
Economic analysts and politicians say EU governments need to strike a fine balance -- keeping the aid measures in place long enough to avoid killing nascent economic revival but ending them sufficiently early to keep budget deficits under control.
The ministers' draft statement, which was discussed on Tuesday by EU countries' ambassadors, said support measures for various industrial sectors such as the car industry should be the first to be extinguished as economic recovery gains pace.
“These should be phased out as quickly as possible given their relatively large budgetary costs and the risks that the continuation of supply side measures may hamper efficient resource allocation and hence distort competition and the functioning of the internal market,” the draft said.
Support for some long-term objectives, such as green technologies and research and innovation, will be permitted if they are compatible with the EU's state aid rules, it said.
From mid-2010, governments should start scrapping measures to bolster labor markets that are intended to help companies avoid dismissing workers.
“These should be gradually withdrawn when the recovery is secured,” the draft said.
“On the basis of the most recent Commission forecasts on growth this could begin with a benchmark of mid-2010 for the EU as a whole, taking into account the historic lag before employment reacts positively to an upturn in economic activity.”
The European Commission forecast last month that the EU's economy will expand by 0.7% this year after contracting by 4.1% in 2009. Unemployment is expected to creep up after reaching 9.9% in January.
Measures to encourage banks to give credit to companies may be the last to go.
“Withdrawal of temporary schemes to ease financing constraints should depend on the capacity of financial institutions to supply adequate credit to the credit-worthy corporate sector,” the draft said.
“Continued careful monitoring is required to prevent the recovery from being hampered by undue credit supply constraints.” (Reuters)