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EU moves towards agreement on growth package

Germany has said the Commission, the EU’s executive, plans to request that member states contribute about 1% of the bloc’s gross domestic product to the package to help the 27-nation EU fight recession sparked by the financial crisis. German Chancellor Angela Merkel said in Frankfurt she was “very optimistic” member states would agree on joint action so as to bolster the European job market.

The steps measures could be implemented nationally, she said, adding that it might make sense to have the European Investment Bank provide loans to fund the plans. The growth package, which is due to be unveiled next Wednesday, won the backing of Spain, whose Prime Minister Jose Luis Rodriguez Zapatero said his country was ready to commit 1% of GDP to a fiscal stimulus program. “We are going to unite efforts, combine plans and, I hope, give a strong and combined response,” Zapatero said.

The German Finance Ministry said it welcomed the planned measures, but that it saw the package as a coordinated summary of national stimulus programs, rather than a wide-reaching supplement to which member states had to contribute new funds. “It can’t be an on-top program,” a spokesman for the ministry said, but added he did not rule out that the package could include some new Europe-wide elements.

Czech Finance Minister Miroslav Kalousek whose country has been less affected by the economic crisis, was not enthusiastic. For the time being I do not have detailed information about this (EU) proposal. But I am not sympathetic to it,” the daily Hospodarske Noviny quoted Kalousek as saying.


European Commission President Jose Manuel Barroso said any criticism of the plan was premature as it was not yet finalized and no agreement had been reached on the size of the stimulus. The program will be “timely, targeted and temporary,” he said. “What we need is a coordinated European Union response, big enough, bold enough to work in the short term, yet strategic and sustainable enough to turn the crisis into an opportunity in the longer term,” he told reporters in Brussels. Barroso was scheduled to discuss the program late on Wednesday with French President Nicolas Sarkozy.

Austria’s central bank governor, Ewald Nowotny, told the Financial Times newspaper that spending 1% of GDP to combat the euro zone’s first recession was sensible and Germany could even commit 2% of GDP for the purpose. Merkel mooted the idea of investing to improve high voltage power grids in Europe, or to bolster broadband technology.

The 15-nation single currency area plunged into recession in the third quarter, and European carmakers have been cutting jobs and stepping up calls for up to €40 billion of aid. A German government paper obtained by Reuters showed the measures foresee the European Investment Bank (EIB) contributing €2 billion for the bloc’s struggling car industry. The EU proposes a public-private partnership for the auto sector to boost green technologies and supply-side measures such as lower taxes on environmentally friendly cars, it said.

The German government paper said Berlin welcomed some of the EU executive’s proposals, including plans to make cash from the European Social Fund available more quickly to boost jobs. But Berlin said it rejected proposals for member states to cut taxes in a bid to boost growth and ease the burden of the downturn on citizens with low incomes. “The Commission’s request for member states to lower tax on low incomes and to reduce VAT rates on work-intensive services cannot be supported from the German side,” the paper said.

The EU package includes an increase in the capital of the EIB to allow support of small and medium-sized companies beyond the €30 billion now planned. (Reuters)