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EU seen facing unprecedented crisis

  The European Union is facing an unprecedented situation due to the economic crisis and it needs to work at different levels to restore credit flows, European Commission President Jose Manuel Barroso said on Friday.

Barroso said the bloc’s economy was expected to contract by 2% this year, roughly in line with earlier commission estimates and much rosier than a forecast from European Central Bank staff on Thursday, who said the euro zone could shrink by as much as 3.

Barroso said recovery was the executive Commission’s main focus, so it was accelerating spending this year and next to boost the economy.

“As much as 3.3% of our GDP is now being pumped into the economic system,” he told a conference about EU regions and cities in the Czech capital. “This is an equivalent of more than €400 billion, and amounts to potentially massive support for growth and employment across the European Union.”

Barroso said the bloc should work at different levels to get credit flows moving again and stimulate demand, with a particular focus on small and medium sized businesses. “The crisis will take time to fix. It’s a serious crisis, but we can fix it,” he said.

On Thursday the ECB cut interest rates to an all time low and signaled further monetary easing was possible. It also said it was studying non-standard measures to help boost liquidity.

Barroso said he would soon come with proposals on hedge funds and executive pay as a way to restore confidence in markets.

The Commission proposed new measures on Wednesday to make financial markets and institutions safer for investors. (Reuters)