European leaders will on Thursday resist calls to inject new cash into their economies, instead proposing that April’s G20 talks give the International Monetary Fund more firepower to tackle the global recession.
The United States -- whose central bank on Wednesday vowed to pump an extra $1 trillion into the US economy to battle recession -- has led calls for Europe to top up current stimulus packages that have so far failed to reverse the downturn.
The two-day Brussels summit is aimed at fine-tuning the European Union stance for a G20 meeting two weeks later where the world will expect major powers to get to grips with an economic crisis that has strained rich and poor states alike.
But the EU is still struggling to agree details of existing plans to revive the economy through infrastructure projects, and continental European capitals for now are putting faith in generous welfare states to ride out the worst of the storm.
Speaking in parliament before heading to the summit, Chancellor Angela Merkel said Germany would not bow to pressure from within the EU and abroad to spend more.
“We are spending more than others and I think that’s right because as an export nation, we have an interest in ensuring the global economy gets back on its feet,” Merkel said.
She added that she would oppose any Europe-wide stimulus projects which did not focus on the immediate needs of the economy -- a reference to an existing plan to spend €5 billion ($6.75 billion) of EU money on infrastructure projects.
President Nicolas Sarkozy will come to the talks as over one million protesters are expected to take to the streets of France to denounce his handling of an economic crisis seen pushing Europe’s jobless rate towards 10% by the end of the year.
While more sympathetic to the US position, Britain will go to the EU headquarters stressing the need for tighter financial supervision -- a tone echoed by France, Germany and others who insist the credit crunch was ‘Made in the USA.’
A likely outcome is a joint call by EU leaders for a doubling of IMF funds to $500 billion, a pledge for a European contribution of up to $100 billion, and a demand for IMF reform designed to bring countries such as China more on board.
“I am very optimistic that heads of state will (call to) increase the amount,” said the Czech ambassador to the EU, Milena Vicenova, whose country holds the rotating presidency of the 27-nation bloc and will chair the summit.
Summit drafts obtained by Reuters this week showed that leaders would show readiness to bail out troubled EU nations -- notably the poorer ex-communist newcomers -- on a case-by-case basis, and would look at topping up a €25 billion emergency fund already used to help Hungary and Latvia.
The drafts studiously omit reference to new fiscal stimulus, insisting the onus be on implementing existing recovery schemes based on everything from tax cuts to infrastructure spending, and allowing welfare payments to kick in.
The EU puts the total size of its effort to combat recession at anything between 3.3 and 4% of its output, including welfare spending -- still short of President Barack Obama’s plan to devote 5.5% of US output to recovery efforts.
The EU unity on stimulus policy masks tensions that could yet bubble over at the summit, among them mutual suspicions over efforts to prop up national industrial champions at the expense of foreign rivals -- as witnessed by the widespread concern last month at French moves to support its carmakers.
A spokesman for Prime Minister Gordon Brown said he would call for tighter supervision of hedge funds, derivatives and executive pay -- all subjects unlikely to ruffle feathers before the G20 talks he will host in London on April 2. (Reuters)