EC Pitches 200Bln Euro Stimulus

BRUSSELS -- The European Commission called on Wednesday for states to back an EU-wide fiscal stimulus package worth 200 billion euros ($260 billion) in an attempt to stave off looming recession in the 27-nation bloc.

The bulk of the package will come from national budgets, and Germany immediately declared that it did not plan to offer new measures above a 32 billion euro national scheme it has already announced, raising doubts over the likely impact of the package.

The commission's move is a bid to bridge differences among European Union countries on how to react to the worst financial crisis since the Great Depression, with some concerned that a dash for growth will inflate national deficits at precisely the wrong time.

Leaders from the bloc will study the plan at a Dec. 11-12 summit, and EC President Jose Manuel Barroso stressed that national governments should regard the scheme as offering them options.

"Our approach is to offer a toolbox," Barroso told a news conference. The package of proposals is worth 1.5 percent of the bloc's gross domestic product, including sales tax cuts and funding for needy sectors such as the auto industry.

Germany, France, Britain and others have already announced their own packages. "Of course they are part of this effort," Barroso said.

He said it was unclear if the scheme, more ambitious than a package worth just 1.0 percent of GDP that had originally been mooted, would be sufficient. Economists voiced skepticism about how it would be managed and how much new money it would entail.

"The real measures that national governments will take are an open question -- it will be different from country to country," said Christoph Weil at Commerzbank.

"From a psychological point of view, it is probably nice to send this signal that there is coordination, convergence of policies," Bank of America's Gilles Moec said. "At the same time, it does not seem to be substantiated."

Germany has already said it will resist any attempt to coordinate cuts in sales or value-added tax across the bloc, while Eastern European states such as Poland do not want to increase their deficits because they need to show budget discipline to adopt the euro currency.

Four-fifths of the package is to come from national budgets and the remainder from EU funding. The commission stressed it did not necessarily expect that each of the 27 countries would wish or be able to provide a stimulus package of as much as 1.2 percent of its GDP.

The commission urged states to cut VAT for labor-intensive services and proposed at least 5 billion euros of extra money to encourage the auto sector to develop more eco-friendly cars.

German Chancellor Angela Merkel warned on Wednesday against EU states engaging in a competition to produce big stimulus packages for their economies.

"We should not get into a race for billions," Merkel told the Bundestag, the lower house of parliament.

Britain's package is also worth more than 1 percent of GDP.

The stimulus, along with the fall in revenue and rise in spending that accompany an economic slowdown, is likely to lift deficits in France, Britain, Ireland, Italy, Greece and Portugal to well beyond the EU ceiling of 3 percent of GDP. EU Economic Affairs Commissioner Joaquin Almunia said temporary breaches would be acceptable as long as states remained close to the upper limit.

"Close means a few decimals and not many decimals, and temporary," he said.