15 Jan, 2009

Europe Attempts To Counteract Recession

The worldwide economic crisis has significantly shaken Europe’s economies. No country can sit back and wait it out. With a series of economic stimulus packages, nations hope they can weather the storm. At their summit in December, the EU countries’ heads of state agreed to launch economic stimulus packages worth 200 billion euros ($263 billion). The EU Commission’s central coffers in Brussels will cover 30 billion euros. But the EU’s 27 member states have to bring together the remaining 170 billion euros. It’s up to the individual countries to determine which programs will be launched by how much in order to counteract the recession. Germany serves as Europe’s engine After months of hesitation, the German government passed its second economic stimulus package worth 50 billion euros earlier this week. It puts Germany in the number one spot of such action. Together with its initial package from December, the German contribution is now 81 billion euros. It is by far the largest package. According to Brussels, rightly so. Germany is the largest economy in the EU, after all, and must act as an engine for other nations. France and Britain pump funds France, which had initially criticized Germany for holding things up, has introduced a stimulus package worth 26 billion euros. These funds will mainly go towards the automobile and construction sectors and ensure some 100,000 jobs. Fraench President Nicolas Sarkozy is considering a second package and has acknowledged that German Chancellor Angela Merkel reacted quicker than the French with a second package. Britain wants to pump 23.7 billion euros into the shrinking economy. A reduced VAT sales tax is in effect until the end of the year so that people consume more. But experts doubt whether this stimulus for private demand is sufficient to boost the economy. Italy and Spain take action Italian Prime Minister Silvio Berlusconi said his economic stimulus package totaled 80 billion euros. But according to expert opinions, Berlusconi mainly added up measures previously agreed on, as well as older ones. New money for the package totaled just six billion euros. It is being given to consumers in the form of consumption checks and discounts for energy costs. Spain passed an economic recovery plan worth 11 billion euros at the end of November. It is supposed to support public investments in the construction industry. The government already last summer put together a first stimulus package worth 38 billion euros, which consisted of tax breaks. The Spanish government had to take action before other European governments because the economic crisis already began shaking its economy at the beginning of last year. Larger nations employ larger packages The smaller EU countries have put together smaller packages according to their economic output. Austria prefers a tax reform to relieve its citizens and companies by three billion euros. Hungary, which has been hard hit by the economic crisis, is using 5.2 billion euros to support small businesses. Sweden decided on a stimulus package worth 2.4 billion euros. Belgium wants to pump two billion euros into its economy. Particularly those countries, which expect a shrinking economy this year, are putting together the largest rescue packages. This group includes Britain, Ireland, Spain, Estonia, France, Italy and Germany. According to EU Commission estimates, Lithuania will be hit hardest by the economic crisis. The economy is expected to shrink by almost three percent there. For Slovakia, Bulgaria, Romania and Poland, the EU expects weakened growth, but no recession. Economic stimulus packages are therefore more moderate in those countries. Romania has announced a stimulus package of 2.5 billion euros for 2009, which the head of the Romanian Central Bank feels actually isn’t even necessary. Packages threaten stability pact Most EU countries will be financing their economic stimulus packages through new national debt. This will put the euro stability pact, which stipulates that member states must avoid excessive government deficits, to a tough test. Germany will violate the limit of three percent of Gross Domestic Product (GDP) slightly this year and significantly in 2010. France, Italy, Spain, Ireland and Greece will no doubt significantly breach the pact’s criteria. In Greece, the deficit could climb to as much as seven percent. Only the Netherlands, Sweden and Finland are likely to maintain budgetary discipline. (credit: dw-world.de)

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