Page last updated at 18:29 GMT, Wednesday, 18 March 2009

EU chokes on cost of economic rescue

By Laurence Peter
BBC News, Brussels

Calls to boost an EU-wide economic stimulus package seem likely to be in vain, as France and Germany focus instead on improving financial regulation when a two-day EU summit opens on Thursday.

Nicolas Sarkozy and Angela Merkel
France and Germany are prioritising better financial regulation
The economic crisis - Europe's worst since the 1930s - will naturally dominate the Brussels agenda.

Labour unrest has already put governments under pressure in Greece, Latvia - where the government was forced to quit - France and the UK.

BusinessEurope, a European employers' organisation, expects 4.5 million more European jobs to disappear this year - nearly two million of them in Spain and the UK alone.

The Czech Republic - a novice at chairing EU summits - faces the tough task of rallying the 27 nations behind a joint EU position ahead of the crucial G20 summit in London on 2 April.

Spain 14.08%
Latvia 12.3%
Slovakia 9.8%
Lithuania 9.8%
Cyprus 4.3%
Denmark 4.3%
Austria 4.0%
Netherlands 2.8%
source: Eurostat

The argument about the desirability, or not, of more crisis spending by the wealthier "old" EU countries is proving especially divisive. Anxiety about growing budget deficits looms large.

So, a spokesman for the Czech EU presidency, Jan Sliva, told reporters "there is no talk of extra stimulus, because the recovery plans still have to kick in".

In December, EU leaders agreed on a 200bn-euro (£187bn; $262bn) recovery plan proposed by the European Commission. The fiscal stimulus will amount to 1.5% of EU gross domestic product (GDP).

But a Nobel Prize-winning economist, Paul Krugman, told the EU this week that it really should spend 500bn euros this year and up to a trillion euros in total over the next three years to revive recession-hit economies.

Rescue packages

France's President Nicolas Sarkozy and German Chancellor Angela Merkel have already signalled that they are prioritising better financial regulation. Last week they said they were united on the need for "concrete results" on regulation at the G20 summit.

British jobseekers queue at a job centre
Some experts say the EU should be spending more to counter recession
The Czech presidency says there is a need for EU leaders to get rapid agreement on new laws to regulate credit rating agencies, insurance firms and banks' capital requirements. The pressure is on because the European Parliament goes into recess in a few weeks' time, ahead of European elections in June.

The EU is considering "topping up" a 25bn-euro emergency package for non-eurozone member states whose budgets are particularly unstable, Mr Sliva said. It has already used up about 10bn euros in emergency bail-outs for Hungary and Latvia.

EU leaders will also "fine-tune" a 5bn-euro package of unspent EU budget funds which will now be allocated to green technologies and expanding broadband internet access. Some funding for the controversial Nabucco gas pipeline project, which avoids Russia, is also included in the package.

The EU plans to beef up its contribution to IMF funds, though the leaders may not announce a figure.

Energy urgency

The winter gas crisis that left much of Eastern Europe shivering had a profound impact on the EU, so energy security will also figure prominently at this summit.

Gauge on gas pumping station in Ukraine
After the winter gas crisis, energy security is a major issue
Russia's row with Ukraine over gas prices shut down the flow until an EU-brokered deal succeeded in restoring it.

EU leaders are expected to push for specific national actions to improve Europe's energy infrastructure. The gas crisis highlighted the need to develop the pipeline network with interconnectors and reverse-flow capacity, so that gas can be distributed more efficiently and rapidly.

A related topic is the development of closer ties with "periphery" countries in the former Soviet bloc. The Czech Republic is rallying the EU behind an "Eastern Partnership" with Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.

The Georgia-Russia war last summer and the Ukraine-Russia gas crisis pushed this issue up the EU's agenda.

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