Page last updated at 14:57 GMT, Friday, 12 December 2008

Brown hails EU recovery package

Gordon Brown said the EU recovery plan was "the answer"

Gordon Brown has said European leaders have agreed to back an "ambitious and co-ordinated" recovery plan to help their economies through the downturn.

The package, negotiated at an EU summit in Brussels, will see 200bn euros of funding - equivalent to 1.5% of the EU total output, poured into economies.

Mr Brown said measures would include "judicious" tax cuts and acceleration of public spending projects.

The PM's economic policy has come under fire from leading German politicians.

Finance minister Peer Steinbruck called his decision to cut VAT levels and raise borrowing to record levels to support the weakening economy as "crass" and "breathtaking."

Steffen Kampeter, of Chancellor Angela Merkel's CDU party, described Mr Brown's 20bn fiscal stimulus as "a failure of Labour policy".

UK complaint

But Mr Brown said that "whatever comments had been made in the last few days", the agreement over the need for a huge stimulus package showed that the EU was "wholly united".

He described the agreement as "good news for the UK and good news for Europe".

Europe has agreed unanimously and in a united way to take coordinated action that is substantial
Gordon Brown

The measures were a rejection of calls for politicians to "do nothing and let the recession take it course", he added.

The stimulus plan will include tax cuts, reduction in regulation, support for small business and anticipated further reductions in interest rates.

However, it is understood that the package represents the cumulative sum of individual countries' own spending commitments, some of which have already been announced.

The Foreign Office has confirmed that Britain's ambassador in Berlin, Sir Michael Arthur, telephoned the German finance ministry on Thursday to complain about Mr Steinbruck's comments.

A spokesman would not give details of the call other than to say that the ambassador had made it clear that "we fundamentally disagreed with the comments made by Peer Steinbruck".

Mr Brown said there had been a debate across the 27-member union in recent months about the kind of action needed to tackle the downturn and he argued that this agreement over the stimulus plan meant those discussions had "concluded".

While cuts in interest rates were "crucial" to help consumers and businesses, these were not enough to support economic activity and employment at a time when thousands of jobs are being lost.

He said the EU's plan brought it into line with action already taken in the US and with commitments by President-elect Barack Obama to pump billions more into the economy early next year.

"Europe has agreed unanimously and in a united way to take coordinated action that is substantial. That means that Europe and America will be working together to create jobs and growth."

Scepticism

But the deal was greeted with scepticism by both opposition parties.

The Conservatives said Mr Brown was on the back foot following what they described as "unprecedented criticism" of his economic strategy.

Gordon Brown is wrong to pin all his hopes on a misguided VAT cut that will do little to stimulate the economy
Nick Clegg, Lib Dem leader

"The Conservatives have argued that the government have been wrong to increase debt with that temporary VAT giveaway and now I feel the argument we made has been vindicated by the external comments we are getting from the German government."

He added: "I think people are beginning to question whether Gordon Brown is doing enough to keep people in work."

The Lib Dems said the package would only work if it directed help to people most at need.

"After years of trying to ignore the EU, Gordon Brown's recognition that Europe is key to economic recovery is welcome," said the party's leader Nick Clegg.

"However, Gordon Brown is wrong to pin all his hopes on a misguided VAT cut that will do little to stimulate the economy.

"Additional borrowing should be used for things that will make a real difference to people now."

Further details of the 200bn euros (178bn; $264bn) stimulus package will be released later with individual countries likely to prioritise different measures.

But it is likely that individual countries will be able to opt out of measures, such as specific tax cuts, that they don't agree with.

The draft text of the agreement, obtained by Reuters, stated that "Europe will act in a united, strong, rapid and decisive manner to avoid a recessionary spiral and sustain economic activity and employment".

The economies of several EU countries, such as Ireland and Denmark, are already officially shrinking and many others - including the UK - are expected to follow suit within the next few months.

EU leaders hope the package will reduce the length and severity of the downturn, with a focus on helping businesses in key industries to survive during the next 18 months.

A spokesman for the European Commission, the EU's executive branch, described the package as a "very solid result".

European leaders have also agreed to institute new binding EU-wide targets for reducing carbon dioxide emissions.



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