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EU members ready to embrace public spending plan

The ministers were drafting a declaration calling an economic recovery proposal by the European Commission a good basis to stimulate the economy of the 27-country EU, which fell into recession by shrinking 0.2 percent in the third quarter.

They welcomed public spending ‘in the magnitude of 1.5 percent’ of the EU gross domestic product but ruled out a cut in sales taxes.

On Monday night the smaller group of finance ministers from the 15 nations that share the euro saw the spending plan as a step ‘in the right direction,’ said Luxembourg Prime Minister Jean-Claude Juncker, who chaired the talks. But the idea of lowering the minimum rate for value added tax to below 15 percent found no broad support, he added.

Britain _ which does not use the euro _ has cut its value-added tax charged at the point of sale from 17.5 percent to 15 percent until the end of 2009. But Germany and France opposed that as it could shrink state revenues and in their view do little to encouraging shoppers to spend.

‘You must explain to me whether they would really buy a DVD player for Ð39.60 instead of Ð39.90,’ German Finance Minister Peer Steinbrueck told reporters.

EU governments agreed Tuesday to more than double a crisis fund to help EU member states in financial trouble, from Ð12 billion to Ð25 billion. They said the international economic situation justified a higher limit for loans to the 11 of the EU’s 27 nations that don’t use the euro.

They dipped into the fund last month to give Hungary a Ð6.5 billion loan when the financial crisis saw Hungary’s currency to drop sharply and share prices plunge in value.

Later Tuesday, the 27 EU finance ministers were expected to recommend their governments provide scores of billions of euros (dollars) in 2009 and 2010 in ‘targeted’ public spending, credit guarantees, loan subsidies and financial aid for clean and green industries. The statement listed ‘temporary reductions’ in value-added taxes as an option in the draft statement, a copy of which was obtained by The Associated Press.

A final decision on the spending package lies with the EU leaders who meet in Brussels Dec. 11-12.

If fully implemented, the ‘European Economic Recovery Plan’ involves spending Ð200 billion in 2009 and 2010. Of that, Ð170 billion ($214 billion) _ or 1.2 percent of the EU’s GDP _ would come from national governments, the remainder from the EU budget and the European Investment Bank.

The EU’s long-term financing arm would see its lending for regional development projects rise by Ð15.6 billion to Ð60 billion each in 2009 and 2010.

Of that increase, Ð4 billion would aid to help European car makers produce cleaner cars.

In recent weeks, Germany, Britain and France have already laid out spending plans of Ð31 billion, Ð23.8 billion and Ð19 billion respectively. Their outlays would count for a large share of the EU total of Ð200 billion.

The draft statement of the finance ministers sees the EU economy contracting, adding ‘consumer and business confidence are very low’ and noting financial markets _ especially the flow of credit between banks _ ‘are still not functioning properly.’

The European Commission plans to publish new forecasts for the EU economy on Jan. 19.

The EU’s economy commissioner, Joaquin Almunia, is to ask governments for updated details on spending in 2009 to see to what extent they will break EU sound finances rules that limit yearly budget deficits to under 3 percent of GDP.

France and Ireland have already acknowledged their deficits _ the difference between what a government spends and takes in _ will break the limit next year.