EU vows new loans to IMF, keeps lid on spending

BRUSSELS - European Union leaders rejected pressure on Thursday to inject more money into their economies to battle recession but backed at least $75 billion in new loans to strengthen the International Monetary Fund.

By (Reuters)

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Published: Fri 20 Mar 2009, 9:27 AM

Last updated: Sun 5 Apr 2015, 10:42 PM

The leaders also broadly supported a proposal by the executive European Commission to double to 50 billion euros ($67.5 billion) an EU crisis fund for eastern European nations not sheltered by being part of the single euro currency zone.

At a summit in Brussels, they defended the stimulus packages they have already launched, despite calls led by Washington for Europe to spend more on them and a pledge by the United States on Wednesday to step up its own recovery effort.

“A competition to outdo each other with promises will not calm the situation,” German Chancellor Angela Merkel told German parliament before the 27-nation bloc’s summit.

Belgian Finance Minister Didier Reynders said a preliminary deal on new loans to the IMF, to help it support countries hit by the global economic downturn, would be put to the EU leaders for final approval on the second and last day of the summit.

“We have agreed to boost the contribution to the IMF to reach the $75 billion,” he told Reuters. “This is quite an amazing amount and is quite enough.”

Britain had said earlier on Thursday it would support new loans of $75-100 billion as part of an international effort to at least double IMF resources to $500 billion in case of what a British official called a “contagion of financial instability”.

In a move to ease concern over the hard-hit economies of central and eastern Europe, European Commission President Jose Manuel Barroso proposed doubling to 50 billion euros an EU fund available to troubled non-euro zone members.

“There seemed to be good support. It was broadly backed,” one diplomat said. A French official said the plan had “strong support” from France, and Sweden confirmed it was in favour.

Seeking unity

The EU wants to present a united position at a meeting of the Group of 20 leading and emerging economies in London on April 2 which is intended to produce a plan to put the world economy back on track.

Some EU leaders fear growing signs of social unrest. French President Nicolas Sarkozy attended the summit on a day of mass protests over his handling of a crisis which could push Europe’s unemployment rate towards 10 percent this year.

But the EU leaders ignored calls to top up their stimulus packages, and the new measures looked slight by comparison with the U.S. Federal Reserve’s pledge on Wednesday to inject an extra $1 trillion into the U.S. economy..

The EU puts the size of its effort to combat recession at anything between 3.3 and 4 percent of its output, including welfare spending. President Barack Obama plans to devote 5.5 percent of U.S. output to recovery efforts.

Many EU leaders favour tightening regulation rather than moves which could pile up huge deficits that exacerbate problems and put strains on the euro single currency, whose bedrock has been years of fiscal austerity.

“You can’t think you can solve everything with taxpayers’ money. Stimulus packages are already in place and taking us through this challenging time. We already have done a lot,” said Swedish Prime Minister Fredrik Reinfeldt.

After months of bickering over what infrastructure projects should benefit from money in a new EU fund, leaders agreed on a list of schemes to benefit from 5 billion euros of EU funds.

Among them, the Nabucco pipeline intended to bypass Russia to bring Caspian gas to Europe won 200 million euros of funding. This follows a price row between Russia and Ukraine which halted gas supplies to Europe in January.

But tensions emerged between Germany and tiny Luxembourg as the finance minister of the wealthy banking centre told Berlin to tone down its rhetoric in a row over fighting tax evasion.

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