EU Moves to Deal with Recession

Despite reservations about a host of modalities, the rescue strategy proposes a staggering 200 billion-Euro ($264b) ‘fiscal stimulus’ package. So far so good, but the summit has left unanswered the onus of dividing among themselves the economic burden of achieving the targets.

The two-day meeting, also attended by heads of state and government, is billed as one of the most important summits in years. It comes after an inconclusive G-20 summit in Washington under President George Bush, and the failure of the developed and developing nations to agree on a joint mechanism to tackle the creeping-in economic recession.

Apart from economic restructuring plans, the Brussels summit also focused on climate change and energy security. And this is where the EU nations have been successful in agreeing on a consensus package. By agreeing to cut greenhouse gas emissions by 20 per cent by 2020, Europe has thrown the ball into the US court as it struggles to keep afloat its industrial powerbase.

The summit in Brussels also signals a shift away from America’s traditional economic dominance. There was unanimity among the EU leaders that the recession knocking at their door was real, serious and immediate.

What makes the EU conclave interesting is the fact that despite reservations from Germany about large cash injections, and scolding Britain for “tossing around billions”, in the end they all agreed to increase public spending in an attempt to ease the impact of the economic downturn. Europe expects the ‘fiscal stimulus’ to go a long way in boosting employment and growth in the continent.

Yet at the same time, Europe’s powerhouses such as Germany and Britain greeted with scepticism the news that US Senate has refused to back a rescue plan for the auto sector, raising the spectre of collapse in the key industrial sector worldwide.

All said and done, economic experts see these measures as a stopgap arrangement, and hope that serious discussions will begin only when Barack Obama takes over the reins of the world’s biggest economy. Another grand summit that will include Obama is envisioned in the first quarter of next year, and is likely to be hosted by Britain.

With the International Monetary Fund and the Organisation for Economic Cooperation and Development predicting the European economy to contract next year, the stimulus plan brings with it many of the right policy recommendations. The key test, however, will be how to convince the 27-nation economic bloc to support and implement the plan in word and deed.