December 12, 2008

European Union pushes $264B economic stimulus

POLITICS - EU leaders today supported a 200 billion Euro ($264.3 billion) economic stimulus package to ward off recession in the region's 27 nations as new statistics highlighted just how deep a slowdown they are facing. 15 European nations have slid into a recession during the past 9 months and more may follow without an economic stimulus.

The EU had agreed unanimously to spend "1.5% of gross domestic product or around 200 billion Euros" to brake shrinking growth that will shed jobs across the region. The final three months of the year aren't looking any better, according to figures the EU statistics agency Eurostat published Friday. The entire 27-nation EU saw a 5% tumble in industrial production compared to last year due to falling demand.

This adds urgency to the recovery plan that EU governments are backing, which gives each nation some leeway in how to fuel growth. They singled out automakers and home builders as most in need of help as shoppers avoid major purchases such as new cars and homes. Countries would be free to choose how they would help out troubled industries, picking between more public spending, tax or social security cuts, aid for specific industries or financial support for cash-strapped households.

A draft EU statement also set limits on what each country could do, saying massive state subsidies had to be short-term and targeted to limit competition problems that would favor one industry or one part of the 27-nation bloc over rivals elsewhere in Europe. "Measures to support demand must aim to produce immediate effects, be of limited duration and be targeted at the sectors most affected and the most important as regards the structure of the economy, e.g. the automotive industry and the construction sector," the draft text said.

The EU stimulus also aims to make more money available to banks to lend on to companies. The EU government-funded European Investment Bank will release 30 billion Euros ($39.65 billion) in small businesses loans during next year and 2010 and for projects that support renewable energy and cleaner transport, including 4 billion Euros ($5.3 billion) in soft loans for the car industry to help them make more hybrid, hydrogen or electric cars.

This won't be very good for the American car industry, which has a significant lack of eco-friendly cars and will see European cars become even more eco-friendly and competitive.

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