A short, sharp kick in the European economy could be delivered before Christmas. Stimulus proposals by the European Commission this Wednesday will include cuts in value-added tax, lower interest rates and even relaxing EU budget deficit rules – in the interest of boosting consumers’ purchasing power. The size of the programme will be based on Commission President Jose Manuel Barroso’s consultations with governments – for discussion at a summit two weeks before Christmas. The Commission says recession counter-measures will need a mix of revenue and spending instruments.
Analyst Andre Sapir said: “A re-launch through consumer spending has the advantage of acting a lot faster. And I think faster is necessary.” Berlin said last week the package under consideration could be worth one percent of the EU’s GDP, or 130 billion euros. The text on how to react to the historic global financial problems aims to give the EU member states flexibility. According to Sapir: “All the countries of Europe need to re-launch demand, re-launch investment through an increase in deficits. But in those countries with little room for manoeuvre, where the sustainability of the public finances is really in question, at the same time they have to take steps not for the short term but the medium term, measures for instance to do with pension reform.” ‘Most of the economic policy levers, (especially those to) stimulate consumer demand, are in the hands of the member states,’ a draft document said, Brussels adding that the measures should be ‘targeted and temporary’.