Stimulus Package

"We heard expressions from (EU leaders) like, 'We don't wish to be dictated to by the US or by those who want more fiscal stimulus'," said Czech Prime Minister Mirek Topolanek at an EU summit in Brussels on Thursday, March 19. The EU's economic recovery package is currently worth 3.3 per cent of the bloc's annual GDP, spread over two years.

About half this amount is made up of so-called "automatic stabilizers" -- non-discretionary public spending, such as for unemployment benefits, that naturally increases during a downturn. The package has been described as insufficient by Obama's chief economic advisor, Lawrence Summers, and most recently by US economist and Nobel laureate Paul Krugman.

But their criticisms were rejected by EU leaders. "All member states have adopted important stimulus programmes," said German Chancellor Angela Merkel. "We are getting to a point in which Europe is doing everything it can," said Swedish Prime Minister Fredrik Reinfeldt. While expressing deep concern over the state of the global economy, Reinfeldt said the large budget deficits of many EU member states meant there were "no easy solutions."

Agreement to fund projects

The main concrete result of the first day of the two-day meeting in Brussels was an agreement to use 5 billion euros in community funds to finance energy security and other projects designed to stimulate the economy. The agreement, reached after months of haggling, was clinched after Germany received assurances that the money would have to be spent by the end of 2010.

"I think we have reached a compromise that everyone can subscribe to," Topolanek said, with Barroso noting that entire EU would benefit from the implementation of these investments. A compromise text tabled by the Czech presidency earmarks a total of 2.3 billion euros for gas and electricity infrastructure projects. Some 505 million euros are to be spent on offshore wind energy projects, 1.2 billion for carbon capture and storage programmes, and a further 1 billion for the spread of broadband internet in rural areas.

In addition, the European Commission sought agreement from leaders to double a credit line for struggling non-eurozone members to 50 billion euros, after already doubling it to 25 billion euros in December. "If we feel we want to give a signal of great support we could agree to double the ceiling to 50 billion euros," Barroso said. "I hope that tomorrow this will be approved unanimously."

The existing 25-billion-euro credit line is getting rapidly depleted after Hungary and Latvia drew nearly 10 billion euros from it and others starting with Romania likely to follow soon. "We are roughly in agreement on almost doubling the facility," Luxembourg Prime Minister Jean-Claude Juncker said.

One official said that EU leaders were also "close to an agreement" to contribute $75 billion to a major increase in the International Monetary Fund's resources for lending to an increasing number of struggling countries. Europe wants to double the resources of the IMF to $500 billion while Washington has suggested lifting its lending capacity threefold to $750 billion.

"We didn't yet decide but there was a very strong willingness to increase the resources of IMF," Finnish Prime Minister Matti Vanhanen said. "Tomorrow I hope we can make a decision."

Dire predictions by IMF

The EU meeting in Brussels was designed to forge a common view among all 27 EU member states ahead of a G20 summit in London on April 2, which will be called upon to change the rules of international finance. It came amid dire new forecasts from the International Monetary Fund (IMF), which now expects the global economy to contract by up to 1 per cent in 2009.

The IMF expects a much deeper recession in the 16-member eurozone,with its gross domestic product (GDP) set to shrink by 3.2 per cent this year, compared to a drop of 2.6 per cent in the United States. While not signalling out Europe specifically, the IMF warned that responses to the crisis were still in "an early stage" and that "measures are still needed to restore financial stability.