EU Vows Recovery Plan, Wider Aid-Loan Limit to Bolster Economy

By Meera Louis

Oct. 29 (Bloomberg) -- The European Union pledged to present an economic-recovery plan and to double the limit on loans to distressed EU countries as the fallout from the global financial turmoil threatens to tip the continent into a recession.

``We are now facing not only a financial crisis but a serious slowdown in our economies that is hitting households, businesses and jobs,'' EU Monetary Affairs Commissioner Joaquin Almunia said today at press conference in Brussels. He plans to propose increasing the ceiling on EU loans to member states in economic difficulties to 25 billion euros ($32 billion) from 12 billion euros to help governments cope with the turmoil.

The EU late yesterday agreed to provide a 6.5 billion-euro loan to Hungary as part of a 20 billion-euro package with the International Monetary Fund and World Bank to shore up that nation's economy, which has been ravaged by the credit turmoil. Almunia urged governments ``to draw fully on the flexibility'' included in EU budget rules as they struggle to stave off a recession.

The European Commission, the EU's executive, will announce an economic plan on Nov. 26 ``with targeted short-term actions'' to combat the fallout from the financial turmoil, Commission President Jose Barroso told the briefing in Brussels.

Amid ``signs the crisis is spreading to emerging markets,'' the EU stands ready to provide ``substantial medium-term financial assistance to other member states'' facing difficulties, Barroso said.

Credit Crisis

Financial institutions worldwide have reported more than $680 billion in losses and writedowns since the U.S. housing slump triggered the credit crisis last year. The euro-area economy contracted 0.2 percent in the second quarter and the commission estimates growth stagnated in the following three months. The commission will issue new economic forecasts Nov. 3.

Finance chiefs from the Group of Seven nations established guidelines on Oct. 10 for combating the credit crunch while falling short of adopting new initiatives. At a summit chaired by French President Nicolas Sarkozy on Oct. 12, EU leaders agreed to guarantee new bank refinancing and use taxpayer money to keep distressed lenders afloat.

To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net.