By Mark Deen and James G. Neuger
Dec. 12 (Bloomberg) -- European Union leaders trimmed a proposed stimulus package to halt the slide into a recession, as Germany warded off calls by France and Britain for deficit- boosting programs.
EU leaders pledged economy-boosting steps worth “about” 1.5 percent of gross domestic product, dropping an earlier target of investing “at least” that amount, according to a statement at a summit today in Brussels. The figure is equal to 200 billion euros ($266 billion).
The accord papers over bickering between German Chancellor Angela Merkel, who resisted a bigger rescue package, and countries such as France and Britain that want Europe’s largest economy to shoulder more of the burden in reviving growth.
“Germany is living up to its responsibilities,” Merkel said before going into the final summit session. “Europe has a common strategy for tackling this deep crisis. Of course, the governments have different instruments which they can use.”
Europe’s caution contrasts with President-elect Barack Obama’s call this week for the biggest U.S. infrastructure investments since the 1950s, with a price tag tabbed by lawmakers at $500 billion to $700 billion. Obama said concerns about the deficit will take a back seat in the short term.
“When next month a new president takes office in America who is also committed to fiscal action, we’ll be able to show that Europe and America can work together,” U.K. Prime Minister Gordon Brown said. “We will continue to reject the do-nothing approach.”
Europe’s economic straits worsened today with a report that industrial production plunged the most in 15 years in October as orders weakened and business investment slumped. Output in the euro region fell 5.3 percent from a year earlier.
Interest-Rate Cycle
Mindful of the European Central Bank’s independence from political control, the EU statement didn’t press the ECB to ease interest rates further after last week’s reduction of 75 basis points to 2.5 percent, the biggest cut in the 10-year life of the euro.
In an interview with Germany’s Boersen-Zeitung newspaper, ECB council member Axel Weber cautioned against reducing rates below 2 percent, becoming the latest policy maker to signal the bank may be nearing the end of its rate-cutting cycle.
Central bankers share Merkel’s concern that extra spending would bust Germany’s budget, set to be in balance for the first time in 39 years in 2008. While Merkel shunned calls to boost Germany’s planned two-year 32 billion-euro program of construction investment and tax breaks, she said the government will consider in January whether new steps are necessary.
Officials from Germany, France and the U.K. played down concerns that flared on the eve of the summit that policy makers in Europe’s three largest economies are at loggerheads over the stimulus plan.
‘Not Cross’
Merkel is “not cross at all,” U.K. Foreign Secretary David Miliband said on BBC Radio4 today. “You’ve got a widespread recognition that whatever the national differences, this is a time for fiscal stimulus.”
The plan depends on national governments kicking in 170 billion euros, with 30 billion euros to come from central EU budgets. Spending plans announced before the summit came up to only half the total.
The EU will take “united, strong, rapid and decisive” action to prevent a “recessionary spiral,” says the text, which may be revised before the summit ends later today.
France has committed 26 billion euros, pushing its budget deficit above the EU limit of 3 percent of gross domestic product in 2009, EU forecasts show. Britain has pledged 20 billion pounds ($29.6 billion) and plans to run a deficit amounting to 8 percent of output next year.
The unexpected spending “will temporarily deepen the deficits,” the statement said. It said the EU “reaffirms its full commitment to sustainable public finances” and urged governments to “swiftly” return to budget-balancing policies.
France failed, meanwhile, to win EU approval to reduce value- added tax at restaurants, an initiative successive German governments have blocked since at least 2002. A new deadline of March was set to overhaul the sales-tax system.
Carmakers
“From today’s perspective, it’s a good program. but how many programs we’ll still need, what our future efforts will have to be, remains to be seen,” Austrian Chancellor Werner Faymann said.
The 27 leaders also agreed that industries like carmaking and construction deserve support. The leaders backed plans by the European Investment Bank to double annual lending to carmakers to about 4 billion euros in 2009-10 to promote clean technologies.
Carmakers in October had sought 40 billion euros in loans to help cope with tighter fuel-emissions standards and to offset the impact of $25 billion in lending to American rivals that the U.S. government was considering at the time.
To contact the reporters on this story: Mark Deen in London at markdeen@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net
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