EU Finance Chiefs Rebuff U.S. Calls to Boost Economic Stimulus

By Jennifer Ryan and Francois de Beaupuy

March 10 (Bloomberg) -- European finance ministers rejected calls from the U.S. to do more to battle the economic crisis, saying stimulus plans already in place need time to work.

“Recent American appeals insisting that the Europeans make an additional budgetary effort to combat the effects of the crisis were not to our liking,” Luxembourg Finance Minister Jean-Claude Juncker said yesterday after leading a meeting of euro-area finance chiefs in Brussels. “We want to see what the effect of the recovery package is going to be.”

Euro-area finance ministers met five days before those from the Group of 20 convene near London for talks on fighting the financial crisis. That conference may witness more efforts by the U.S., as well as China, to encourage other nations to bolster government spending in a bid to end the global recession.

The International Monetary Fund said in a report last week that only the U.S., Saudi Arabia, China, Spain and Australia are on track to meet the IMF’s target of introducing fiscal stimulus equivalent to 2 percent of gross domestic product this year. Germany’s efforts currently amount to 1.5 percent of GDP, which is double what France has passed, according to the IMF.

Lawrence Summers, President Barack Obama’s top economic adviser, said on Feb. 13 that officials in Europe are “probably not” doing enough to counter the economic slump. U.S. Treasury Secretary Timothy Geithner the same day urged other governments to take “exceptional” steps to battle the economic crisis.

European governments “are not prepared to go further in the recovery package that we’ve put together,” Juncker said in Brussels, adding that economic aid already in place amounts to at least 3.3 percent of the European Union’s gross domestic product.

‘Stable Door’

“The EU doesn’t look like it’s taking big further fiscal measures,” Paul Mortimer-Lee, chief economist at BNP Paribas SA, told Bloomberg Television yesterday. “They seem to want to talk about regulation, hitting tax havens, basically shutting the stable door after the horse has bolted.”

Governments from Dublin to Athens have committed more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems and European leaders pledged to spend a combined 200 billion euros to haul their economies out of the worsening slump. The World Bank this week forecast the global economy will suffer the biggest recession since World War II this year.

“We are confident that monetary-policy decisions, fiscal stimulus, and the packages of support to the banking sector will have positive effects in the coming months and quarters,” EU Monetary Affairs Commissioner Joaquin Almunia said after attending the Brussels meeting. “But it is still too soon to perceive these positive effects.”

Bigger Punch

The IMF has recommended greater coordination so that the global economy can receive a bigger punch from individual budget policies. The impact on U.S. GDP of higher public spending is almost half as strong if it isn’t matched elsewhere, the Fund’s economists estimate.

“Clearly it’s part of Obama’s theme that multilateral action is needed,” BNP’s Mortimer-Lee said. The Europeans are “trying to deal with the next episode rather than really dealing with the here and now. And that’s what they need to do.”

European budget deficits have swelled as governments pumped billions into their economies in an effort to revive growth. The EU, which forecasts that the 27-nation bloc’s overall budget shortfall will more than double this year to 4.4 percent of GDP, warned national leaders last month to bring their deficits back in line as soon as possible.

Automatic Stabilizers

German Finance Minister Peer Steinbrueck said his government is “not discussing any additional measures” to boost Europe’s largest economy. “We just passed a second economic-stimulus package worth 50 billion euros ($63 billion), we’re letting automatic stabilizers work, and we have a constitutional court ruling that is worth 8 billion euros in commuter subsidies,” he said.

Almunia said ministers at yesterday’s meeting agreed on the need to boost the IMF’s resources as it helps to recapitalize banks in central and eastern Europe. Dominique Strauss-Kahn, the Fund’s managing director, is seeking to double the funds the IMF has available from its pre-crisis level of $250 billion.

European leaders meeting in Berlin on Feb. 22 endorsed the increase to $500 billion. Japan has already pledged an extra $100 billion.

To contact the reporters on this story: Jennifer Ryan in Brussels at jryan13@bloomberg.net; Francois de Beaupuy in Brussels at fdebeaupuy@bloomberg.net.