By James G. Neuger
March 2 (Bloomberg) -- European Union leaders spurned pleas for special aid for eastern Europe and a rescue package for automakers, bowing to German concerns over budget deficits as the economic crisis escalates.
EU leaders vetoed an appeal by Hungary for loans of 180 billion euros ($228 billion) for ex-communist economies in eastern Europe, and told carmakers such as General Motors Corp.’s European arm to look to national capitals for help.
“I would advise against taking huge numbers into the debate,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels yesterday. “I see a very different situation -- you can compare neither Slovenia nor Slovakia with Hungary.”
The worst economic slump since World War II is devastating eastern Europe, putting at risk EU goals of stitching together a continent-wide free market.
The EU’s $17 trillion economy will shrink 1.8 percent in 2009, the European Commission predicts. Latvia, a former Soviet republic that was the bloc’s star performer only three years ago, will contract 6.9 percent. Growth in Poland, the biggest eastern economy, will tumble to 2 percent, the slackest pace since 2002.
The euro fell to a one-week low of $1.2562, and traded at $1.2575 as of 12:40 p.m. in Tokyo from $1.2669 late in New York on Feb. 27.
Investors Flee
Investors fleeing eastern Europe to cover losses at home have pushed down Poland’s zloty by 28 percent against the euro in the past six months, Hungary’s forint by 21 percent, Romania’s leu by 18 percent and the Czech koruna by 12 percent.
Nine eastern leaders met before the summit to warn the West against putting up new walls in Europe, five years after the EU overcame historic divisions by admitting its first eastern members.
European Commission President Jose Barroso said the east doesn’t need special treatment, noting that it can draw on 15.4 billion euros in the EU’s balance-of-payments assistance fund and will get 7 billion euros from a separate the 11 billion euros in accelerated infrastructure subsidies. “We are one union, not two unions or three unions,” Barroso said.
Current EU measures are “like throwing a snowball into the fires of hell,” said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. “We are probably going to see much more difficulties coming along the road in Poland, Hungary, and the Czech Republic perhaps. The scope and the magnitude is going to be so big that current instruments aren’t going to suffice.”
International Lenders
Merkel, representing the biggest contributor to the EU budget, said aid for eastern Europe needs to be channeled through institutions like the International Monetary Fund.
Last week three international lenders -- the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank -- announced loans of up to 24.5 billion euros for eastern European banks.
As budget deficits mushroom beyond the EU’s limit of 3 percent of gross domestic product, Merkel’s plea for “a return to solid fiscal management” met with a mixed response. The EU set no deadline for governments to erase their deficits.
So far, national stimulus packages, welfare spending and cash from the EU’s central budgets have pumped 3.3 percent of EU-wide GDP into the economy, the Brussels-based commission estimates. As a result, it forecasts that the 27-nation EU’s overall budget gap will rise to 4.4 percent of GDP in 2009 from 2 percent last year.
Eastern ‘Differences’
The aid plea by Hungary, already the recipient of 6.5 billion euros in EU support, also sowed divisions among eastern leaders, with some saying the EU’s newcomers shouldn’t be singled out as an economic trouble spot.
“There are differences between eastern European countries,” Polish Prime Minister Donald Tusk said. “In some respects, western countries are in a more difficult situation.”
French President Nicolas Sarkozy triggered the east-west clash by saying on Feb. 5 that it “isn’t justified” for recession-hit French carmakers to operate plants in places like the Czech Republic instead of creating jobs at home. That broadside led Czech Prime Minister Mirek Topolanek, the first head of an ex-Soviet bloc state to hold the EU presidency, to convene the summit to demonstrate European unity against protectionism.
Defused Row
EU regulators defused the Czech-French row by announcing on the eve of the summit that Sarkozy won’t force Renault SA and PSA Peugeot Citroen, France’s two largest carmakers, to use 6 billion euros in French government loans only to maintain domestic production and jobs.
“We do not identify any case of protectionism at present,” the Czech prime minister said after the summit. “There’s none of this Topolanek-against-Sarkozy stuff.”
The leaders rejected calls to dip into EU funds to prop up the car industry, which is likely to suffer a sales drop of as much as 18 percent this year, according to EU forecasts. Instead, the leaders said it is up to each country to step in.
General Motors, the biggest U.S. carmaker, last week sought 3.3 billion euros in public assistance for its European operations. GM last week reported a loss of $30.9 billion for 2008, including $2.8 billion from Europe.
The EU has already promised to double EIB lending for green transport projects including cleaner cars to 4 billion euros in each of the next two years. Merkel called yesterday for a further boost to spur “modern engine technologies.”
To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net
Posts
No comments:
Post a Comment