Kick-starting the economy

Offering a coordinated response to the EU’s deepening economic crisis, the Commission is proposing €200bn in measures to boost purchasing power and generate growth and jobs. The package of near- and long-term measures represents 1.5% of the EU’s GDP.

The bulk of the money - €170 billion - will come from national budgets. The remaining €30 billion is to come from the budgets of the EU and the European Investment Bank.

The plan aims to protect workers, households and entrepreneurs who risk being hit as the financial crisis spreads into the broader economy. It proposes more support for these vulnerable groups, including investment to boost job skills and help people stay in jobs or find new ones.

The EU will speed up distribution of social and regional funding - worth €6.3bn. And it wants to provide incentives for the hard-hit construction and auto industries to develop greener cars and energy-efficient buildings.

The European Investment Bank, which provides long-term loans, would have a bigger role in financing major projects. The EIB has already put together a €30bn loan package to help small businesses struggling to get credit.

The plan exercises flexibility allowed under EU rules on national budget deficits, which give governments room to temporarily borrow more during a downturn. As the EU needs urgent action to prevent a deep and lasting recession, President Barroso will ask EU leaders to endorse the plan at next month’s summit and to implement it immediately.

The package is “big enough and bold enough to work in the short-term, yet strategic and sustainable enough to turn the crisis into an opportunity in the long-term,” he said.

By jumpstarting the economy with investment in infrastructure, green technology, energy efficiency and innovation, the package aims to accelerate the transition to a knowledge-based, low-carbon society. It encourages more partnerships between government and business.

Several EU countries (including the UK, France and Germany) have already announced their own stimulus packages. The commission is now calling on all nations to follow suit, under an umbrella of European coordination. Governments would spend this money in the way best suited to their own economy as different countries face different challenges. The commission would monitor national efforts to ensure they don’t confer unfair competitive advantages to businesses based in their country.

Some economies (for example Slovakia, Bulgaria, Romania and Poland) are still growing but others (France, Italy and Germany) are already at a standstill. And while some national governments are worried about deflation, others are struggling with double-digit inflation (Bulgaria, Estonia, Latvia and Lithuania).