Leaders from 27 member countries were headed for agreement Dec. 12 on a plan to spend 1.5% of the bloc's GDP—about $268 billion—to prime the pump
After a debate clouded by pessimism over where Europe's economy is heading and which other bitter surprises the global financial turmoil might still place in European laps, EU leaders meeting in Brussels have broadly agreed on the proposed economy stimulus package for the 27-strong bloc.
A positive reaction to the European Commission's recovery plan was hinted already upon the arrival of EU premiers and presidents at the ongoing European Summit in Brussels, their last top level gathering this year, with German Chancellor Angela Merkel suggesting she could back it.
"We think that each member state should deliver its contribution to the economic recovery. Germany has made its own contribution. We have made a first step. We agree with the European Commission," she said.
Berlin had featured as the main critic of the commission's stimulus blueprint before the summit, arguing that the German government had already put aside sufficient public funds to boost the economy and would not top it up to meet the commission's threshold.
But both Belgian Prime Minister Yves Leterme and his Italian counterpart, Silvio Berlusconi, confirmed that there was broad agreement around the negotiating table about both the proposed level of pump-priming – 1.5 percent of the EU's GDP – and most of the other proposals from the EU executive on how to invest extra monies.
Under the draft circulated by France, currently the chair of the six-month rotating EU presidency, early on Friday (12 December), EU leaders would commit to spending the suggested amount, while the expression "at least" 1.5 percent of EU's GDP, totaling some €200 billion, had dropped from the document.
The latest version of the document also retains a reference to VAT cuts as a possible stimulus tool member states could choose to use, despite broad opposition to such an instrument, which so far only the UK has said it would deploy.
The economy elements of the summit conclusions reflect the pessimistic mood that permeated Thursday night's discussions and the fear that Europe and other global powers face the threat of a "recessionary spiral."
According to Slovak Prime Minister Robert Fico, several of his colleagues spelled out gloomy predictions for the next year and pointed out that even the financial sector is not yet safe from this crisis. They warned that financial institutions could once again be in danger of collapsing.
In a bid to prevent any such scenarios, the leaders also backed stimulus policies that remain linked to the financial sector, such as cuts in interest rates as well as moves to encourage banks to resume providing loans to businesses and households.
"The European Council urges banks and financial institutions to make full use of the facilities granted to them to maintain and support lending to the economy and pass on key interest rate reductions to borrowers," the draft summit conclusions read.
"It should be ensured in this context that measures within the common framework, particularly guarantee mechanisms, are actually implemented so as to help lower the cost of financing for financial institutions, for the benefit of enterprises and households."