NICE, France: Finance ministers from the 15 countries sharing the euro ruled out yesterday the possibility of a sweeping European stimulus plan to ward off the looming threat of recession.
The ministers agreed at a meeting in the French Riviera city of Nice that Europe would not follow in the footsteps of the United States and Japan with an ambitious stimulus package.
“We have excluded the possibility of a European stimulus plan, and that since a couple of months,” Luxembourg Finance Minister Jean-Claude Juncker told journalists after chairing a meeting with his euro zone counterparts. Although economic activity was much weaker than thought only a few months ago, Juncker said that Europe was not in the same situation as the United States and that past stimulus plans had had unwanted consequences. German Finance Minister Peer Steinbrueck said: “I think there is no need for a European stimulus package. Every country is responsible for itself,” adding that “it makes no sense to burn money.” While countries with strong public accounts could loosen the finances, the ministers agreed that “there is no question of letting budget deficits swell,” Juncker said.
Despite the fast deteriorating economic situation, euro zone countries still had to respect EU rules requiring deficits to be kept to less than three percent of output, he said. The euro zone ministers’ position was likely to be taken up by their counterparts from the full 27 nation European Union, who were later in the day holding a two-day meeting in Nice focused on averting recession.
The European Commission estimated on Wednesday that Europe was teetering on the brink of a technical recession, which economists define as two consecutive quarters of contraction.
After the 15-nation euro zone economy contracted 0.2 percent in the second quarter, the European Union’s executive arm estimated that it would be at a standstill in the third quarter.
Unlike other global economic heavyweights, Europe has few options for tackling the growing crisis and is unwilling to use those that are available.
Ever vigilant about inflation, the European Central Bank (ECB) is unlikely to give a boost to the economy by cutting interest rates until at least next year, according to economists.
On the fiscal front, few European countries have budgets strong enough to allow for major tax relief or spending programs, as seen in the United States and Japan, without breaking the EU’s strict public deficit rules. Among the major euro zone economies, Germany has healthy public finances, but Steinbrueck has repeatedly refused to loosen up fiscal discipline even though the commission estimates that Europe’s biggest economy is already in recession.
Spanish public finances are also in good shape after running surpluses for years and Madrid is working on a package to help Spain’s embattled economy, hit by a housing market slump.
