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Stimulus spending

October 20, 2009

European Union governments have agreed to begin winding down their extra programs to boost the economy in 2011, assuming the economy continues to recover next year.

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Silhouette of a man in front of a graph
European leaders are hopeful that the worst of the economic crisis is behind themImage: Bilderbox

The agreement, announced during a meeting of EU finance ministers in Luxembourg on Tuesday, comes amid signs of a slight economic recovery in Europe.

EU ministers said in a statement that they are encouraged by "signs of early recovery." Yet they have no plans to pull back on stimulus spending before 2011, as the current economic recovery "remains fragile."

"Substantial fiscal consolidation is required in order to halt and eventually reverse the increase in debt and restore sound fiscal positions," the statement said.

EU governments have spent billions of euros on public spending to prop up their economies during the financial crisis. The spending has pushed up budget deficits across Europe, with nearly all countries exceeding the EU's budget deficit limit of 3 percent of Gross Domestic Product (GDP).

German government facing budget deficits

Pile of cars
The German government offered bonuses for scrapping cars to encourage people to buy new onesImage: AP

The German government estimates it will have had to borrow between 45 and 50 billion euros in 2009 to pay for stimulus programs. Among them has been a bonus to encourage car owners to scrap their old vehicles and buy new ones. The government has also allocated money to infrastructure projects and offered some tax breaks.

All that stimulus spending means Germany's budget deficit is expected to hit 3.9 percent of GDP this year and 5.9 percent in 2010, according to recent figures released by the EU.

Yet some countries are expecting even higher deficits than Germany. France expects its deficits to reach 8.2 percent of GDP this year and 8.5 percent next year. Greece recently announced its budget deficit could reach 12 percent by the end of this year.

No financial deal on climate change

The ministers failed to agree on funding developing countries to help them deal with climate change. The European Commission has said that richer countries should finance poorer nations to the tune of 100 billion euros per year by 2020, but the ministers could not agree on how to divide up the payments between them.

They also postponed consideration of the details of a common financial supervision structure, mainly as a result of British objections.

th/AP/dpa
Editor: Michael Lawton

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