November 5, 2008
EU finance ministers failed to endorse significant measures to tackle recession and conflicting positions emerged on global economic governance during their meeting in Brussels yesterday (4 November), which was dominated by internal divisions.
Amid gloomy economic forecastsPdf external , the prolonged credit crunch and an expected fall in consumption and investment, no concrete EU-level action was agreed upon by ministers, who instead preferred to adopt a wait-and-see approach.
French Finance Minister and holder of the rotating EU presidency Christine Lagarde summed up the outcome of the meeting by stating “we will let automatic stabilisers act”: economic jargon for postponing direct intervention.
Last week, the European Commission presented ministers with an action plan to avoid recession based on pumping more cash into the European economy while bypassing commercial banks, whose lending activities remain almost frozen for fear of defaults, despite recent public refinancing operations worth €280 billion across the EU (EurActiv 30/10/08). The Brussels executive suggested increasing the capital base of the European Investment Bank (the financial arm of the Union) to allow fresh money to reach EU companies directly.
Ministers simply took note of the plan. Lagarde hinted at increased EIB involvement in key projects, such as the development of cleaner cars, but she refrained from mentioning any additional resource for the bank. Tax cuts, the other possible means of boosting consumption, were also overlooked. “We know the limits of fiscal policy. We experienced in the past unwanted results and we keep them in mind,” commented Economics and Finance Commissioner Joaquin Almunia.
Lagarde was keen to give the European Central Bank responsbility to act. “The reduced inflationary pressure has let us hope for a change of interest rates,” she said referring to the next ECB board meeting on 6 November, when the bank is expected to reduce rates following the new Federal Reserve’s cut last week.