Financial thoughts

EU leaders prepared Friday to back a $264.3 billion economic stimulus package as new statistics highlighted just how deep a slowdown they are facing.

EU governments will pledge later Friday to spend around 1.5% of EU gross domestic product to stoke growth, according to a draft text of a joint statement obtained by The Associated Press.

They said they were certain this "will make a decisive contribution to the European economy’s rapid return to the path of growth and job creation."

Several European nations are sliding into a recession - and the 15 nations that share the euro have already seen two quarters of negative growth since the spring’s second quarter.

The final three months of the year aren’t looking any better, according to figures the EU statistics agency Eurostat published Friday.

Falling demand at home and abroad dragged down October’s industry production figures in the euro zone by 5.3% from a year ago, the worst drop so far this year after a 2.7% decrease in September. The entire 27-nation EU saw a 5% tumble.

This adds urgency to the recovery plan that EU governments should back later Friday.

But the EU statement also set limits on what each country could do, saying massive state subsidies had to be short-term and targeted to limit competition problems that would favor one industry or one part of the 27-nation bloc over rivals elsewhere in Europe.

They singled out automakers and builders as most in need of help as shoppers avoid major purchases such as new cars and homes.

"Measures to support demand must aim to produce immediate effects, be of limited duration and be targeted at the sectors most affected and the most important as regards the structure of the economy, e easy payday loan.g. the automotive industry and the construction sector," the text said.

Countries would be free to choose how they would help out troubled industries, picking between more public spending, tax or social security cuts, aid for specific industries or financial support for cash-strapped households.

EU leaders acknowledged that this heavy public spending will pile on public debt but swore to return swiftly to efforts to eliminate budget deficits - the yearly difference between what governments spend and receive.

They also called on banks to pass on recent cuts in borrowing costs. Some British lenders were reluctant to cut the interest rates they charge borrowers even though the Bank of England has repeatedly reduced the key lending rate to ease tight credit conditions.

The EU stimulus plan aims to make more money available to banks to lend on to companies. The EU government-funded European Investment Bank will release $39.65 billion in loans next year and 2010 to increase lending for small businesses, and for projects that support renewable energy and cleaner transport.

This includes $5.3 billion in soft loans for the car industry to help them make cars that release less greenhouse gas. That falls short of the $53 billion they asked for to help them invest in clean technology during a slump that has slashed car sales. 

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