Europe rejects extra stimulus appeal

By Alan Beattie in Washington and Tony Barber in Brussels

European ministers said on Monday they had no plans to add to recent fiscal stimulus packages despite calls from the US for radical expansions in government action to boost ailing economies.

Meeting in Brussels, finance ministers from the countries in the eurozone said they wanted first to see the effect of stimulus packages that had been passed. Peer Steinbrück, the German finance minister, said: “We are not debating any additional measures.”

He said that Germany had recently passed a second stimulus package worth €50bn ($63bn, £46bn) and was also counting on the automatic fiscal stabilisers that increase government spending in a downturn.

Jean-Claude Juncker, chair of the “eurogroup” of ministers, said: “The 16 finance ministers agreed that recent American appeals insisting Europeans make an added budgetary effort were not to our liking.”

Lawrence Summers, senior economic adviser to Barack Obama, US president, told the Financial Times recently that the Group of 20 countries should agree to boost government demand. On Monday Christina Romer, chair of the White House Council of Economic Advisers, said: “The more that countries throughout the world can move toward monetary and fiscal expansion, the better off we will all be.”

But European ministers are concerned that building up more government debt would threaten the stability of the eurozone and say that they want to assess the effects of spending boosts that have already been passed before considering more. The US Treasury declined to comment on their remarks on Monday.

The G20 finance ministers meet near London this weekend amid deepening gloom over the world economy. A new European Union policy paper, due to be approved by finance ministers today, calls the prospects of a return to economic growth next year “highly uncertain”.

The document, obtained by the FT, paints a darker picture of the EU’s outlook than forecasts published in January by the European Commission, which predicted a gradual economic recovery in the course of next year. “The outlook for 2010 is highly uncertain,” the paper says. “Feedback loops between the real economy and the financial markets are aggravating the ­situation.”

The paper says “financial markets remain volatile and credit channels are not yet functioning properly”, while “unemployment rates are expected to rise sharply in most member states in 2009 and 2010”.

A recent assessment by the International Monetary Fund said that the US had enacted new discretionary economic stimulus equal to 2 per cent of gross domestic product for 2009, compared with 1.5 per cent for Germany, 1.4 per cent for the UK and just 0.7 per cent for France. But the IMF said that automatic stabilisers were worth 2 per cent of GDP for the UK and France, which have relatively large welfare states, compared with 1.5 per cent for the US.

On Monday Warren Buffett, the investor, unsettled markets with a bleak assessment in which he said that the US economy had “fallen off a cliff” and was facing a pervasive loss of confidence and negative feedback loops that would make the recession worse.

“People are confused and scared,” Mr Buffett told CNBC television.