EU/World economic crisis

European leaders increase support for Eastern European countries and the IMF

Article published on the 2009-03-20 Latest update 2009-03-20 17:22 TU

European Commission President Jose Manuel Barroso at the summit in Brussels
(Photo: Reuters)

European leaders have agreed to increase loans to help countries in Eastern Europe weather the global economic crisis. At a summit in Brussels on Friday, leaders of the 27 member states of the EU agreed to lend up to 50 billion euros non eurozone members – those countries that do not use the euro currency – but insisted they would not inject more cash into eurozone economies.

Leaders promised to double the funds available to struggling economies, from 25 billion to 50 billion euros. They also agreed to increase contributions to the International Monetary Fund, to 75 billion euros.

“Necessary action will be taken to deal with the problems of unemployment and growth,” said British Prime Minister Gordon Brown.

An estimated 4.5 million jobs are at risk across Europe so far this year, and industrial output fell almost three per cent in January. But leaders were reluctant to add more cash to eurozone countries that have already massively invested in economic stimulus packages.

“We are going to be prudent in our fiscal stimulus, while awaiting the results of the first package of stimulus measures,” said Czech Prime Minister Mirek Topolanek, whose country currently holds the rotating EU presidency.

"I’m not surprised that those countries that are in a good fiscal position… are nervous about going down the route being pioneered by the UK and US," said Graham Bishop, a European economic and finance consultant, referring to growing budget deficits in those two countries.

"If you look at the IMF figures, which came out yesterday, the UK will be running a budget deficit next year of 11 per cent of GDP," Bishop told RFI.

"Expanding their budget deficits to amounts which are known only in wartime - let’s be realistic - runs the risk of things getting completely out of hand," he added.

The EU has already committed around 400 billion euros to various stimulus measures, equivalent to more than three per cent of the bloc’s GDP.

German Chancellor Angela Merkel and French President Nicolas Sarkozy at the summit in Brussels
(Photo: Reuters)

It is hoped that this will be enough to encourage an improvement in economic conditions, especially after the IMF predicted that the combined economy of the eurozone countries would contract by more than three per cent.

Funds made available to eastern European countries are already diminished. Hungary borrowed 6.5 billion euros last year, while Latvia is currently using 3.1 billion euros in credit.

Adding cash to the IMF’s reserves will also please those who have warned that the world body could find it increasingly hard to help countries in difficulties.

And the US is hoping that funds could be increased even further, to over 550 billion euros.

"I think the funds are likely to come from those who’ve been running very large surpluses over the last few years," Bishop told RFI.

Meanwhile, indicators in Europe do not yet show any signs of recovery.

Car production in Britain fell almost 60 per cent in February, German steel producer ThyssenKrupp is thought to be planning 3,000 job cuts, and on Thursday millions of people across France went on strike to protest against the government’s handling of the economic crisis.