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Europe

Merkel Warns Against Protectionism as EU Leaders Meet

Both at home and at a meeting of European leaders, German Chancellor Angela Merkel warned against protectionism and reiterated her preference for financial system reform over further economic stimulus packages.

German Chancellor Angela Merkel speaking in the Bundestag

Merkel said countries on both sides of the Atlantic must be in agreement

In a speech Thursday, March 19, to Germany's Bundestag, the lower house of parliament, before heading to a European Union summit in Brussels, Merkel said trans-Atlantic as well as pan-European cooperation was the best way to combat the crisis and restore confidence in the markets.

"I would find it extremely dangerous if countries on different sides of the Atlantic were to take different directions," she said. "A competition to outdo each other with promises will not calm the situation."

One of the goals of the two-day EU meeting is to forge a common European position on financial market regulation that can be presented to the G20 summit of industrialized and emerging economies in London on April 2.

Merkel, French President Sarkozy and Barroso laughing

EU leaders were in good spirits ahead of the two-day summit

"A competition to outdo each other with promises will not calm the situation," Merkel told German parliamentarians.

EU leaders are likely to rebuff calls for more US-style stimulus spending at the Thursday meeting after the Federal Reserve announced Wednesday it would allocate more than a trillion dollars to help spark a US recovery.

"Existing measures must work"

In Berlin, Merkel continued cautioning against governments introducing new emergency economic packages before the ones already in place had begun to kick in.

"It is not time to look at more growth measures," she said. "I disagree with this idea completely. The existing measures must work, they must be allowed to develop."

Merkel said Germany had already done its part for the economy by pumping more than 80 billion euros ($107 billion) via two stimulus packages into the EU's 400-billion-euro economic recovery program, making it one of the biggest contributors to the scheme.

Wait and see approach

European Commission President Jose Manuel Barroso on Thursday also urged EU governments to implement the bloc's stimulus plan, warning that calls to do more would undermine confidence in a swift recovery.

Jose Manuel Barroso

Barroso says further stimulus packages could be dangerous for confidence

"Let's implement the plan and review it if necessary," Barroso said. "Saying the plan is not enough will not build confidence."

But the European package has been described as insufficient by the administration of US President Barack Obama, and most recently by US economist and Nobel laureate Paul Krugman.

But officials in Brussels note that Europe's generous system of social safety nets puts it in a much better position than others to weather the storm.

Merkel also vowed Thursday to oppose any additional Europe-wide investment projects at the EU summit which did not focus on the immediate needs of the economy.

"Germany has made it clear that additional measures can only be accepted, and we will only agree to them, if they start in 2009 or 2010, because it makes no sense to spend money in 2013, 2014 or 2015 when the crisis has long been overcome," she said.

Help for eastern, central Europe

Merkel also said the EU had been in discussion with the International Monetary Fund and European Development Bank about restructuring the banking landscape in central and eastern Europe, a region particularly hard hit by the crisis.

"The countries of central and eastern Europe are a very important export market for us," Merkel said. "If credits and the cash flow there dry up it is not only a blow to these countries but shows that it is in our own interests to take action."

The European Commission, she said, could do more by temporarily easing restrictions on subsidies, speeding up decision-making and showing greater flexibility over the Stability and Growth Pact that monitors members' conduct on fiscal policy.

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