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Europe

New Debts a Lesser Evil in EU Stimulus Package Where 1+1=3

Getting states to coordinate and cooperate on an EU level is one of the most challenging aspects of the bloc. When it involves money, it's even harder. But the EU believes this is the answer to its financial woes.

A children's colourful traditional wooden abacus used for learning basic skills in addition and subtraction

The EU is hoping its got its sums right as it readies a new stimulus pacakage

In Germany, talk of an economic stimulus package is frowned upon in certain circles, especially where conservatives and free-market liberals are involved. But regardless of whether it is called an economic stimulus package or an investment program, one thing remains the same: The state is expected to provide the impetus for growth where the financial markets cannot.

Under normal circumstances, a coordinated European Union economic response would probably have little chance of success. But the European Commission considers the economic situation to be dramatic.

"If the member states are not in the position to make unanimous decisions over changes in budget now, then when will they be?" asked a frustrated José Manuel Barroso, president of the commission.

In the new plan, individual governments will be required to act, not the EU as a whole. But just as in the rescue of the banking sector, the efforts will be coordinated. European Commissioner for Monetary Affairs Joaquín Almunia says the EU plan has advantages over single-handed attempts by countries to address the situation.

Creative mathematics can help Europe

European Commissioner for Monetary Affairs Joaquin Almunia

Almunia is relying on creative math to help the EU

"One plus one can equal three if the incentives for economic stimulus are coordinated appropriately," Almunia said. "One plus one can result in minus one or zero if there is no coordination and the negative effects continue," he added.

The financial package, according to the commission, is to be worth a total of about 200 billion euros ($258.8 billion) or 1.5 percent the 27-nation European Union's gross domestic product. But depending upon the budgetary situation of each individual country, member states will be required to make varying contributions.

Since the economic circumstances and consumer behavior are different in each country, the individual measures are to be decided by the national governments.

These measures could include a temporary reduction of value added tax (VAT), investments in traffic and communication projects, a promotion of key industries like the automobile industry or investments in environmentally-friendly technology.

Choosing the lesser evil

European Commission President Jose Manuel Barroso

Barroso warns member states of history repeating

Barroso alluded to the depression of the 1930s when he warned about the vicious circle of reductions in demand, reduced tax payments and increased unemployment which dragged the whole world into misery.

"History tells us that short term expenditure programs without structural reforms and without an intelligent strategy of purposeful investments and repayment of credit can create a downward spiral of debts and unemployment," he said.

Doing nothing is just as damaging as indiscriminate panic spending. But well-meant and limited expenditure might also burden countries with new debts.

However, the European Commission sees the temporary accumulation of debt to be the lesser of many evils. The hope being that, come 2010, the crisis will have passed and member states can start paying off these debts again and bet back in line with the European Union's Stability Pact.

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