EU bank bail-outs could dwarf stimulus spending

Today @ 09:24 CET

EUOBSERVER / BRUSSELS – An annual report on public finances published by the European Commission on Tuesday (23 June) indicates the cost of government stimulus packages could pale into insignificance when compared to the bill for EU bank bail-outs.

The lengthy report says the final cost of bank bail-outs is likely to lie anywhere between 2.75 – 16.5 percent of EU GDP depending on the veracity of underlying assumptions and the ability of governments to recover capital injections and loans.

"Experience shows that the costs were lower when the banking crisis resolution strategy was implemented swiftly, was transparent and received broad political support," said a commission statement.

A final bill closer to the report's upper estimate would dwarf the costs of stimulus spending used by EU governments to tackle the economic crisis.

EU governments will provide roughly five percent of GDP, or around €600 billion, to stimulate the bloc's economy and protect its citizens over 2009-10 when the rising cost of unemployment benefits and other automatic support measures are taken into account.

This year, the largest fiscal stimulus packages as a percentage of GDP are being implemented in Spain, Austria, Finland, the UK, Germany and Sweden.

However the report warns that the heavy toll exacted on public finances as a result of the crisis and the growing burden presented by an aging EU population mean governments increasingly need to claw back spending and put their financial houses in order.

"An exit strategy strengthening fiscal policy frameworks, reforming age-related spending and spelling out the broad consolidation measures ... is required to address these concerns," said the commission.

Germany recently introduced a constitutional change that will make it illegal for the federal government to run a deficit of more than 0.35 percent of GDP from 2016, whereas the French president, Nicolas Sarkozy, rejected austerity measures in a speech to parliament on Monday.

Slowdown in EU recovery

Mr Sarkozy's warning that continued spending was necessary because the downturn was far from over was partially confirmed by a new survey on Tuesday that indicates the EU's recovery appears to have slowed in the second quarter of this year.

The purchasing managers index published by Markit Economics was largely dragged down by a June contraction in the services sector.

The preliminary PMI figures – an important indication of private sector activity - rose only slightly to a nine-month high of 44.4 in June from 44.0 in May, below the expectations of many economists.

A score below 50 indicates a contraction in activity, with June's figures indicating activity has fallen for 13 consecutive months, the longest period of contraction in the survey's 11-year history.

COMMENT FROM EUROPEAN OBSERVER.COM :

Damien on June 22nd, 2009 - 2:13 pm

I’ll be basing my vote on what Commission jobs France/Germany get.

If France gets agriculture (to hamper any reform arising from the 2013 budget) and if Germany gets an economic position(to further French-german disregard to the single market) I will be voting No, becuase it will demonstrate that these two countries along with the Commission President do not follow the spirit of the argument they propose for Lisbon. Yes do they want the EU to be more democratic and cry that Lisbon is needed to do that, when they pull the strings on the Commission to get their way.

If Tony Blair becomes a real runner for the EU President’s position, it will be a No too.

It will be interesting to see Sarko’s speech to the French parliament today. Will he give the Assembly greater oversight over his unruly power, will he give the Parliament greater powers to scruntise EU legislation which is signed by his cabinet. All these things to strengthen the role of the parliament, and to get it more involved in the EU policy process is WITHIN his power TODAY. He doesnt need to wait for the Lisbon treaty to be introduced, the Danish parliament, the German parliament all have greater powers when it comes to the EU than the French. Hell, even the House of Commons in the UK have greater powers, this at a time when power is said to be centred in govt and in Blair when he was the PM(presidential PM).

And even if Lisbon was introduced and the Irish parliament was given greater say in the EU policy process, does it have the manpower and resources to scrutinse every piece of EU legislation.

Lisbon is a con, what it seeks to bring in terms of greater powers to national parliaments, greater transparency CAN all be DONE right now WITHOUT Lisbon.