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EU Summit To Discuss Economic Crisis, Unveil Eastern Partnership

The EU and Commission President Jose Manuel Barroso (right) will unveil the Eastern Partnership reaching out to Ukraine and five other former Soviet states.
BRUSSELS -- EU leaders are gathering in Brussels to discuss the economic crisis, amid fresh news that the downturn in Europe is likely to be even worse than expected.

The two-day summit will help EU heads of state forge their plans for the summit of the Group of 20 (G20) developing and industrialized countries on April 2 in London, which is expected to craft a global response to the crisis.

In the last two weeks, Europe has come under sharp criticism from the United States for not doing enough to stimulate the economy through public spending.

On March 18, the U.S. Federal Reserve made its latest dramatic effort to ease the credit crunch when it announced it would buy up some $1 trillion in U.S. debt and mortgage-backed securities.

But at its spring summit in Brussels, a self-assertive European Union is not expected to increase its deficit spending. EU leaders say they are already spending enough public money in response to the crisis, and have expressed fears that more spending might lead to exploding debt and inflation.

A new International Monetary Found (IMF) study due out on March 19 forecasts the eurozone's economic contraction at 3.2 percent this year. But it is unlikely to change the EU's position.

A European Approach

Expressing growing European consensus, European Commission President Jose Manuel Barroso said this week that public spending should have clear limits.

"We have to have a way out of the crisis, and a way out of debts," Barroso said. "Because we cannot put, of course, in the future generations, the cost of the current crisis."

France's Nicolas Sarkozy (left) and Germany's Angela Merkel lead the European approach to the recession.
The EU is convinced that it has done enough to stimulate the economy, Barroso added, echoing similar statements by France and Germany last week.

Barroso said the EU's "recovery plan," adopted last December and consisting of national and EU elements, is only now starting to be implemented. The plan consists mainly of a fiscal stimulus package worth some $200 billion, or about 1.5 percent of total EU gross domestic product (GDP).

In addition, European states' social safety nets also increase demand, the European Commission argues. When expected unemployment payments and other social benefits are added to the recovery plan, so the argument goes, extra EU spending in response to the crisis amounts to at least 3.3 percent of the bloc's GDP.

This would be much more than the 2 percent that U.S. Treasury Secretary Timothy Geithner has called on countries to spend as fiscal stimulus in 2009 and 2010.

The summit is expected to come to a unified position on European priorities, in view of the upcoming G20 summit in London. While the United States, and to some extent Britain, have emphasized public spending to stimulate the economy, Germany and France are leading the camp that sees regulation and oversight of markets as the most pressing response to the crisis.

French President Nicolas Sarkozy, addressing a joint press conference last week with German Chancellor Angela Merkel in Berlin, said, "The problem is not about spending more money, but putting in place a system of regulation so that the economic and financial catastrophe that the world is seeing does not reproduce itself."

In an attempt to find common ground, Barroso recently said that both stimulus and regulation are needed. "We should avoid the dichotomy: should we now go for the fiscal stimulus, or should we now go for some initiatives on regulation and supervision? We need both," he said.

Reaching Out To The East

In terms of concrete measures, the "Financial Times" reported on March 18 that the bloc is expected to substantially increase the size of a 25 billion-euro ($34 billion) emergency fund for Central and Eastern European member states.

Having rejected a comprehensive package for Central and Eastern Europe earlier this month, European heads of state will make more funds available to help individual countries on a case-by-case basis. They are also expected to endorse a pledge for doubling the IMF's resources to $500 billion at the G20 summit.

European leaders will also try to find a compromise on the question of whether the EU should give financial support to the Nabucco pipeline project.

Germany has so far blocked the inclusion of the Nabucco project in the 5 billion-euro stimulus package proposed by the European Commission. The Nabucco project, backed by the European Commission and the current Czech EU presidency, is a key element in a strategy to make Europe less dependent on Russian energy supplies.

Another discussion at the summit will involve the EU's relations with Russia: the Eastern Partnership proposal, developed over the last year and due to be formally endorsed by the summit. The initiative is meant to bring Ukraine, Moldova, Georgia, Armenia, Azerbaijan, and possibly Belarus closer to the bloc.

The inclusion of Belarus in the program is controversial because of the country's human rights record. But a decision by EU foreign ministers on March 16 to maintain suspension of an EU travel ban on Belarusian officials is seen as a victory for those who hope to engage Minsk and offer it an alternative to dependence on Russia.

World Economic Crisis

World Economic Crisis

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