EU Will Introduce Pan European Economic Stimulus Plan

On the evening of November 25th, the European Commission will introduce an economic recovery plan aimed at coordinating all countries' actions to cope with the current global economic recession.

It is reported that the content of the plan will include a unified reduction of VAT within the EU to stimulate consumption.

Andre Sapir, a senior research fellow at Bruegel, a European economic think-tank, told reporters: "the key to the plan is the coordinated stimulus measures taken by EU Member States.

Increase spending equivalent to 1% of gross domestic product (GDP) or reduce 1% of value added tax. "

Andre Sapir said on Wednesday that the European Commission would discuss the contents of the report, and governments should decide on the size of specific funding for the recovery plan.

The plan still needs to be submitted to the European Union Council for examination and approval.

This plan has won the support of the German government.

On November 24th, German Chancellor Merkel said at a joint cabinet meeting between Germany and France that Germany agreed to support the European Commission's European economic stimulus plan.

Germany has always questioned Europe's economic stimulus measures.

But the growing financial crisis has forced Germany to re-examine the role of Pan European economic recovery plan.

Although many countries have launched a rescue plan, they still can not resist the global financial turmoil.

According to the European Bureau of statistics, the euro zone's economy has slipped 0.2% in the third quarter of this year, and has seen negative growth for second consecutive quarters.

The global financial crisis has depressed demand and directly led to shrinking exports.

Last year, German exports accounted for 46.7% of its GDP, while Germany accounted for 62.4% of the total foreign trade volume of the EU. The trade volume in the euro area accounted for 41.4% of the total foreign trade.

"Highly related trade links with EU Member States make Germany unable to stand alone in the financial turmoil."

Andre Sapir said, "the EU's economic recovery plan will directly stimulate consumption, increase import demand and benefit the German economy."

"If there is no unified stimulus measure within the EU, the highly related trade between Member States will give some countries a free ride" and hope that other countries will adopt economic stimulus measures.

Andre Sapir added, "this is not what Germany wants to see in the rescue package."

In addition, the support policy of the European Commission's upcoming economic recovery plan for the automotive industry is also attractive to Germany.

According to a German government document obtained by Deutsche Presse, the economic recovery plan also includes measures to reduce taxes for green car manufacturers.

Germany's auto industry is most vulnerable to shrinking exports and reduced demand.

The slump in the auto industry has forced major auto manufacturers and related industries to announce their layoffs and layoffs.

BMW plans to lay off 8000 people in 2008, and its employees are mainly from German companies.

Daimler has been shutting down from December 11th to January 11th next year, and has extended 150 thousand German employees at the end of the year.

BASF, a German chemical company closely related to the automotive industry, has temporarily closed 80 factories, and another 100 factories will also cut production, affecting 20 thousand employees.

As an industrial power, especially a powerful automobile country, 1 of Germany's 7 jobs are related to the automobile industry.

The third reason is that Merkel's next year's prime minister's opponent and current German Foreign Minister Steinmeier see this as an excellent opportunity to increase their influence and make a big deal on the issue of employment.

Steinmeier put forward the "European plan to promote future employment", emphasizing that "the measures taken by each country alone are not enough to protect jobs and maintain a standard of living".

Barroso, chairman of the European Commission, has announced the upcoming economic recovery plan. "Our priority is to reduce the impact of the global financial crisis on the employment, purchasing power and well-being of the EU," he said.

Merkel's high-profile announcement of support will help win the favor of the German people on the employment issue, but it is lagging behind Steinmeier.

However, the German government is against the planned content of VAT reduction.

On Monday, Britain announced that the VAT rate should be lowered in order to alleviate the worsening economic downturn through tax cuts.

Merkel said, "France and Germany will not follow the example of the UK as a means of combating economic slowdown by reducing the value added tax and stimulating consumption."

Lu Qianjin, an associate professor of international finance at Fudan University, explained that "Britain is a member of the European Union, but not a euro zone country. Therefore, fiscal policy has greater flexibility.

The euro zone countries are bound by the stability and growth pact, which covers the financial deficit and fiscal policy coordination.