Despite rifts on minor details, leaders of the European Union are set to pass here at the upcoming summit a huge economic stimulus plan unveiled recently to help save the European economy, which has been hit hard by the global financial crisis.

Eurozone economic picture turns increasingly gloomy

In the face of the financial meltdown, which has been destabilizing stock markets globally, bringing down big banks and damaging the real economies, the EU Executive Commission launched the 200-billion-euro economic recovery plan weeks ago, urging the 27 member states to take such measures as expanding public spending, cutting interest rates, lowering sales tax, and investing in energy and Internet infrastructure.

The gross domestic product in the 15 nations sharing the euro officially entered recession in the third quarter of the year, as it contracted by 0.2 percent in two quarters in a row. The second quarter also recorded a 0.2 percent contraction.

Confidence among businesses in the eurozone has fallen to a 15-year low of 74.9 in November from 80.0 in October, with the economy in a deep recession.

The Commission's indicator of consumer confidence in the zone slipped to -25 from -24 in October, while services sentiment plunged to -12 from -7 and industrial sentiment to -25 from -18.

Big Banks, such as Fortis, Dexia and Commerzbank, have fallen victim to the financial storm, waiting for governments' bailout or acquisition.

Like elsewhere, confidence in Europe remains frail as financial markets are as turbulent as when the crunch started two or three months ago from the Wall Street.

Measures taken to rescue economy

Banks drastically axed rates to boost lending and spending.

The European Central Bank (ECB) slashed its benchmark rate in two months for three times, totaling 150 basis points.

It reduced the rate last Thursday by 0.75 percentage points, the biggest cut since it was founded in 1998.

On the same day, the Bank of England, the British central bank, sliced rate by 100 basis points to 2 percent, the lowest in 57 years, while Sweden's central bank lowered its key rate by 1.75 percentage points.

Most of the 27 EU governments released national rescue plan to stimulate economic growth.

Germany, the biggest European economy, passed a 31-billion-euronational stimulus package, while France announced a 26-billion-euro economic stimulus plan last Thursday, including cash payments to the poor, a bigger rebate on new car purchases and a speedup in high-cost public works projects.

Some other EU nations also announced colossal economic packages.

Differences remain

In the proposed 200-billion-euro economic stimulus package announced by the European Commission, 5 billion euros would go to energy and broadband projects, among which 4.5 billion euros would be used in funding for infrastructure projects.

EU financial and economic ministers approved the plan as a whole at their Council meeting last week, describing the direction of the plan as correct in the backdrop of the dire economic situation.

But some of them disagreed over funding energy and Internet infrastructure construction.

Germany and Poland said that unused funds from the EU annual budget of 120 billion euros should be returned to national pocket instead of being spent on EU-level program.

Besides, Germany fell out of line with other members, especially Britain and France, concerning tax cuts and more government spending.

The absence of German Chancellor Angela Merkel from a Monday meeting in London, where European Commission President Jose Manuel Barroso, Britain Prime Minister Gordon Brown and French President Nicolas Sarkozy met, was widely seen as a sign of rift over the economic package.

The EU, Britain and France hoped that Germany could earmark more money to boost its own economy out of recession and thus help other EU members to weather the slowdown.

The three leaders insisted that Europe was united on the need for further action to stimulate the global economy, trying to pretend that no rift exists at all.

"I have full confidence in the efforts that Germany is making and will make," said Barroso. "Germany is the most important European economy, and so it would be completely unreasonable to think about any plan without the active cooperation of Germany."

The Merkel government insists on fiscal prudence, but she has been criticized both at home and abroad for what some have called an "isolationist approach" to the global financial crisis.

The EU governments are also divided over whether to lower VAT as the stimulus package proposed.

(Xinhua News Agency December 11, 2008)