2008 European Union stimulus plan
Encyclopedia
- For a broader view of policy responses to the global economic slowdown, see 2008-2009 Keynesian resurgence.
On 26 November 2008, the European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
proposed a European stimulus plan amounting to 200 billion euros to cope with the effects
Late 2000s recession in Europe
While the recession of the late 2000s began in the United States, the crisis spread to Europe rapidly and has affected much of the region with several countries already in recession as of February 2009, and most others suffering marked economic setbacks...
of the global financial crisis on the economies of the members countries. It aims at limiting the economic slowdown
Late 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
of the economies through national economic policies, with measures extended over a period of two years.
Presentation of the plan
The European Commission presented on 26 November a plan to cope with the current economic crisisLate 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
in the 27 member countries of the Union.
The plan combines short-term measures to stimulate demand and maintain jobs and longer-term measures to invest in strategical sectors, including research and innovation. The aim is to promote growth and ensure sustainable prosperity.
The plan includes targeted and temporary measures amounting to 200 billion euros, or 1.5% of EU GDP, using both the national budgets of the national governments, the budget of the EU and that of the European Investment Bank. The plan is scheduled on a period of two years.
Measures
The plan includes a broad range of actions at national level and at EU level to help households and industrial firms (particularly automobile and construction).The measures include:
- reflation: the Commission will allow Member States to break the Stability and Growth PactStability and Growth PactThe Stability and Growth Pact is an agreement among the 27 Member states of the European Union that take part in the Eurozone, to facilitate and maintain the stability of the Economic and Monetary Union...
for two or three years. - incentives to investment: the plan outlines measures to encourage the fight against climate change and promotes strategic investments in buildings and energy efficient technologies.
- lower rates: the ECBEuropean Central BankThe European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
is invited to drop its rates. - tax rebates: lowering taxation on green technology and eco-friendly cars, accompanied by scrappage programScrappage programA scrappage program is a government budget program to promote the replacement of old vehicles with modern vehicles. Scrappage programs generally have the dual aim of stimulating the automobile industry and removing inefficient, high emissions vehicles from the road...
s - social measures: the Commission proposed the governments to temporarily increase unemployment benefits and their duration, to increase allowances to households, to lower taxes on low incomes, to lower social security contributions paid on low wages by employers, to reduce labor costs paid by employees with low incomes, to provide subsidized loans or credit guarantees for companies, to reduce temporarily the VATVatVat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...
rate to support consumption. The Commission announced it would adopt by mid-March 2009 a proposal to lower VAT rates for services with high labor-intensiveness (such as catering).
National plans
National plans are often close to 1.2 percentage points of GDP, as recommended by the European CommissionEuropean Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
, and are focused on 2008 and 2009. However, Germany and Spain have announced fiscal stimulus of respectively 3.3% (two plans altogether) and 3.7% of their GDP.
The plan announced by the European Commission at the end of November recommended measures to revive the economy but did not specify much the nature of the plans. Some plans are focused on the stimulation of demand (United Kingdom, to a lesser extent Spain, Italy or the second German plan), other plans insist more in incentives to supply (French plan, first German plan ).
Measures took on expenditure to improve demand generally include measures to support medium-term growth
through increased public spending on infrastructures (road networks and railway) and aids to the housing sector (notably construction and renovation). Several countries have also announced short-term measures to relieve the effects of the crisis on the poorest people (increase in benefits and allowances to households with low incomes and unemployed). However, these aids have often limited effects on the economy, because their amounts are insignificant.
Other measures affected national taxation systems. The UK was the only country that opted for a temporary decline in the standard VAT rate
Vat
Vat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...
, by 2.5 percentage points. In Germany, employer contributions were lowered. Most plans include incentive measures to SMEs and development of green energy.
| Country | Date | Type | 82 (3.3 %) |
|
|
|---|---|---|---|---|---|
| January 2009 | second plan | 50 (2 %) |
|
||
| France | December 2008 | stimulus plan | 26 (1.3 %) |
|
|
| Spain | April 2008 | election pledges | 20 bn (1 %) | 40 (3.7%) |
|
| August 2008 | first plan | 20 |
|
||
| November 2008 | second plan | 10.9 |
|
||
| Italy | May 2008 | election pledges | 9 (0.6 %) |
|
|
| November 2008 | anti-crisis plan |
|
|||
| Netherlands | September 2008 | budget bill | 2.5 (0.4 %) | 8.5 (1.4%) |
|
| November 2008 | stimulus plan | 6 (1 %) |
|
||
| United Kingdom | September 2008 | urgency measures | £1 billion | £31 bn (2.2 %) |
|
| November 2008 | stimulus plan | £20 billion |
|
||
| January 2009 | additional measures | £10 billion |
|
||