Europe Rejects Calls To Spend More on Stimulus

European leaders rejected calls to inject more cash into their economies before a summit on Thursday which is likely to propose boosting International Monetary Fund firepower to combat the global recession.

The United States, whose central bank on Wednesday vowed to pump an extra $1 trillion into the U.S. economy to battle the recession, has led calls for Europe to top up stimulus packages that have failed to reverse the downturn.

The European Union hopes at its two-day Brussels meeting to fine-tune its position for a summit of the G20 leading economies in two weeks which is intended to agree measures to tackle an economic crisis that has hit rich and poor states alike.

French President Nicolas Sarkozy was due to attend the summit although mass protests were planed by unions against his handling of a crisis which could push Europe's unemployment rate towards 10 percent by the end of this year.

The EU is still struggling to agree the details of existing plans to revive the economy through infrastructure projects, and continental European capitals are putting faith in generous welfare states to ride out the worst of the storm.

"We are doing enough," Czech Prime Minister Mirek Topolanek, whose country holds the rotating EU presidency, told reporters. "Some of us have not quite yet implemented our national recovery plans, so we don't know their impact. It does not make sense to introduce new packages."

Chancellor Angela Merkel said Germany would oppose Europe-wide projects that did not focus on immediate needs — a reference to an existing, modest plan to spend 5 billion euros ($6.75 billion) of EU money on infrastructure projects.

"It is not time to look at more growth measures. I disagree with this idea completely. The existing measures must work, they must be allowed to develop," she told the Bundestag lower house of parliament before heading to Brussels.

Ready to Bail Out

Britain is sympathetic to U.S. calls for more effort, but will underline the need for tighter financial supervision.

Mcihael Probst / AP

This is echoed by France, Germany and others who say the credit crunch stems from the United States.

A likely outcome is a joint call by EU leaders for a doubling of IMF funds to $500 billion, a pledge for a European contribution of up to $100 billion and a demand for IMF reform designed to bring countries such as China more on board.

Draft summit conclusions obtained by Reuters this week showed leaders would be ready to bail out some EU member states — notably the poorer former communist newcomers — on a case-by-case basis.

They would also be ready to consider topping up a 25 billion euro emergency fund already used to help Hungary and Latvia.

The drafts omit any reference to new fiscal stimulus, putting the onus be on implementing existing recovery schemes based on measures ranging from tax cuts to infrastructure spending, and allowing welfare payments to kick in.

The EU puts the size of its effort to combat recession at anything between 3.3 and 4 percent of its output, including welfare spending.

President Barack Obama plans to devote 5.5 percent of U.S. output to recovery efforts.

"You cannot compare the EU to the U.S.," said Dutch Prime Minister Jan Peter Balkenende. "We have very sound security networks where people who lose their jobs are looked after. The US has enormous debts."

But the EU unity on stimulus policy masks tensions, among them mutual suspicions over efforts to prop up national industrial champions at the expense of foreign rivals -- as witnessed by the widespread concern last month at French moves to support its carmakers.

• Slideshow: Hot Jobs, Cold Economy

Copyright 2009 Reuters. Click for restrictions.