EU backs $264B US stimulus package

The European Union formally agreed Friday to pump $264 billion US into the ailing economies of its 27-member countries to battle the current downturn.

The EU will let its members choose the best way to use the cash from a menu of options, including accelerated infrastructure projects and tax relief, British Prime Minister Gordon Brown said in announcing the organization's support for a package that had been tentatively agreed to earlier in December.

"This is good news for Britain, because the action today will support employment and growth in what are our biggest export markets in Europe.... And because it is co-ordinated action, agreed unanimously and happening simultaneously, it will have a bigger impact on jobs and growth,” Brown said at a press conference in Brussels, where EU heads discussed climate change and the economy.

The agreement means the EU countries will spend billions on co-ordinated action to assist failing economies and keep the few remaining decent performers healthier.

The European Union has a variety of rules in place to prevent individual countries from imposing trade barriers and taking other actions that might be deemed too restrictive.

All told, the new EU package will inject fiscal stimulus worth about1.5 per cent of the entire GDP of the constituent members.

Rate cuts not enough

These countries had been mildly split over whether interest rates cuts or new government spending was the best method to help their economies.

After a series of recent cuts, however, interest rates at the European Central Bank and Sweden's Riksbank now stand at two per cent and the Bank of England at one per cent, leaving little room for additional help from further rate reductions.

Now the EU, similar to many countries, appears willing to throw its support behind extra spending as the way out of a financial swamp in which many economies now find themselves mired.

"We agree that decisive action is needed, both at the EU and national levels, in order to sustain demand and investment ... and in order to sustain higher growth and employment in the European Union," the organization's economic and financial affairs council said Dec. 3.

Many countries, including the United States, have developed plans to inject cash into their economies along with programs to change financing rules and ensure sufficient funds exist for lenders.