The European Commission has presented a comprehensive recovery plan to get Europe out of the current economic crisis. This Recovery Plan calls for a timely, targeted and temporary fiscal stimulus of around €200 billion, the equivalent to 1.5% of EU GDP, within both national budgets (around €170 billion, 1.2% of GDP) and EU and European Investment Bank budgets (around €30 billion, 0.3% of GDP).

The Recovery Plan is based on two mutually reinforcing main elements. First, short-term measures to boost demand, save jobs and help restore confidence. Second, “smart investment” to yield higher growth and sustainable prosperity in the longer-term.

“Exceptional times call for exceptional measures”, stated Commission President José Manuel Barroso, adding that “the Recovery Plan can keep millions in work in the short-term. It can turn the crisis into an opportunity to create clean growth and more and better jobs in the future. The timely, targeted and temporary fiscal stimulus will help put our economy back on track, within the Stability and Growth Pact. Smart investments in tomorrow's skills and technologies will accelerate Europe's drive under the Lisbon Growth and Jobs Strategy to become a dynamic low-carbon economy for the 21st century. If Europe acts decisively to implement this Recovery Plan, we can get back on a path of sustainable growth and pay back short-term government borrowing. If we do not act now, we risk a vicious recessionary cycle of falling purchasing power and tax revenues, rising unemployment and ever wider budget deficits”.

The top priority is to protect Europe's citizens from the worst effects of the financial crisis, as they are the first to be hit whether as workers, households, or as entrepreneurs. Every Member State is called upon to take major measures good for its own citizens and good for the rest of Europe.

The fiscal stimulus of 1.5% of GDP provided by the Recovery Plan, will stay within the Stability and Growth Pact, while making use of the full flexibility offered by the Pact. Member States who launch stimulus packages will benefit by stimulating demand in their own economies, and by giving a major boost to their own exporters. Co-ordinated action will generate multiplier effects and avoid the problems which can result from a piecemeal approach.

As part of the EU's contribution to this stimulus, the Plan proposes accelerating payments of up to € 6.3 billion under the structural and social funds. To improve energy interconnections and broadband infrastructure, the Commission will mobilise a further € 5 billion for the period 2009-10.

The European Investment Bank will increase its yearly interventions in the EU by some €15 billion in 2009 with a similar figure in 2010.

Alongside the fiscal stimulus, the Commission is proposing to simplify criteria for European Social Fund Support, re-programme spending and step up advance payments from early 2009, so that Member States have earlier access to up to €1.8 billion.

Up to €4.5 million of cohesion funding will also be brought forward, alongside other measures to accelerate the implementation of major investment projects and this too will contribute to protecting and creating jobs.

The European Globalisation Adjustment Fund (EGAF) will be reviewed to allow it to act quicker and its scope expanded so it can keep people in jobs as well help people to find new ones. The EGAF budget will also be reviewed.

To create demand for labour the Plan invites Member States to consider reducing employers' social charges on lower incomes and calls on the Council to adopt, before the 2009 Spring European Council, the proposed Directive to make permanent reduced VAT rates for labour-intensive services.

Smart Investments

The Recovery Plan includes detailed proposals for partnerships between the public sector, using Community, EIB and national funding, and private sectors to boost clean technologies through support for innovation: these include a European green cars initiative with combined funding of at least €5 billion, a European energy-efficient buildings initiative worth €1 billion; and a "factories of the future" initiative estimated at €1.2 billion.

The Recovery plan will build on the Small Business Act to provide further help for all SMEs, including among other things removing the requirement on micro-enterprises to prepare annual accounts, easing access to public procurement and ensuring public authorities pay invoices within one month.

The Plan also includes further initiatives to apply state aids rules in a way that achieves maximum flexibility for tackling the crisis while maintaining a level playing field. These new steps include a simplification package to speed up decision-making, a temporary increase in of the "safe harbour threshold" for risk capital to €2.5 million and, also temporarily, further scope for Member States to guarantee loans to businesses.

The stimulus is foreseen for a limited period after which Member States should reverse the budgetary deterioration. They will be asked to spell out how they intend to do this and ensure long-term sustainability in updated Stability or Convergence Programmes to be presented by the end of 2008.

The Commission is asking Heads of State and Government at the European Council on December, 11th and 12th, to endorse the Recovery Plan and show their determination to act together in a closely coordinated way. This can allow Europe to lead the way globally in decisive action to support the real economy, just as its leadership over financial markets led to agreement at the G20 Summit in Washington on November, 15th.