EU proposes 2-year economic stimulus plan

The European Commission urged EU governments yesterday to jointly combat the economic slowdown with $256.22 billion in spending and tax cuts to boost growth and consumer and business confidence.

Meanwhile, China disclosed its biggest interest rate cut in 11 years to spur private borrowing and support a multibillion-dollar stimulus package to boost slowing economic growth.

China's 1.08 percentage-point cut - the fourth rate reduction in three months - reflects the government's urgency about raising private consumption and investment to supplement state spending on the stimulus package. Interest on a one-year loan will fall to 5.58 percent, effective today, while interest paid on deposits will drop to 2.52 percent.

If the EU's proposal is fully enacted, the two-year "European Economic Recovery Plan" would see the 27 EU governments spend 1.5 percent of the bloc's gross domestic product to halt the slowdown that has already pushed some European nations into recession.

Of the $256.22 billion spending plan, about $219 billion - 1.2 percent of the EU's GDP - would come from national governments and run the gamut from outright tax breaks to credit guarantees for ailing industries, to soft loans to exploit new green technologies. The remainder would be financed from the EU budget and the European Investment Bank.

"Exceptional times call for exceptional measures," said European Commission President Jose Manuel Barroso.

Germany, Europe's largest economy, welcomed the plan as "appropriate." Government spokesman Thomas Steg said Berlin will insist that as public spending rises the European Commission must cut governments some slack over the sound-spending rules that underpin the stability of the euro.

Barroso promised the European Commission would do so in the years ahead.