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02 March 2024

European unity is under strain


Despite promises to tackle recession together, EU governments are scrambling each in their own corner to come up with new measures to revive their economies, threatening the bloc's unity.

Since the start of the year, Germany has launched a new economic recovery plan, Britain unveiled a fresh rescue package for its banking sector and a number of countries are putting together plans to help their carmakers.

The hodge-podge of various measures contrasts with the spirit of unity that led EU leaders as recently as December to agree on a €200bn (Dh941bn) stimulus plan to snap the European economy out of recession.

Although most of the package is made up of national measures, leaders made much of the fact that Europe's efforts to beat recession would be closely co-ordinated to reduce waste and avoid distortions to markets. However, the new wave of government actions since then has left some worried that EU states risk causing more harm than good by failing to co-ordinate.

"I think we should improve the way we monitor the implementation of the financial packages for the support of the financial sector," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.

"Based on this monitoring, it will be useful to increase the coordination, because all these kinds of programmes and schemes can create… distortions in the level playing field," he told a conference in Brussels last week.

The banking sector is once again at the centre of governments' attention, with Britain announcing earlier this month an insurance scheme to relieve banks of the impact from the toxic assets ravaging their balance sheets.

Belgium is considering a so-called good-bank bad-bank scenario where lenders' toxic assets would be hived off and put into a separate state-owned institution, relieving banks' balance sheets.

Germany too is considering a range of measures for its banks, but has so far ruled out the creating a bad bank.

Almunia warned that before rushing to set up bad banks, European governments must first agree on what assets would qualify for such schemes and what prices should be paid for them. "We need to have this discussion before going into the discussion about the possibility of these instruments," he said.

But while some governments are moving fast to prop up their banks, some people consider a second wave of rescues to be unnecessary, adding to the cacophony.

"I don't see the need for a second set of big, huge massive bank plans," last week, Luxembourg's Premier and Finance Minister Jean-Claude Juncker said last week.

"It goes without saying that any new initiative will be examined in detail in the Eurogroup," added Juncker, who heads the group of eurozone finance ministers.

After Europe saw the weakest new car sales in 15 years in 2008, governments, including France, Germany, Portugal, Spain and Sweden, are mulling measures for the auto industry.

Measures under consideration range from incentives for scrapping old cars to encourage purchase of new vehicles, to tax breaks, public procurement initiatives and state investment in carmakers.