Communication from the Commission to the European Council - A European Economic Recovery Plan
Date: 2008-11-26
Institutions: European Commission
Subjects: European Investment Bank, bank, budgetary procedure, economic growth, economic policy, economic situation, exchange of information, financial institution

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 26.11.2008 
COM(2008) 800 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN COUNCIL 

A European Economic Recovery Plan 

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The time to act is now 

The  real  test  for  European  governments  and  institutions  comes  when  faced  with  the  most 
difficult of circumstances.  At  such  times, they need to show  imagination; they  need to show 
determination; and they need to show flexibility. They need to show that they are in tune with 
the needs of families and communities across the European Union, that they are equal to the 
task of finding the right response to the sudden downturn in the prospects for growth and jobs 
in Europe. 

Europe will above all be judged on results. Since this Commission took office, it has put the 
spotlight  on  the  European  Union's  ability  to  deliver  results  for  its  citizens.  It  has  targeted 
action  on  areas  which  will  have  an  impact  on  Europeans  in  every  corner  of  the  EU.  It  has 
championed a partnership approach to work with the key players at every level. It has made 
clear that the job is not done until the impact is felt on the ground. 

The current economic crisis gives another opportunity to show that Europe serves its citizens 
best when it makes concrete action the touchstone. Europe can make the difference. 

In difficult times, the temptation is to feel powerless. But Europe is not powerless. The levers 
of  government,  the  instruments  of  the  European  Union,  the  influence  of  intelligent 
coordination  add  up  to  a  potent  force  to  arrest  the  trend  towards  a  deeper  recession.  A 
Europe ready to take swift, bold, ambitious and well-targeted action will be a Europe able to 
put the brakes on the downturn and begin to turn the tide. We sink or swim together. 

The  particular  contribution  of  the  European  Union  is  its  ability  to  help  partners  work 
together. Harnessing Member States' and Community action will add up to a powerful lever 
for change. It will open the door to using the strengths of each part of Europe to best effect. It 
will allow us to shape the global response to this global crisis. 

A  month  ago,  the  Commission  took  the  initiative  to  set  out  how  decisive  and  coordinated 
action could respond to the economic crisis. I am pleased to see that as national governments 
work  to  address  their  own  situations,  they  have  been  inspired  by  the  common  principles 
agreed for European action. Today the Commission strengthens this platform for joint action 
with  a  Plan  to  contain  the  scale  of  the  downturn  and  to  stimulate  demand  and  confidence, 
saving hundreds of thousands of jobs and keeping large and small businesses at work while 
waiting for growth to return. 

The European Economic Recovery Plan has two key pillars, and one underlying principle: 

•  The first pillar is a major injection of purchasing power into the economy, to boost demand 
and  stimulate  confidence.  The  Commission  is  proposing  that,  as  a  matter  of  urgency, 
Member States and the EU agree to an immediate budgetary impulse amounting to € 200 
billion (1.5% of GDP), to boost demand in full respect of the Stability and Growth Pact. 

•  The  second  pillar  rests  on  the  need  to  direct  short-term  action  to  reinforce  Europe's 
competitiveness in the long term. The Plan sets out a comprehensive programme to direct 
action  to  "smart"  investment.  Smart  investment  means  investing  in  the  right  skills  for 
tomorrow's needs; investing in energy efficiency to create jobs and save energy; investing 
in clean technologies to boost sectors like construction and automobiles in the low-carbon 
markets  of  the  future;  and  investing  in  infrastructure  and  inter-connection  to  promote 
efficiency and innovation.  

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At  the  same  time,  the  ten  Actions  for  Recovery  included  in  the  Plan  will  help  Member 
States  to  put  the  right  social  and  economic  levers  in  place  to  meet  today's  challenge:  to 
open  up  new  finance  for  SMEs,  cut  administrative  burdens  and  kick-start  investment  to 
modernise  infrastructure.  It  will  drive  a  competitive  Europe  ready  for  the  low-carbon 
economy. 

•  The fundamental principle of this Plan is solidarity and social justice. In times of hardship, 
our  action  must  be  geared  to  help  those  most  in  need.  To  work  to  protect  jobs  through 
action  on  social  charges.  To  immediately  address  the  long-term  job  prospects  of  those 
losing their jobs, through the European Globalisation Adjustment Fund and an accelerated 
European  Social  Fund.  To  cut  energy  costs  for  the  vulnerable  through  targeted  energy 
efficiency.  To  address  the  needs  of  those  who  cannot  yet  use  the  internet  as  a  tool  to 
connect. 

I  am  convinced  that  at  times  of  crisis,  opportunities  open  up  to  accelerate  change  and  to 
introduce structural reforms to make us succeed in the globalised economy of the future. This 
is a great opportunity for Europe. 

A  comprehensive  and  ambitious  recovery  plan  is  now  on  the  table.  The  quicker  we  make  it 
happen, the sooner we will bring the help needed to Europeans today. 

José Manuel Durão Barroso 

Brussels, 26th November 2008 

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1. 

INTRODUCTION 

The global financial crisis has hit the EU hard. A squeeze on credit, falls in house prices and 
tumbling stock markets are all reinforcing a slump in consumer confidence, consumption and 
investment.  Households  are  under  real  pressure.  Businesses'  order  books  are  down.  Sectors 
dependent on consumer credit – like private construction and the automobile industry – have 
seen their markets sharply deteriorate in many Member States. 

The  latest  economic  forecasts  painted  a  bleak  picture  of  close  to  zero  growth  and  risks  of 
contraction for the EU economy in 2009, with unemployment rising by some 2.7 million in 
the next two years, on the assumption that no corrective action is taken. In the weeks since the 
forecasts came out, economic conditions have deteriorated further: 

–  Financial  market  conditions  remain  fragile,  and  are  likely  to  be  tighter  for  longer  than 

expected; 

–  Confidence amongst households and firms has fallen much lower than expected; 

–  The  slowdown  has  spread  to  emerging  economies  with  negative  effects  for  European 

exports. 

The  euro  area  and  several  Member  States  are  already  in  recession.  The  risk  is  that  this 
situation  will  worsen  still  further:  that  investment  and  consumer  purchases  will  be  put  off, 
sparking  a  vicious  cycle  of  falling  demand,  downsized  business  plans,  reduced  innovation, 
and job cuts. This could push the EU into a deep and longer-lasting recession: the economy 
contracting further next year, and unemployment could rise by several million people. 

Quick  and  decisive  action  is  needed  to  stop  this  downward  spiral.  Europe  must  use  all  the 
tools at its disposal. This means Member States and the Union working together, coordinating 
inside  Europe  and  feeding  into  a  larger  global  response.  In  tackling  the  financial  crisis,  the 
Union made sure that the EU level and national action worked together. This was successful 
in  bringing  stability  at  a  time  of  immediate  danger.  Now  Member  States  should  again  take 
advantage of the strengths of the EU – effective coordination, credible frameworks offered by 
the Stability and Growth Pact and the Lisbon Strategy, as well as the benefits of scale offered 
by the euro and the largest single market in the world. The interplay of national and EU action 
can  help  all  Member  States  weather  the  worst  of  the  global  economic  storms  and  emerge 
stronger from the crisis. 

The  euro,  in  particular,  has  proved  to  be  an  invaluable  asset  for  the  EU  economies  and  an 
essential  element  of  stability.  Supported  by  the  strong  role  played  by  the  independent 
European  Central  Bank,  the  euro  protects  against  destabilising  exchange  rate  movements, 
which would have greatly complicated the national responses to the crisis. 

A  month  ago,  the  Commission  took  the  initiative  to  outline  its  plans  for  dealing  with  the 
financial  crisis,  addressing  the  difficulties  of  the  wider  economy  and  making  Europe  a  key 
player  in  the  global  response  to  the  financial  crisis1.  In  early  November,  the  EU's  Heads  of 
State  and  Government  agreed  on  the  need  for  a  coordinated  response  and  asked  the 
Commission to make proposals for discussion at their December meeting. 

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Communication of 29 October - COM(2008) 706. 

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A European Economic Recovery Plan 

This  European  Economic  Recovery  Plan  is  the  Commission's  response  to  the  current 
economic situation. Given the scale of the crisis we are facing, the EU needs a co-ordinated 
approach, big enough and ambitious enough to restore consumer and business confidence. It 
needs to bring together all the policy levers available at EU and national level. Most of the 
economic policy levers, and in particular those which can stimulate consumer demand in the 
short term, are in the hands of the Member States. Member States have very different starting 
points  in  terms  of  fiscal  room  for  manoeuvre.  But  that  makes  effective  coordination  all  the 
more important. 

All  Member  States  will  need  to  take  action  to  deal  with  the  crisis.  Properly  coordinated, 
national efforts can target different goals in parallel. They can cushion the blow of recession 
in  the  short  term.  But  they  can  also  promote  the  structural  reforms  needed  to  help  the  EU 
emerge  stronger  from  the  crisis,  without  undermining  longer  term  fiscal  sustainability.  For 
this  reason,  this  Recovery  Plan  puts  particular  emphasis  on  innovation  and  greening  of  EU 
investment. The EU level can act as a catalyst for such "smart action", combining EU policies 
and funds to help Member States maintain or pull forward investments which will create jobs, 
boost demand, and strengthen Europe's capacity to benefit from globalisation. 

The strategic aims of the Recovery Plan are to: 

–  Swiftly stimulate demand and boost consumer confidence; 

–  Lessen the human cost of the economic downturn and its impact on the most vulnerable. 
Many workers and their families are or will be hit by the crisis. Action can be taken to help 
stem  the  loss  of  jobs;  and  then  to  help  people  return  rapidly  to  the  labour  market,  rather 
than face long-term unemployment; 

–  Help  Europe  to  prepare  to  take  advantage  when  growth  returns  so  that  the  European 
economy  is  in  tune  with  the  demands  of  competitiveness  and  the  needs  of  the  future,  as 
outlined in the Lisbon Strategy for Growth and Jobs. That means pursuing the necessary 
structural reforms, supporting innovation, and building a knowledge economy; 

–  Speed up the shift towards a low carbon economy. This will leave Europe well placed to 
apply  its  strategy  for  limiting  climate  change  and  promoting  energy  security:  a  strategy 
which  will  encourage  new  technologies,  create  new  'green-collar'  jobs  and  open  up  new 
opportunities  in  fast  growing  world  markets,  will  keep  energy  bills  for  citizens  and 
businesses in check, and will reduce Europe's dependence on foreign energy. 

In pursuing these aims, the European Economic Recovery Plan is designed to: 

–  Exploit synergies and avoid negative spill-over effects through co-ordinated action; 

–  Draw on all available policy levers, fiscal policies, structural and financial market reforms 

and external action; 

–  Ensure  full  coherence  between  immediate  actions  and  the  EU's  medium-  to  longer  term 

objectives; 

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–  Take full account of the global nature of the problem and shape the EU's contribution to 

international responses. 

This  European  Economic  Recovery  Plan  proposes  a  counter-cyclical  macro-economic 
response to the crisis in the form of an ambitious set of actions to support the real economy. 
The aim is to avoid a deep recession. The Plan is anchored in the Stability and Growth Pact 
and the Lisbon Strategy for Growth and Jobs. It consists of: 

•  An immediate budgetary impulse amounting to € 200 bn (1.5% of EU GDP), made up of a 
budgetary  expansion  by  Member  States  of  € 170  bn  (around  1.2%  of  EU  GDP),  and  EU 
funding  in  support  of  immediate  actions  of  the  order  of  € 30  bn  (around  0.3  %  of  EU 
GDP); 

•  And  a  number  of  priority  actions,  grounded  in  the  Lisbon  Strategy,  and  designed  at  the 
same  time  to  adapt  our  economies  to  long-term  challenges,  continuing  to  implement 
structural reforms aimed at raising potential growth. 

2. 

SUPPORTING THE REAL ECONOMY AND BOOSTING CONFIDENCE 

As the economies of all Member States are highly integrated, sharing one single market and 
many common policies, any response must combine monetary and credit aspects, budgetary 
policy, and actions in the Lisbon strategy for growth and jobs. 

2.1.  Monetary and credit conditions. 

2.1.1.  The role of the European Central Bank and other central banks 

In  the  current  juncture,  monetary  policy  has  a  crucial  role  to  play.  In  the  light  of  reduced 
inflationary  expectation  over  the  medium-term,  the  European  Central  Bank  (ECB)  for  the 
euro  area,  along  with  other  EU  central  banks,  has  already  cut  interest  rates.  The  ECB  has 
signalled  that  there  is  scope  for  further  reductions.  The  ECB  has  already  demonstrated  its 
importance in stabilising markets by lending to banks and contributing to liquidity. 

2.1.2.  The role of banks 

At the root of the problems in the real economy lies the instability in the financial markets. A 
reliable  and  efficient  financial  sector  is  a  pre-requisite  for  a  healthy,  growing  economy. 
Stabilising  the  banking  system  is  therefore  the  first  step  towards  halting  the  downturn  and 
promoting  a  swift  and  sustainable  recovery.  The  EU  must  maintain  this  common  drive  to 
rebuild  stability  and  confidence  in  the  still-fragile  financial  sector  and  create  the  conditions 
for  a  sustained  economic  recovery.  The  crisis  has  shown  risks  in  the  current  governance  of 
financial  markets  which  have  or  could  become  real  and  systemic  in  times  of  serious 
turbulence. The pace of reform will be maintained in the coming months to restore stability 
and protect the interests of European citizens and business. 

But it is now crucial that banks resume their normal role of providing liquidity and supporting 
investment  in  the  real  economy.  Member  States  should  use  the  major  financial  support 
provided to the banking sector to encourage a return to normal lending activities and to ensure 
that  central  interest  rate  cuts  are  passed  on  to  borrowers.  The  Commission  will  continue  to 

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monitor  the  economic  and  competition  impacts  of  measures  taken  to  support  the  banking 
sector. 

2.1.3.  The  role  of 

the  European  Investment  Bank  and 

the  European  Bank 

for 

Reconstruction and Development 

The current crisis requires reinforced interventions from the European Investment Bank (EIB) 
group. The EIB  will  increase  its  yearly interventions in the EU by some €15 billion for the 
next two years. As this increased activity will take the form of loans, equity, guarantees and 
risk-sharing financing, it will also generate a positive leverage of additional investment from 
private  sources.  In  total,  this  package  proposed  by  EIB  will  help  mobilise  complementary 
private resources to support additional investments over the next two years. To enable the EIB 
to increase its financing activities, Member States should decide before the end of the year to 
incorporate  EIB’s  reserves  to  reinforce  its  capital  base  in  the  order  of  €  60  bn,  which  will 
provide a highly visible  political signal to the markets and which will significantly increase 
the  Bank's  lending  capacity.  The  European  Bank  for  Reconstruction  and  Development 
(EBRD) is also expected to add €500 million per y ear to its present level of financing in the 
new Member States. 

2.2. 

Budgetary Policy 

Restoring  confidence  will  depend  on  Europe's  ability  to  boost  demand  by  making  use  of 
budgetary policy within the flexibility offered by the revised Stability and Growth Pact. In the 
current circumstances, budgetary policy has an even more important role to play in stabilising 
economies and sustaining demand. 

Only through a significant stimulus package can Europe counter the expected downward trend 
in demand, with its negative knock-on effects on investments and employment. Therefore, the 
Commission  proposes  that  Member  States  agree  a  co-ordinated  budgetary  stimulus  package 
which should be timely, targeted and temporary, to be implemented immediately. 

In  the  context  of  national  budgets  for  2009,  this  co-ordinated  budgetary  impulse  should  be 
€ 170  bn,  which  represents  1.2%  of  the  Union' s  GDP,  in  order  to  produce  a  substantive 
positive  and  rapid  impact  on  the  European  economy  and  on  employment,  in  addition  to  the 
role  of  the  automatic  stabilisers.  Expenditures  and/or  reductions  in  taxation  included  in  the 
budgetary  impulse  should  be  consistent  with  the  flexibility  offered  by  the  Stability  and 
Growth  Pact  and  reinforce  the  structural  reforms  of  the  Lisbon  Strategy.  This  budgetary 
stimulus  should  be  temporary.  Member  States  should  commit  to  reverse  the  budgetary 
deterioration and return to the aims set out in the medium term objectives. 

To maximise its impact, the budgetary stimulus should take account of the starting positions 
of each Member State. It is clear that not all Member States are in the same position. Those 
that  took  advantage  of  the  good  times  to  achieve  more  sustainable  public  finance  positions 
and  improve  their  competitive  positions  have  more  room  for  manoeuvre  now.  For  those 
Member States, in particular outside the euro area, which are facing significant external and 
internal imbalances, budgetary policy should essentially aim at correcting such imbalances. 

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This budgetary stimulus must be well designed and be based on the following principles: 

(1) It should be timely, temporary, targeted, and co-ordinated 

National budgetary stimulus packages should be: 

–  timely so that they quickly support economic activity during the period of low demand, as 
delays in implementation could mean that the fiscal impulse only comes when the recovery 
is underway; 

–  temporary  so  as  to  avoid  a  permanent  deterioration  in  budgetary  positions  which  would 
undermine  sustainability  and  eventually  require  financing  through  sustained  future  tax 
increases; 

–  targeted  towards  the  source  of  the  economic  challenge  (increasing  unemployment,  credit 
constrained firms/households, etc. and supporting structural reforms) as this maximises the 
stabilisation impact of limited budgetary resources; 

–  co-ordinated  so  that  they  multiply  the  positive  impact  and  ensure  long  term  budgetary 

sustainability. 

(2) It should mix revenue and expenditure instruments.  

In general, discretionary public spending is considered to have a stronger positive impact on 
demand in the short-run compared with tax cuts. This is because some consumers may prefer 
to  save  rather  than  spend,  unless  the  tax  cuts  are  limited  in  time.  Taking  the  different 
situations of Member States into account the following measures could be considered2: 

–  Public  expenditure  has  an  impact  on  demand  in  the  short-term.  Measures  that  can  be 
introduced  quickly  and  targeted  at  households  which  are  especially  hard  hit  by  the 
slowdown  are  likely  to  feed  through  almost  directly  to  consumption,  e.g  temporarily 
increased  transfers  to  the  unemployed  or  low  income  households,  or  a  temporary 
lengthening  of  the  duration  of  unemployment  benefit.  This  can  also  be  done  through 
frontloading  public  investment  in  projects  which  could  benefit  SMEs  and  could  support 
long-term  public  policy  goals  such  as  improving  infrastructure  endowments  or  tackling 
climate change; 

–  Guarantees and loan subsidies to compensate for the unusually high current risk premium 
can be particularly effective in an environment where credit is generally constrained. They 
can  help  bridge  a  lack  of  short-term  of  working  capital  which  is  currently  a  problem  for 
many companies; 

–  Well  designed  financial  incentives  for  speeding  up  the  adaptation  of  our  economies  to 
long-term challenges such as climate change, including for example incentives for energy 
efficiency; 

–  Lower  taxes  and  social  contributions:  lower  social  contributions  paid  by  employers  can 
have a positive impact on job retention and creation while lower taxation of labour income 
can support purchasing power in particular for low wage earners; 

2 

The  general  recommendations  and  the  specific  actions  related  to  the  priority  areas  set  out  in  this 
document are subject to compliance with internal market and competition rules, notably for State aid. 

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–  Temporary reductions in the level of the standard rate of VAT can be introduced quickly 

and might provide a fiscal impulse to support consumption. 

(3) It should be conducted within the Stability and Growth Pact 

Budgetary policy should be conducted within the Stability and Growth Pact, so as to provide a 
common  and  credible  framework  for  policy.  The  2005  revision  of  the  Pact  allows  better 
account to be taken of cyclical conditions while  strengthening  medium  and  long-term  fiscal 
discipline.  The  resulting  framework  is  more  demanding  in  good  times,  it  affords  more 
flexibility  in  bad  times.  Extraordinary  circumstances  combining  a  financial  crisis  and  a 
recession  justify  a  co-ordinated  budgetary  expansion  in  the  EU.  It  may  lead  some  Member 
States to breach the 3% GDP deficit reference value. For Member States considered to be in 
an excessive deficit, corrective action will have to be taken in time frames consistent with the 
recovery  of  the  economy.  This  is  fully  consistent  with  the  procedures  of  the  Stability  and 
Growth Pact which guarantee that the excessive deficit will be corrected in due time, ensuring 
long-term sustainability of the budgetary positions. 

The  Stability  and  Growth  Pact  will  therefore  be  applied  judiciously  ensuring  credible 
medium-term  fiscal  policy  strategies.  Member  States  putting  in  place  counter-cyclical 
measures  should  submit  an  updated  Stability  or  Convergence  Programme  by  the  end  of 
December 2008. This update should spell out the measures that will be put in place to reverse 
the fiscal deterioration and ensure long-term sustainability. The Commission will then assess 
the budgetary impulse measures and stability and convergence programmes based on updated 
forecasts  and  will  provide  guidance  on  the  appropriate  stance,  relying  on  the  following 
objectives: 

–  ensuring the reversibility of measures increasing deficits in the short term; 

–  improving  budgetary  policy-making  in  the  medium-term,  through  a  strengthening  of  the 

national budgetary rules and frameworks; 

–  ensuring long-term sustainability of public finances, in particular through reforms curbing 

the rise in age-related expenditure. 

(4)  It  should  be  accompanied  by  structural  reforms  that  support  demand  and  promote 
resilience 

While the most immediate impact on growth and jobs in the short run needs to come from a 
monetary  and  fiscal  stimulus,  a  comprehensive  recovery  plan  also  needs  to  encompass  an 
ambitious structural reform agenda tailored to the needs of individual Member States, and 
designed  to  equip  them  to  emerge  stronger  from  the  crisis.  In  part,  this  is  because  some 
structural  reforms  can  also  contribute  to  bolstering  aggregate  demand  in  the  short  term. 
Moreover, structural reforms are necessary to address some of the underlying root causes of 
the  present  crisis,  as  well  as  to  strengthen  the  economy's  adjustment  capacity  needed  for  a 
rapid recovery. 

A  resilient,  flexible  economy  helps  mitigate  the  adverse  impact  of  an  economic  crisis.  The 
Lisbon  Strategy  has  already  strengthened 
fundamentals. 
Appropriately tailored, Lisbon strategy structural reforms could be an appropriate short-term 
policy  response  to  the  crisis  as  they  strengthen  economic  resilience  and  flexibility.  Member 
States should consider the following measures: 

the  European  economic 

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–  Supporting  consumer  purchasing  power  through  improved  market  functioning:  policies 
that  improve  the  functioning  of  key  markets  can  help  sustain  demand  by  helping  bring 
down prices, thus supporting the purchasing power of households; 

–  Addressing  immediate  competitiveness  problems.  In  Member  States  with  inflation  and 
competitiveness  problems  measures  need  to  be  taken  urgently  that  reinforce  the  link 
between the wage setting mechanism and productivity developments; 

–  Supporting  employment  and  facilitating  labour  market  transitions:  today's  prime  labour 
market challenge is to avoid wasteful labour shedding by industries temporarily affected by 
short-term  demand  disturbances.  To  that  end,  more  flexibility  in  working  time 
arrangements or enhanced employment services could help; 

–  Reducing regulatory and administrative burdens on businesses. Such reforms help increase 
productivity,  and  strengthen  competitiveness.  Measures  that  can  be  implemented  rapidly 
include continuing efforts to reduce the time to start up a business. 

2.3. 

Actions in the four priority areas of the Lisbon Strategy 

In  order  to  produce  maximum  benefits  and  achieve  the  Recovery  Plan's  aims  of  protecting 
people and preventing the crisis from deflecting attention from the EU's longer-term interests 
and  the  need  to  invest  in  its  future,  there  should  be  a  close  connection  between  the  fiscal 
stimulus  and  actions  in  the  four  priority  areas  of  the  Lisbon  Strategy  (people,  business, 
infrastructure  and  energy,  research  and  innovation),  as  outlined  in  this  section.  In  order  to 
achieve  this,  as  part  of  its  annual  Lisbon  package,  the  Commission  will  issue  individual 
reports  for  each  Member  State  on  16  December  2008  which  will  include  proposals  for 
recommendations. 

A smart combination of EU policies and funds can act as a catalyst for key investments taking 
the EU in the direction of future sustainable prosperity. It is equally important to provide for 
stable  foreseeable  framework  conditions  to  boost  confidence,  facilitate  investment  and  to 
work  for  least  cost  solutions  to  common  problems.  Some  of  the  actions  proposed  in  this 
section are designed to frontload EU funding directly to contribute to the fiscal stimulus and 
assist  Member  States  with  the  implementation  of  their  policies.  Others  are  intended  to 
improve the framework conditions for future investments, reduce administrative burdens and 
speed  up  innovation.  Overall,  the  actions  form  an  integrated  package:  their  budgetary 
implications should take into account the principles set out in the previous section. 

2.3.1.  Protecting employment and promoting entrepreneurship 

The  top  priority  must  be  to  protect  Europe's  citizens  from  the  worst  effects  of  the  financial 
crisis.  They  are  the  first  to  be  hit  whether  as  workers,  households,  or  as  entrepreneurs.  In 
addressing  the  employment  and  social  impact  of  the  financial  crisis,  Member  States  should 
actively involve the social partners. 

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a) People 

The  implementation  of  active  inclusion  and  integrated  flexicurity  policies,  focused  on 
activation measures, re-training and skills upgrading, are essential to promote employability, 
ensure rapid re-integration into the labour market of workers who have been made redundant 
and  avoid  long  term  unemployment.  Within  this  context,  adequate  social  protection  that 
provides incentives to work whilst preserving purchasing power will also be important. 

1. Launch a major European employment support initiative 

a)  The  Commission  is  proposing  to  simplify  criteria  for  European  Social  Fund  (ESF) 
support  and  step  up  advance  payments  from  early  2009,  so  that  Member  States  have 
earlier access to up to € 1.8 bn in order to: 

–  Within flexicurity strategies, rapidly reinforce activation schemes, in particular for 
the  low-skilled,  involving  personalised  counselling,  intensive  (re-)training  and  up-
skilling  of  workers,  apprenticeships,  subsidised  employment  as  well  as  grants  for 
self-employment, business start-up's and 

–  Refocus  their  programmes  to  concentrate  support  on  the  most  vulnerable,  and 
where necessary opt for full Community financing of projects during this period; 

–  Improve  the  monitoring  and  matching  of  skills  development  and  upgrading  with 
existing and anticipated job vacancies; this will be implemented in close cooperation 
with social partners, public employment services and universities; 

Working  with  Member  States,  the  Commission  proposes  to  re-programme  ESF 
expenditure to ensure that immediate priorities are met. 

b) The Commission will also propose to revise the rules of the European Globalisation 
Adjustment  Fund  so  that  it  can  intervene  more  rapidly  in  key  sectors,  either  to  co-
finance training and job placements for those who are made redundant or to keep in the 
labour market skilled workers who will be needed once the economy starts to recover. 
The Commission will review the budgetary means available for the Fund in the light of 
the implementation of the revised rules. 

2. Create demand for labour  

–  Member  States  should  consider  reducing  employers'  social  charges  on  lower 
incomes  to  promote  the  employability  of  lower  skilled  workers.  Member  States 
should also consider the introduction of innovative solutions (e.g. service cheques for 
household  and  child  care,  temporary  hiring  subsidies  for  vulnerable  groups),  which 
have already been successfully pioneered in parts of the Union; 

–  The  Council  should  adopt,  before  the  2009  Spring  European  Council,  the  proposed 
directive to make permanent reduced VAT rates for labour-intensive services. 

b) Business 

Sufficient and affordable access to finance is a pre-condition for investment, growth and job 
creation by the private sector. Member States need to use the leverage they have through the 
provision of major financial support to the banking sector to ensure that banks resume their 

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normal  lending  activities.  To  support  small  businesses  and  entrepreneurship,  the  EU  and 
Member  States  must  take  urgent  steps  to  substantially  reduce  administrative  burdens  for 
SMEs  and  micro-enterprises,  in  particular  by  fast-tracking  the  corresponding  Commission's 
proposals. To this end, the European Small Business Act should also be implemented as soon 
as possible. 

The  EU's  state  aid  rules  offer  Member  States  a  wide  range  of  possibilities  for  providing 
financial  support  to  companies,  regions  and  workers/the  unemployed  and  to  stimulate 
demand. At the same time these rules guarantee a level playing field, ensuring that state aids 
are  used  to  support  EU  objectives  such  as  R&D,  innovation,  ICT,  transport  and  energy 
efficiency, and not to unduly distort competition by favouring particular companies or sectors. 
In  the  current  exceptional  circumstances,  access  to  finance  is  a  major  business  concern  and 
the  Commission  will  develop  temporary  guidelines  allowing  state  support  for  loans  (see 
below). 

3. Enhance access to financing for business 

–  The EIB has put together a package of € 30 bn for loans to SME's, an increase 

by € 10 billion over its usual  lending in this sector; 

–  The EIB will also reinforce by € 1 bn a year its  lending to mid-sized corporations, a 
key  sector  of  the  EU  economy.  Furthermore,  an  additional  €  1  billion  will  be 
conferred by the EIB to the EIF for a mezzanine finance facility; 

–  The Commission will put in place a simplification package, notably to speed up its 
State  aid  decision-making.  Any  state  aid  should  be  channelled  through  horizontal 
schemes  designed  to  promote  the  Lisbon  objectives,  notably  research,  innovation, 
training, environmental protection and in particular clean technologies, transport and 
energy efficiency. The Commission will temporarily authorise Member States to 
ease  access  to  finance  for  companies  through  subsidised  guarantees  and  loan 
subsidies for investments in products going beyond EU environmental standards3. 

4. Reduce administrative burdens and promote entrepreneurship 

Building on the Small Business Act, and in order significantly reduce administrative 
burdens  on  business,  promote  their  cash  flow  and  help  more  people  to  become 
entrepreneurs, the EU and Member States should: 

–  Ensure that starting up a business anywhere in the EU can be done within three days 
at zero costs and that formalities for the hiring of the first employee can be fulfilled 
via a single access point; 

–  Remove  the  requirement  on  micro-enterprises  to  prepare  annual  accounts  (the 
estimated  savings  for  these  companies  are  €  7bn  per  year)  an d  limit  the  capital 

3 

This will be done by raising the current €1.5 M safe  harbour threshold for risk capital to € 2.5M, and by 
allowing, subject to certain conditions and maximum amounts, (a) to grant aid for guarantees for loans 
for certain companies having difficulties to obtain loans ; and (b) to grant aid of up to 50% (for SMEs 
and 25% (for large companies) of the Reference Rate, for loans for investments in the manufacture of 
products complying earlier with, or going beyond, new Community standards which increase the level 
of environmental protection and are not yet in force. 

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requirements of the European private company to one euro; 

–  Accelerate the adoption of the European private company statute proposal so that 
from early 2009 it can facilitate cross border business activities of SMEs and to allow 
them to work under a single set of corporate rules across the EU; 

–  Ensure  that  public  authorities  pay  invoices,  including  to  SMEs,  for  supplies  and 
services  within  one  month  to  ease  liquidity  constraints  and  accept  e-invoicing  as 
equivalent  to  paper  invoicing  (this  could  deliver  cost  reductions  of  up  to  18  €  Bn); 
any arrears owed by public bodies should also be settled; 

–  Reduce by up to 75% the fees for patent applications and maintenance and halve the 

costs for an EU trademark. 

2.3.2 Continuing to invest in the future 

We are witnessing the beginning of a major structural shift towards a low carbon economy. 
This provides the EU with an opportunity that will create new businesses, new industries and 
millions  of  new  well-paying  jobs.  All  sectors  must  participate:  for  example,  the  recent 
decision  on  the  CAP  health  check  commits  €3  Bn   for  climate-friendly  investments  in  rural 
development. This is where short-term action can bring immediate as well as lasting benefits 
to the Union. To accelerate investments, the Commission will clarify the legal framework for 
partnerships between the public and private sector aiming at carrying out major infrastructure 
and research investments, in order to facilitate this mixed mode of financing. 

c) Infrastructure and energy 

The  key  to  maximising  benefits  and  minimising  costs  is  to  target  opportunities  to  boost 
energy  efficiency,  for  example,  of  buildings,  lighting,  cooling  and  heating  systems,  and  of 
other  technologies  like  vehicles  and  machinery.  Major  positive  effects  for  households  and 
businesses can be harvested in the short term. 

At the same time, Europe needs to accelerate its investments in infrastructure, particularly in 
the environmentally-friendly transport-modes which are part of the Trans-European Networks 
(TENs),  high-speed  ICT  networks,  energy  interconnections,  and  pan-European  research 
infrastructures. Speeding up infrastructure investments will not only cushion the blow to the 
construction  sector,  which  is  slowing  down  sharply  in  most  Member  States,  it  will  also 
enhance Europe's longer-term sustainable growth-potential. Particularly in the energy sector a 
number  of  high  profile  trans-European  projects  would  help  to  increase  the  EU's  energy 
security and integrate more Member States into the European electricity grid. 

5. Step up investments to modernise Europe's infrastructure 

–  For at least the next two years, the EU budget is unlikely to spend the full amount set 
out  in  the  financial  framework.  Therefore,  for  2009  and  2010,  the  Commission 
proposes  to  mobilise  an  additional  €  5  bn  for  trans-European  energy  inter-
connections and broadband infrastructure projects. To make this happen, Council 
and Parliament will need to agree to revise the financial framework, while remaining 
within the limits of the current budget; 

–  With a financial envelope of over €  347 bn for 2007-2013, cohesion policy provides 
considerable  support  to  public  investment  by  Member  States  and  regions.  However, 

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there  is  a  risk  that  pressure  on  national  budgets  will  slow  down  the  rate  of  planned 
investment. To give an immediate boost to the economy, the implementation of the 
structural funds should be accelerated. To this end: 

–  The Commission will propose to increase its pre-financing of programmes to 

make up to € 4.5 bn available earlier in 2009; 

–  Member States should use the available flexibility to frontload the financing 

of projects by enhancing the part financed by the Community; 

–  The Commission will propose a number of other measures designed to bring 
forward the implementation of major investment projects, to facilitate the use 
of financial engineering funds, to simplify the treatment of advances paid to 
the beneficiaries and to widen the possibilities for eligible expenditure on a 
flat rate basis for all the funds. 

The Commission underlines the need for early adoption of these proposals. 

–  By  the  end  of  March  2009  the  Commission  will  launch  a  €500  million  call  for 
proposals for trans-European transport (TEN-T) projects where this money would 
lead  to  construction  beginning  before  the  end  of  2009.  This  will  bring  forward 
existing funds that would have been reallocated by the mid-term review of the multi-
annual TEN-T programme in 2010;  

–  In  parallel,  the  EIB  will  significantly  increase  its  financing  of  climate  change, 
energy  security  and  infrastructure  investments  by  up  to  €  6  bn  per  year,  while  also 
accelerating  the  implementation  of  the  two  innovative  financial  instruments  jointly 
developed  with  the  Commission,  i.e.  the  Risk  Sharing  Finance  Facility  to  support 
R&D  and  the  Loan  Guarantee  Instrument  for  TEN-T  projects  to  stimulate  greater 
participation of the private sector; 

–  The EBRD will more than double its efforts for energy efficiency, climate change 
mitigation  and  financing  for  municipalities  and  other  infrastructure  services. 
This  could  lead  through  the  mobilisation  of  private  sector  financing  to  €  5  bn 
investments. 

6. Improve energy efficiency in buildings 

Acting  together,  Member  States  and  EU  Institutions  should  take  urgent  measures  to 
improve  the  energy  efficiency  of  the  housing  stock  and  public  buildings  and  promote 
rapid take up of 'green' products: 

–  Member  States  should  set  demanding  targets  for  ensuring  that  public  buildings  and 
both  private  and  social  housing  meet  the  highest  European  energy-efficiency 
standards  and  make  them  subject  to  energy  certification  on  a  regular  basis.  To 
facilitate reaching their national targets, Member States should consider introducing a 
reduction of property tax for energy-performing buildings. The Commission has just 
tabled proposals4 for a major upgrading in the energy efficiency of buildings and calls 
on the Council and Parliament to give priority to their adoption; 

4 

COM(2008) 755, 13.11.2008. 

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–  In addition, Member States should re-programme their structural funds operational 
programmes'  to  devote  a  greater  share  to  energy-efficiency  investments,  including 
where they fund social housing. To widen possibilities, the Commission is proposing 
an amendment to the Structural Funds Regulations to support this move and stresses 
the need for early adoption of the amendments; 

–  The Commission will work with the EIB and a number of national development banks 
to launch a 2020 fund for energy, climate change and infrastructure to fund equity 
and quasi-equity projects; 

–  The Commission calls on Member States and industry urgently to develop innovative 
financing  models,  for  example,  where  refurbishments  are  financed  through 
repayments, based on savings made on energy bills, over several years. 

7. Promote the rapid take-up of "green products" 

–  The Commission will propose reduced VAT rates for green products and services, 
aimed  at  improving  in  particular  energy  efficiency  of  buildings.  It  encourages 
Member  States  to  provide  further  incentives  to  consumers  to  stimulate  demand  for 
environmentally-friendly products; 

–  In addition, Member States should rapidly implement environmental performance 
requirements  for  external  power  supplies,  stand-by  and  off  mode  electric  power 
consumption, set top boxes and fluorescent lamps; 

–  The  Commission  will  urgently  draw  up  measures  for  other  products  which  offer 
very  high  potential  for  energy  savings  such  as  televisions,  domestic  lighting, 
refrigerators and freezers, washing machines, boilers and air-conditioners. 

d) Research and Innovation 

The  financial  crisis  and  the  subsequent  squeeze  on  financial  resources,  both  public  and 
private,  may  tempt  some  to  delay,  or  substantially  cut,  planned  R&D  and  education 
investments, as has happened in the past when Europe was hit by a downturn. With hindsight, 
such  decisions  amounted  to  a  major  capital  and  knowledge  destruction  with  very  negative 
effects  for  Europe's  growth  and  employment  prospects  in  the  medium  to  longer-term. 
However, there have also been examples of countries, both inside and outside Europe, which 
had the foresight to increase R&D and education expenditure in difficult economic times by 
which they laid the basis for their strong position in innovation. 

8. Increase investment in R&D , Innovation and Education 

Member  States  and  the  private  sector  should  increase  planned  investments  in  education 
and  R&D  (consistent  with  their  national  R&D  targets)  to  stimulate  growth  and 
productivity.  They  should  also  consider  ways  to  increase  private  sector  R&D 
investments, for example, by providing fiscal incentives, grants and/or subsidies. Member 
States should maintain investments to increase the quality of education. 

9. Developing clean technologies for cars and construction. 

To  support  innovation  in  manufacturing,  in  particular  in  the  construction  industry 
and the automobile sector which have recently seen demand plummet as a result of the 
crisis  and  which  also  face  significant  challenges  in  the  transition  to  the  green  economy, 

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the  Commission  proposes  to  launch  3  major  partnerships  between  the  public  and 
private sectors: 

–  In the automobile sector, a 'European green cars initiative', involving research on a 
broad  range  of  technologies  and  smart  energy  infrastructures  essential  to  achieve  a 
breakthrough  in  the  use  of  renewable  and  non-polluting  energy  sources,  safety  and 
traffic fluidity. The partnership would be funded by the Community, the EIB, industry 
and Member States' contributions with a combined envelope of at least € 5 bn. In this 
context,  the  EIB  would  provide  cost-based  loans  to  car  producers  and  suppliers  to 
finance  innovation,  in  particular  in  technologies  improving  the  safety  and  the 
environmental performance of cars, e.g. electric vehicles. Demand side measures such 
as  a  reduction  by  Member  States  of  their  registration  and  circulation  taxes  for  lower 
emission  cars,  as  well  as  efforts  to  scrap  old  cars,  should  be  integrated  into  the 
initiative. In addition, the Commission will support the development of a procurement 
network  of  regional  and  local  authorities  to  pool  demand  for  clean  buses  and  other 
vehicles and speed up the implementation of the CARS21 initiative; 

–  In  the  construction  sector,  a  'European  energy-efficient  buildings'  initiative,  to 
promote  green  technologies  and  the  development  of  energy-efficient  systems  and 
materials in new and renovated buildings with a view to reducing radically their energy 
consumption  and  CO2  emissions5.  The  initiative  should  have  an  important  regulatory 
and standardisation component and would involve a procurement network of regional 
and  local  authorities.  The  estimated  envelope  for  this  partnership  is  €  1bn.  The 
initiative  would  be  backed  by  specific  actions  proposed  under  actions  5  and  6  on 
infrastructure and energy-efficiency; 

–  To  increase  the  use  of  technology  in  manufacturing,  "a  factories  of  the  future 
initiative":  The  objective  is  to  help  EU  manufacturers  across  sectors,  in  particular 
SMEs, to adapt to global competitive pressures by increasing the technological base of 
EU manufacturing through the development and integration the enabling technologies 
of  the  future,  such  as  engineering  technologies  for  adaptable  machines  and  industrial 
processes, ICT, and advanced materials. The estimated envelope for this action is € 1.2 
bn. 

10. High-speed Internet for all 

High-speed Internet connections promote rapid technology diffusion, which in turn creates 
demand  for  innovative  products  and  services.  Equipping  Europe  with  this  modern 
infrastructure is as important as building the railways in the nineteenth century. To boost 
Europe's  lead  in  fixed  and  wireless  communications  and  accelerate  the  development  of 
high  value-added  services,  the  Commission  and  Member  States  should  work  with 
stakeholders to develop a broadband strategy to accelerate the up-grading and extension 
of networks. The strategy will be supported by public funds in order to provide broadband 
access  to  under-served  and  high  cost  areas  where  the  market  cannot  deliver.  The  aim 
should be  to  reach 100% coverage of high speed internet by 2010. In addition, and also 
with  a  view  to  upgrading  the  performance  of  existing  networks,  Member  States  should 
promote  competitive  investments  in  fibre  networks  and  endorse  the  Commission's 
proposals  to  free  up  spectrum  for  wireless  broadband.  Using  the  funding  mentioned  in 

5 

Buildings currently account for 40% of energy consumption. 

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action  5  above,  the  Commission  will  channel  an  additional  €  1  bn  to  these  network 
investments in 2009/10. 

3. 

WORKING TOWARDS GLOBAL SOLUTIONS 

The  challenges  the  EU  is  now  facing  are  part  of  the  global  macro  economic  challenges 
highlighted  by  the  recent  Summit  on  Financial  Markets  and  the  World  Economy  in 
Washington. This European Economic Recovery Plan will form part of the EU's contribution 
to  closer  international  macro  economic  co-operation,  including  with  emerging  countries, 
designed to restore growth, avoid negative spillovers and support developing countries. The 
EU  has  benefited  greatly  in  recent  decades  from  increased  cross-border  capital  and  trade 
flows with developed countries and increasingly also with emerging economies. The financial 
crisis has shown just how interdependent the world has become. The scale and speed at which 
a loss of confidence in one part of the world soon affected financial markets and spilt over to 
real  economies  worldwide  is  rightly  a  matter  of  concern.  In  today's  world,  a  shock  to  one 
systemically important financial market is a global problem and has to be treated accordingly. 
So a key part of any co-ordinated EU response to the economic downturn will have to come 
through  greater  engagement  with  our  international  partners,  and  with  international 
organisations,  working  together  to  tackle  challenges  at  home  and  abroad,  including  in 
developing countries which will be among those hardest hit. 

Keeping world trade moving 

Europe's recovery depends on our companies' ability to make best use of the possibilities that 
global  markets  offer.  Europe's  return  to  solid  growth  will  also  depend  on  its  capacity  to 
export. Keeping trade links and investment opportunities open is also the best means to limit 
the global impact of the crisis, since global recovery will depend crucially on the sustainable 
economic performance of emerging and developing economies. 

We must therefore maintain our commitment to open markets across the globe, keeping our 
own market as open as possible and insisting that third countries do the same, in particular by 
ensuring  compliance  with  WTO  rules.  To  reach  this  objective  Europe  should  take  renewed 
action to: 

–  Reach  early  agreement  on  a  global  trade  deal  in  the  WTO  Doha  Round.  Following  the 
renewed commitment made at the 15 November Washington Summit, the Commission has 
immediately  stepped  up  efforts  with  key  WTO  partners  to  reach  an  agreement  on 
modalities by the end of the year. A successful Round will send a strong short-term signal 
of  confidence  in  the  new  global  economic  order.  Over  time  it  will  bring  consumers  and 
businesses all over the world benefits in terms of lower prices, by cutting remaining high 
tariffs in key partner markets; 

–  Continue to support the economic and social consolidation of the candidate countries and 
the  Western  Balkans  in  the  mutual  interest  of  the  EU  and  the  region.  To  this  end  the 
Commission  will  put  in  place  a  €  120  million  "C risis  Response  Package"  leveraging  an 
amount of € 500 million in loans from  International Financial Institutions; 

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–  Create  a  network  of  deep  and  comprehensive  free  trade  agreements  in  its 
neighbourhood as a step towards a more integrated regional market. Working through its 
neighbourhood policy, the EU can build on the Union for the Mediterranean and its plans 
for a new Eastern Partnership; 

–  Step  up  efforts  to  secure  new  and  ambitious  Free  Trade  Agreements  with  other  trade 

partners; 

–  Build a close working relationship with the new US administration, including through the 
Transatlantic  Economic  Council.  More  effective  regulatory  cooperation  could  also  be 
pursued with other key industrialised countries, such as Canada and Japan; 

–  Continue dialogues with key bilateral partners such as China, India, Brazil and Russia 
and use them to address public procurement, competition and intellectual property issues. 

Tackling Climate change 

The crisis is occurring on the eve of a major structural shift towards the low carbon economy. 
The goal of fighting climate change can be combined with major new economic opportunities 
to develop new technologies and create jobs and enhance energy security. 

Agreement in the December European Council and with the European Parliament on the EU's 
internal climate change strategy will strengthen the leading role the EU must seek to play in 
securing an ambitious international agreement on climate change at the UNFCCC conference 
in Copenhagen at the end of 2009. 

Supporting developing countries 

The  current  crisis  will  further  add  to  existing  pressures  on  developing  countries,  which  are 
often  least  well  positioned  to  cope.  So  it  is  all  the  more  important  that  the  EU,  and  others, 
maintain their commitments to achieving the Millennium Development Goals (MDG). It may 
also  be  necessary  for  developed  countries  and  regions,  like  the  EU,  to  come  up  with  new, 
flexible and innovative instruments to help developing countries face the rapid impact of the 
crisis such as the EU's recent food aid facility. 

Continuing  to  help  emerging  and  developing  countries  on  the  path  to  sustainable  growth  is 
particularly  relevant  in  the  run  up  to  the  International  Conference  on  Financing  for 
Development,  which  will  take  place  in  Doha  from  29  November  –  2  December.  At  this 
meeting, the EU – which in 2007 continued to be the largest donor of Overseas Development 
Assistance (ODA) - will reaffirm its commitment to arriving at ODA target levels of 0.56% of 
GNP by 2010 and 0.7% by 2015. It will also invite other donors to continue to work towards 
these goals. 

Supporting sustainable development, inter alia through delivering on ODA targets and MDG 
goals, but also through addressing overall governance challenges, is all the more important in 
times of economic crisis. Sharing the benefits of sustainable growth, tackling climate change, 
energy and food security and good governance, are interlinked challenges, where international 
financial institutions, like other international bodies, also have an important role to play. 

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4. 

CONCLUSIONS 

It is clear that the EU faces a difficult time in the coming months as the effects of the world 
and European economic slow down puts pressure on jobs and demand. But, acting together, 
Member  States  and  European  Institutions  can  take  action  to  restore  consumer  and  business 
confidence,  to  restart  lending  and  stimulate  investment  in  our  economies,  creating  jobs  and 
helping the unemployed to find new jobs. The European Economic Recovery Plan set out 
in  this  Communication  is  designed  to  create  a  basis  for  rapid  agreement  between  Member 
States to get Europe's economy moving again. 

The  European  Commission  calls  on  the  European  Parliament  to  lend  its  full  support  to  this 
European Economic Recovery Plan. 

It calls on Heads of State and Government, at their meeting on 11 and 12 December 2008, to: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

Endorse this European Economic Recovery Plan; 

Request  the  European  Commission  and  the  Council  to  work  together  to  ensure  that 
combined national and EU level measures amount to at least 1.5% of GDP; 

Ensure  that  updated  Stability  and  Convergence  Programmes  including  the  national 
impulse  measures,  are  assessed  in  accordance  with  the  procedures  laid  down  in  the 
Stability and Growth Pact, while making use of the flexibility it offers; 

Endorse  the  10  actions  outlined  in  the  European  Economic  Recovery  Plan;  urge  the 
Council  and  Parliament  to  accelerate  any  legislative  activity  needed  to  implement 
these measures; 

Agree,  on  the  basis  of  a  Commission  contribution  before  the  2009  Spring  European 
Council assessing progress made with the implementation of the Plan, to identify any 
further measures necessary at EU and Member State level to stimulate the recovery; 

Continue to work closely with international partners to implement global solutions to 
strengthen global governance and promote the economic recovery. 

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