Danish PM calls for more stimulus in Europe

COPENHAGEN Mon Jun 25, 2012 11:05am EDT

Denmark's Prime Minister Helle Thorning-Schmidt speaks during a Green Partnership for Growth event at the Parliament in Copenhagen, May 31, 2012. REUTERS/Saul Loeb/Pool

Denmark's Prime Minister Helle Thorning-Schmidt speaks during a Green Partnership for Growth event at the Parliament in Copenhagen, May 31, 2012.

Credit: Reuters/Saul Loeb/Pool

COPENHAGEN (Reuters) - The European Union will deliver a growth package at a summit this week but countries that can afford it should do more to stimulate their economies to help lift the region out of crisis, Denmark's prime minister said on Monday.

Helle Thorning-Schmidt's call came three days before EU leaders meet in Brussels to approve a growth package and discuss further plans to end the crisis, although euro zone paymaster European Germany remains reluctant to loosen fiscal strings.

A growth package of around 130 billion euros ($162.96 billion) is expected, but there is growing investor skepticism that the meeting will achieve any major breakthrough despite worries about a slide back into a regional recession.

"The countries that can afford to do more in terms of pushing growth should do so," Thorning-Schmidt told Reuters in an interview at her office in the Christiansborg Palace.

"Growth is not only a European issue," said the prime minister, for whom the June 28-29 summit will be the culmination of Denmark's six-month presidency of the European Union.

"It is also an issue for the individual member states, and each individual member state has to decide what it can do in terms of reforming its labor market or general economy and also creating certain stimulus for the economy," she said.

Thorning-Schmidt said Denmark's own stimulus measures, put in place after she was elected last September, ranked as the biggest in Europe in terms of the size of the economy.

"I think this is a good example that perhaps could be followed in other countries, countries that can afford it. They, of course, should consolidate their finances but also stimulate the economy if they can afford it."

This week's summit will also discuss plans to move forward with deeper fiscal union in Europe, including a pooling of European debt and Europe-wide banking regulation.

Thorning-Schmidt said she could support institutional or treaty changes to help the euro zone improve stability, but that some of the planned policies would be hard for Danes to stomach.

"It would be quite difficult to say to the Danish public that they would be suddenly responsible for debt in other countries, or bank problems in other countries," she said.

The two-day summit will be the 20th time leaders have met to try to find ways to resolve a crisis that has spread across the continent since it began in Greece in early 2010.

Some analysts say the touted 130 billion euro growth package is modest given the depth of the crisis.

"Is it enough? I am sure you could argue that you could do more," Thorning-Schmidt said. "But we are under budgetary constraints. We are trying very hard to strike the right balance between consolidation on the one side and growth on the other."

Elected in 2011 on promises to get Denmark out of economic crisis, Social Democrat Thorning-Schmidt has languished in polls with her government criticized by allies on the left for moving too far on free market reforms, including scrapping an early pension scheme and giving tax cuts to high-earners.

Her government's stimulus package has helped, though Denmark remains the weakest performer of the Nordic economies.

The prime minister said European leaders should do all they could to avoid creating new divisions within Europe.

"We have a two-speed Europe already," Thorning-Schmidt said, referring to the split between the euro zone and non-euro countries like Denmark, "and that worries me a bit."

"We are strongest as a European Union if all 27 of us (member states) act together."

(Editing by Catherine Evans)

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