PREVIEW-EU finmins to pore over Commission's 200 bln euro plan

By Jan Strupczewski

BRUSSELS, Nov 28 (Reuters) - European Union finance ministers will seek to coordinate a joint boost to the sagging economy next week, choosing from a menu of actions drawn up by the European Commission in a plan worth some 200-billion euros.

But EU sources close to the organisation of the monthly meeting of euro zone finance ministers and the European Central Bank, called the Eurogroup, as well as the broader Ecofin of the 27 EU finance ministers, cautioned not to expect too much.

"On Monday and Tuesday the Eurogruop and the Ecofin will discuss the Commission plan, what they think is missing, if they disagree with the plan," one Eurogroup source said.

"They will make informal agreements, like: 'we think this is more worth pursuing more than something else', or 'we think this is missing', or 'that should definitely be done', but there will be no formal decisions," the source said.

With the 15-member euro zone already in recession and the economy of the 27-nation European Union fast heading towards one, the EU executive arm proposed on Wednesday a 200 billion euro fiscal stimulus to stave off the slowdown. [ID:nNLQ669817]

The plan calls for additional discretionary budget spending, mainly in 2009, but also in 2010, of around 1.2 percent of GDP from EU members with Commission adding another 0.3 percent of GDP from common EU funds, to kick start the economy.

"Finance ministers have an important role in clearing the ground and seeing what degree of agreement is possible," a second Eurogroup source said.

To avoid actions in one country clashing with measures taken elsewhere in the 27-nation bloc, which shares a common market for goods and services, the Commission has prepared a toolbox of steps for countries to choose from.

"If the impulse is not coordinated, one plus one might not equal two, but less, even zero. If it is coordinated, one plus one may equal three," Economic and Monetary Affairs Commissioner Joaquin Almunia said on Wednesday.

What will make the talks difficult is the fact that many EU countries, like Germany, Spain, Italy or the Netherlands have already announced national economic stimulus plans. Some, like France, are just about to.

HOW MUCH NEW MONEY?

The 200 billion euro total of the Commission's plan takes into account already announced measures, Commission President Jose Manuel Barroso said on Wednesday, giving the example of the German stimulus package worth 32 billion euros.

On Thursday Berlin rejected French calls to provide billions more euros to finance growth, saying it did not want to be punished for putting its public finances in order in past years, by having to now bailout those who did not make the effort.

France has less room for manoeuvre in budget policy than Germany because its budget deficit is now close to the EU limit of 3 percent of gross domestic product and likely to breach that ceiling in coming years, triggering EU disciplinary action.

Sources stressed however, it was not the amount spent but what it was spent on that would be decisive for boosting growth. They said an example of a poor stimulus was the tax stimulus in the United States which boosted growth only during one quarter.

Possible EU actions include general value-added tax cuts, cuts in VAT for labour-intensive services and environmentally friendly products and services, lowering taxes on low-income labour and temporarily higher and longer social benefits.

They also include credit guarantees and loan subsidies for firms and at least 5 billion euros from the European Investment Bank, where EU governments are shareholders, for private-public partnerships developing green technologies for the car industry.

But for the extra EIB loans for the automotive sector and other companies to become reality, the ministers need to raise the EIB' capital to meet required capital to loans ratios -- a move that is far from decided yet, one senior EU source said.

Neither is there agreement on VAT cuts. Britain went for a 2.5 percentage point cut in it sales tax, but France and Germany have already ruled out a similar move. EU sources say EU finance ministers still remained split on the proposal for cuts in VAT on labour intensive services.

In an ideal world, each of the EU's 27 finance ministers would coordinate what he or she wants to do with each of the other ministers, the first Eurogroup source said.

"But if we are to be realistic, such coordination will be difficult, so we will end up somewhere in between everybody picking preferred actions from a menu and going all the way to take advantage of economies and scale and saying that all 27 take the same step," the source said.

Sources said the talks among the finance ministers would only be the beginning of the coordination, with final decisions to be taken by EU leaders on Dec 11-12. (Additional reporting by James MacKenzie in Paris) (Reporting by Jan Strupczewski, editing by Ron Askew)