Brussels - Unless European Union governments act swiftly,
the global financial crisis could cost them as much as 1.8 trillion
euros (2.5 trillion dollars), or three times what they are already
spending on the so-called 'real economy', according to European
Commission figures out Tuesday.
Such a nightmare scenario is found in the commission's 2009 Report
on Public Finances, whose risk analysis estimates 'the direct fiscal
costs of the current crisis in the EU' at between 2.75 and 14 per
cent of the bloc's gross domestic product (GDP).
The upper limit, which officials in Brussels revised down from the
16.5 per cent figure contained in the report, roughly translates into
1.8 trillion euros.
The range depends on how efficiently governments react to the
crisis, and to what extent troubled banks use up the state guarantees
that have been provided to them.
'Experience (from past financial crises) shows that the costs were
lower when the banking crisis resolution strategy was implemented
swiftly; was transparent and received broad political support,' the
report said.
So far, EU member states have supported their banking sectors to
the tune of about 13 per cent of GDP, and have already approved funds
worth a further 31 per cent of GDP.
However, most of these measures are in the form of guarantees on
bank liabilities, which do not affect public debt and deficits unless
they are called upon, the report states.
As well as tackling the global financial crisis, EU governments
are also having to address the bloc's worst recession in decades,
pumping more than 600 billion euros in fiscal stimuli in their
economies in 2009 and 2010.
This figure, which excludes measures to support banks, is largely
made up of so-called 'automatic stabilizers' - such as spending on
unemployment benefit, which tends to rise during economic downturns.
The largest fiscal stimulus as a percentage of GDP are currently
being implemented in Spain, Austria, Finland, Britain, Germany and
Sweden.
Such stimuli have produced ballooning budget deficits in most EU
countries, prompting the commission to urge governments to reduce
public spending as soon as the current crisis is over.
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