March 18, 2009

EU stimulus efforts criticized

The European Union and the United States need to pump much more money into the economy to get it growing again, a leading U.S. economist says.

Paul Krugman, a Nobel-prize-winning economist, said Tuesday in Brussels that the $260 billion the EU committed in its stimulus package last year was only a down payment on what's needed -- $520 billion this year and up to $1.4 trillion over the next three years, the EU Observer reported Wednesday.

Krugman said the United States also is not spending enough.

My back of the envelope math says on both sides of the Atlantic we should be having a stimulus that peaks at 4 percent of GDP annually, he told reporters after meeting with industry commissioner Guenter Verheugen.

Krugman said the U.S. stimulus package amounts to about 2.5 percent of gross domestic production and the EU plan is about 1.5 percent of GDP.

The European Commission maintains its spending is really about 3.3 percent when other expenditures are taken into account.

We think it's a little bit too early to make judgment whether the stimulus packages we have enacted will work, Verheugen said.

I don't see that a second stimulus package will be prepared. I just don't see any room.