EU finmins to seek stimuli end, but not now-sources

BRUSSELS Tue Sep 1, 2009 2:00pm BST

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BRUSSELS (Reuters) - European Union finance ministers are likely to tell the G20 on Wednesday that plans to withdraw fiscal help to economies should be prepared, but that it is too early to implement them, EU sources said.

They may also seek international coordination in the gradual withdrawal of global fiscal stimuli, aimed at limiting the impact on the world economy of the worst downturn since World War Two, the sources said.

Finance ministers from the 27-nation EU hold talks on Wednesday in Brussels to prepare a joint message for finance ministers from the Group of 20 (G20) industrialised and emerging nations meeting in London on September 4-5.

"On fiscal policy there is consensus that at some stage you have to withdraw the stimulus, but they are far from a consensus on how soon and how quickly," one source involved in preparations for the EU meeting said.

"Some countries are thinking of taking the exit sooner rather than later, but if you start early, you will have to take very, very small steps," the source said.

Governments across the world have spent trillions of dollars on economic stimulus packages to combat the recession, prompting a debate about how eventually to unwind this support.

Removing the stimulus too soon could see economies slump again, while leaving it in place too long could risk stoking inflationary pressures.

Germany urged the G20 on Monday to coordinate the withdrawal of government spending, which it said should take place as early as possible when economic recovery has gained a firm footing.

There was consensus among the EU, however, that the recovery was not yet at that stage.

"There is agreement on the fact that there is no reason for euphoria, but that things may be looking up," a second source involved in preparations for the EU meeting said.

LOOKING FOR AN EXIT

There was unity among EU ministers that neither inflation nor disinflation was now a problem, that it was too early to say the crisis was over and that there was no need for further fiscal stimulus, the second source said.

"There is agreement that the time may have come to start thinking about an exit. But not doing it, only thinking about, planning, organising it, not yet implementing. That would be considerably too early," the source said.

"This is the major economic policy coordination exercise of the last 30 years. This is a big, big thing ... at a global level," the source said.

No EU consensus existed yet on the degree of global coordination needed, but the idea was appealing.

"Maybe the French are not in complete agreement with this, but large parts of the EU would like to see coordination in the G20 on when and how to withdraw the stimulus," the source said.

The message on exit strategies, both in the EU and the G20, was likely to avoid detailed commitments because within the EU as well as in the G20 countries, the depth of public coffers and the state of economies differed.

"It will be a more general message like: whoever can afford to take the exit earlier, without doing too much harm to the economy, probably will do so," the first source said.

"A message that yes, the exit must come but countries will do whatever is appropriate in their own circumstances," the first source said, speaking of the expected statements from EU and G20 finance ministers.

In Europe, decisions on when and how to withdraw government support for the euro zone economy, which is expected by many economists to emerge from recession in the third quarter, would be discussed in early 2010.

"There is no reason for additional stimulus in 2009 or 2010, but a withdrawal of stimulus in 2009 would not be practical," the second source said.

"But we need to start, in the context of EU budget rules, to discuss by early 2010 what the pace of adjustment towards the medium-term objective will be," the source said.

The medium-term budgetary objective for most EU countries is a budget in balance or in surplus.

(Editing by Dale Hudson)

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