Monetary policy must reflect recession - EU draft

By Jan Strupczewski

BRUSSELS (Reuters) - The EU's economic recovery package is based on central banks pursuing a monetary policy aimed at facing up to recession, EU leaders will say at a summit next week, a draft communique obtained by Reuters shows.

"The plan is based on a fiscal effort equivalent in total to at least 1.5 percent of EU GDP (around 200 billion euros), (and) on the European Central Bank and other central banks pursuing a monetary policy which takes full account of the context of economic recession," the draft said.

EU national envoys will discuss the language of the document on Thursday.

The European Central Bank, the Bank of England and the Swedish central bank meet on interest rates on Thursday. Markets expect at least a 50 basis point ECB cut to 2.75 percent, and many economists call for a reduction of 75 to 100 basis points.

The Riksbank and the Bank of England are expected to decide on cuts of 75 or 100 basis points.

The wording of the draft on the role of monetary policy is bolder than the original reference to the ECB in the European Commission's stimulus plan of November 26, which said:

"In the current juncture, monetary policy has a crucial role to play. In the light of reduced inflationary expectation over the medium-term, the European Central Bank for the euro area, along with other EU central banks, has already cut interest rates. The ECB has signalled that there is scope for further reductions."

Speaking a day before the ECB's rate-setting Governing Council meets in Brussels, EU Economic and Monetary Affairs Commissioner Joaquin Almunia stressed the role of monetary policy in remarks to the European Parliament.