Sunday, March 29, 2009

COP: E.U. President Calls U.S. Stimulus the ‘Way to Hell’


PARIS — The European Union’s crisis of leadership during the economic downturn was thrown into sharp relief on Wednesday, as the current president of the 27-nation bloc labeled President Obama’s emergency stimulus package as “a way to hell” that will “undermine the stability of the global financial market.”The blunt comments by the Czech prime minister, Mirek Topolanek, whose country holds the rotating presidency of the union, came just a week before a crucial meeting of the Group of 20 that was called to show global solidarity in fighting the recession. The comments were greeted with embarrassment by many Europeans who believe that the Czech leader does not represent a European consensus.

What made the situation even more trying for those who hope that the European Union might find a common voice in this crisis was that Mr. Topolanek’s own governing coalition collapsed on Tuesday. The Czech opposition party, which favors bigger increases in domestic spending during the slump, won a no-confidence vote on his leadership.

Despite widespread fears that European nations could prolong the current recession unless they act in concert with one another and the United States, the slump has highlighted differences over deficit spending, interest rates and possible bailouts for new union members in the East. There are few signs that the alliance is developing the political leadership to match its economic weight.

Britain, like the United States, has undertaken an aggressive fiscal stimulus and slashed interest rates. But Germany and France have opposed calls for further large stimulus packages and even greater deficit spending, while the European Central Bank has kept interest rates higher than they are in the United States and Britain. Germany and even some Central European countries opposed calls by Hungary for the creation of a single rescue fund for heavily indebted countries in Eastern Europe.

Visiting the United States on Wednesday, Gordon Brown, the British prime minister, said there was “far more agreement” among world leaders than recent reports suggested.

“I believe that now, for the first time, global leaders recognize the need to cooperate,” he said during a question and answer session at New York University.

Even so, Mr. Topolanek’s comments during a speech to the European Parliament underscored unresolved differences. The country holding the revolving presidency is supposed to speak for Europe as a whole, and Mr. Topolanek will go to the Group of 20 meeting of industrialized and emerging economies in London as the European president. Numerous other Europeans are to attend, including the head of the European Commission, José Manuel Barroso, and the leaders of individual countries like France, Germany, Britain, Italy and Spain.

Mr. Topolanek will also host Mr. Obama in Prague a few days later at a United States.-European Union summit meeting.

Jiri Paroubek, the leader of the Social Democrats in the Czech Parliament, who called Tuesday’s vote of no confidence against Mr. Topolanek, accused him of making an undiplomatic gaffe. “In my view, it is extremely impolite and undiplomatic toward President Obama, who we will host in less than two weeks’ time,” he said.

Europeans themselves are well aware of the leadership problem, having painfully negotiated a new constitution, which European voters rejected. They then forged the Lisbon Treaty, which will create a permanent European president and foreign minister, and which was supposed to go into effect on Jan. 1. But the Lisbon Treaty, which requires the votes of all member states, was rejected by Irish voters last June, giving the Czechs their turn in the six-month rotating presidency.

While the Irish are expected to vote again in the fall, Mr. Topolanek’s own government has not ratified the treaty, either. Even though he is likely to remain in office through June, when the Czech presidency of the union ends, his government’s defeat will make it harder to ratify the treaty. The Irish foreign minister, Micheal Martin, said in Dublin that the Czech problems will make Ireland’s effort to ratify “a bit more complex.”

Mr. Topolanek’s remarks were considered impolitic, with the German leader of the Socialist group in the European Parliament, Martin Schulz, telling him, “You have not understood what the task of the E.U. presidency is,” and describing his comments as “not the level on which the E.U. ought to be operating with the United States.”

A Czech spokesman said that Mr. Topolanek meant to say that the European Union would be on the way to hell if it increased its own spending too much, rather than predicting that the United States was doomed.

Mr. Topolanek is not alone in his concern that Mr. Obama’s stimulus package, which will push the United States budget deficit this year to 10 percent or more of gross domestic product, will put a huge strain on global financial markets. German officials have also criticized the evolving American program, and many other European nations have declined to create fiscal stimulus programs anywhere near as large as that of the United States, arguing that too much extra money will lead quickly to inflation.

There are also disagreements between the United States and the Europeans about how much emphasis to place on fiscal stimulus as opposed to enhanced regulation of finance and tax havens. Even so, participants have been making progress on a communiqué that will signal a rough consensus on principles in London on April 2, officials from both sides say.

They expect that there will be enough in the final communiqué about the need for fiscal stimulus to satisfy Washington, with Europe ready to do more if its first package of spending does not do enough, and that there will be enough about the need to beef up regulation and international oversight to satisfy the Europeans.

A senior European Union official, also speaking on condition of anonymity because of the embarrassing nature of the issue, said everyone hoped to de-emphasize the trans-Atlantic dispute over fiscal policy. “We don’t think we need it, we don’t think the world needs it and we don’t think it makes sense.”

Katinka Barysch, deputy director of the London-based Center for European Reform, said that Mr. Topolanek had undermined a consensus that was carefully forged at last week’s European Union summit meeting in Brussels. “The E.U. had made some progress towards a coherent position,” Ms. Barysch said. “He has undermined that.”

Analysts in Prague said that Mr. Topolanek was eager to show that he was still politically relevant. They noted that some countries, like the Czech Republic, which emerged from decades of Communism, were deeply suspicious of state intervention in the economy.

Stephen Castle reported from Brussels and Dan Bilefsky from Prague.

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