U.K., Germany try to spur economy
LONDON -- The United Kingdom and Germany made separate moves Monday to battle the worsening global economic crisis. But analysts said they were insufficient and would likely mean that the United States — the epicenter of financial turmoil — will be the first major economy to recover.
British Prime Minister Gordon Brown said the government will spend 500 million pounds, about $755 million, to pay companies to hire the long-term unemployed. Under the plan, companies would receive up to 2,500 pounds (about $3,800) to hire workers who have been jobless for more than six months. Brown, two months after announcing an earlier $30 billion economic recovery bid, also promised additional efforts this week to unblock stalled business lending.
In Germany, the conservative government of Chancellor Angela Merkel agreed with its coalition partners on a two-year, 50 billion euro ($67 billion) plan that would boost infrastructure spending, cut taxes and aid the unemployed. The package represents a major about-face for Germany, which has resisted calls for economic pump-priming.
Financial industry analysts welcomed the initiatives, which came as the economic outlook continues to deteriorate here and on the continent. But they said more will be needed. "The Europeans are behind the curve," said Paul Mortimer-Lee, global head of market economics for BNP Paribas.
European stimulus efforts to date are dwarfed by President-elect Barack Obama's proposed $775 billion economic measure. Analysts said differences between the U.S. and European approaches can largely be traced to historical experience.
U.S. officials are intent on not repeating the inaction that worsened the Great Depression. Federal Reserve Board Chairman Ben Bernanke is a scholar of that era's policy missteps.
Germany, Europe's dominant power, however, is guided by memories of the destabilizing hyperinflation of the 1920s. That explains officials' reluctance to embrace lavish public spending or faster interest rate cuts by the European Central Bank.
"Europe is slower than a turtle. … The U.S. will do whatever is necessary to get out of this," said Marino Valensise, chief investment officer for Baring Asset Management.
The next indication of Europe's crisis-fighting stance will come Thursday, when the ECB is expected to cut rates. The ECB has lagged behind the Fed and the Bank of England in its rate-cutting zeal. But amid further economic erosion, the bank is expected to cut rates by half a percentage point to 2%.
"If the ECB stands pat, people will wonder what planet they are on," said Mortimer-Lee.
Contributing: Bloomberg News