The European Union (EU) called on Tuesday for a global response to the economic slowdown incurred by the financial crisis and real change in the international financial system.

Addressing the second Brussels International Economic Forum here on Tuesday, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said EU member states should first better coordinate their response to the economic crisis and then push for a global effort.

"As with policies in the financial sector, success of our European strategy will depend on whether we can coordinate our action at the European level," he said. "And, building on a common European approach, if we can generate an international response to the slowdown."

Almunia said the economic downturn has a global nature, and international partners need to take coordinated measures to boost world demand, particularly those countries or regions with large current account surpluses.

"This would both help support global growth and facilitate the unwinding of large global imbalances," he said.

China, with huge current account surplus, announced a stimulus package estimated at four trillion yuan (about US$570 billion) on Sunday to boost domestic demand in the world's largest emerging economy in the face of adverse global economic conditions.

The International Monetary Fund (IMF)'s Managing Director Dominique Strauss-Kahn said China's massive government spending package is good news that will help the world economy in supporting demand.

Germany also unveiled a 50-billion-euro (US$63 billion) stimulus plan last week to support the largest EU economy, but EU member states have so far failed to find a consensus on how much they should coordinate their policies.

"If the EU, and in particular the euro area, is not coordinating the different actions, all the euro area countries will lose," Almunia said.

He warned a lack of coordination would mean that "the effects of these measures will be smaller, the efficiency will be lower, and the possible results will take longer to be there."

The European Commission is due to present an economic stimulus plan with short-term measures late November, aiming to drag the economy from the verge of recession.

Almunia acknowledged the financial crisis is having a considerable fallout for the European real economy.

An economic forecast issued by the commission last week indicated a bleak outlook for the European economy. Economic growth this year would be 1.4 percent in the EU and 1.2 percent in the euro zone, half what it was in 2007. In 2009 the EU and eurozone economy is expected to grind to a stand-still at 0.2 percent and 0.1 percent respectively.

"The outlook is not only bleak, it is also highly uncertain," Almunia said. "There is a real risk that if the financial stress intensifies or lasts longer, it may have a greater effect on the economy and could fuel the negative feedback loop between the economy and the financial sector."

In fact, the IMF predicted last Friday the eurozone economy will contract by 0.5 percent next year.

Almunia urged EU member states to use all the policy instruments available to limit the slowdown, protect jobs and lay the ground for a sound recovery.

The first tool is monetary policy. Almunia said the recent fall in inflation has opened the way to interest rate reductions to help sustain consumption and investment.

The European Central Bank has cut interest rates by 100 basis points to 3.25 percent since October.

Almunia also invited EU nations to draw fully on the flexibility of the EU budgetary rules when using fiscal policy to cushion the slowdown, fast track certain structural reforms and improve access to financing for businesses, especially small and medium-sized enterprises.

Almunia made the remarks days before leaders from the Group of 20 (G20) major industrial and emerging economies meet in Washington on Saturday, the first of a series of international meetings called by the EU to push for an overhaul of the global financial system.

"We are determined that this weekend's summit paves the way for real change in the international financial system," he said.

Almunia said the Washington summit would be crucial to establish consensus among the key international partners on what needs to be done to prevent a repeat of the current situation, and then to pave the way for effective, concrete reforms.

In preparation for the summit, EU leaders agreed last Friday on a set of common lines to take to Washington, including a commitment to new, common standards of oversight, transparency and risk assessment and proposals to strengthen international crisis management.

They also proposed a period of 100 days following the summit to draw up and begin implementing new measures.

"We need to tackle not just the lax financial regulation but also strengthen international crisis management capacities and address the global current account imbalances that lie at the root of today's crisis," Almunia said.

(Xinhua News Agency November 12, 2008)