Finance ministers from 15 eurozone countries met in Nice, France on Friday and decided that there was "no need" for a financial stimulus plan, despite the troubled economic climate.
Finance ministers from the 15 euro countries on Friday ruled out a sweeping European stimulus plan to ward off a recession but gave themselves some wiggle room on extra spending.
The ministers agreed that Europe would not follow in the footsteps of the United States and Japan with an ambitious stimulus package.
"We have excluded the possibility of a European stimulus plan, and that since a couple of months," Luxembourg Finance Minister Jean-Claude Juncker told reporters after chairing a meeting here with his eurozone counterparts.
Although economic activity was much weaker than thought only a few months ago, Juncker said Europe was not in the same situation as the United States and that past stimulus plans had had unwanted consequences.
"I think there is no need for a European stimulus package. Every country is responsible for itself," German Finance Minister Peer Steinbrueck said, adding: "It makes no sense to burn money."
While countries with strong public accounts could loosen the finances, the ministers agreed that "there is no question of letting budget deficits swell," Juncker said.
Despite a fast deteriorating economic situation, eurozone countries still had to respect EU rules requiring budget deficits to be kept to less than three percent of total economic output, he said.
Nevertheless, the ministers agreed that so-called 'automatic stabilisers' could be used which under EU fiscal rules allow deficits to rise during periods of weak economic activity -- but only if it do not push deficits over the three percent limit.
The eurozone ministers' position was likely to be taken up by their counterparts from the full 27 nation European Union, who were later Friday holding a two-day meeting in Nice focused on averting recession.
The European Commission said on Wednesday that Europe was teetering on the brink of a technical recession, which economists define as two consecutive quarters of contraction.
After the 15-nation eurozone economy contracted 0.2 percent in the second quarter, the European Union's executive arm estimated that it would be at a standstill in the third quarter.
Unlike other global economic heavyweights, Europe has few options for tackling the growing crisis and is unwilling to use those that are available.
Ever vigilant on inflation, the European Central Bank is unlikely to give a boost to the economy by cutting interest rates until at least next year, according to economists.
On the fiscal front, few European countries have budgets strong enough to allow for large-scale tax relief or spending programmes, as seen in the United States and Japan, without breaking the EU's strict public deficit rules.
In contrast to Europe's fiscal discipline, the United States has handed out billions of dollars in tax rebates, trying to boost the economy, and at the end of August Japan announced an economic stimulus package worth more than 100 billion dollars.
Apart from targeted national measures, France as holder of the EU's rotating presidency is pressing for the Luxembourg-based European Investment Bank (EIB) to be used to provide more funding to small- and mid-sized firms.
The fight for survival at several big US banks was also focusing finance chiefs' minds on whether they are prepared to react in case a major European bank also runs into serious trouble.
As a result, they were due to focus on the details of how to coordinate in the event of a banking crisis although there was little support for giving additional oversight powers to the ECB or creating a new regulator.
Date created : 2008-09-12