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Growth and Jobs

1. Introduction

The economy of the European Union combines the economies of 27 member states and is generating an estimated nominal GDP of US $17.6 trillion in 2008 according to the IMF. It accounts for about 31 percent of the world's total economic output. Sixteen member states have adopted a single currency, the Euro, managed by the European Central Bank. The euro was introduced to world financial markets as an accounting currency in 1999 and launched as coins and banknotes on 1 January 2002. The EU economy consists of a single market and is represented as a unified entity in the WTO.

The European Union is committed to ongoing economic growth and boosting employment within member countries. The EUís current target is to create seven million jobs and drive inflation below two percent before the end of 2008. Labour productivity and the employment rate are on the rise within the EU and the bloc has seen unemployment fall to its lowest levels in 25 years.

Economic realities mean the EU is looking set to fall short of some of these targets. Brussels announced in February that economic growth across the eurozone would be lower in 2008 than estimated, while inflation will stay high. The EU now expects growth of 1.8 percent this year in the 16-nation eurozone. This is lower than its November 2007 estimate of 2.2 percent, and below the growth rate of 2.7 percent recorded in 2007. The European Commission said credit market turmoil, slower US growth and surging oil prices would weigh on growth, while inflation would rise to 2.6 percent.

Credit Crunch

Stabilisation is key to resolving the financial crisis, stemming back to late 2007. The EU agreed a coordinated response in December 2008, following a US-EU summit in mid-November. Released by the French EU Presidency, the plans aim at better regulation of financial markets, while safeguarding robust social protections. But, as governments are keenly aware, banks now have to kickstart lending, pass on rate cuts, and not sit on the 'virtual scaffolding' of public money.

The 'European Economic Recovery Plan', agreed in November 2008 and reiterated at the EU Council, aims to provide a "timely, targeted, temporary, and coordinated" budgetary stimulus worth 200 billion euros, equal to around 1.5% of EU GDP. The European Investment Bank will also provide an extra 15 billion euros per annum in 2009/2010, mainly for small and medium enterprises, clean energy and transport initiatives.

The EU has asked member states to urgently support the construction and automotive sectors, as well as other key industries, while cutting taxes and raising public spending (though tailored to the national outlook). Germany, for example, has earmarked 50 billion euros for tax relief and infrastructure projects over the next two years under its stimulus package.

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