EU pledges to step up lending to industry

European Union leaders pledged to step up lending to industry, dropping the first hints that they may be forced to stimulate …

European Union leaders pledged to step up lending to industry, dropping the first hints that they may be forced to stimulate the economy as the banking crisis threatens a continent-wide recession.

EU governments will look at offering loans to help carmakers switch to cleaner technologies and nullify any competitive edge that US government-backed loans may give to American carmakers, French President Nicolas Sarkozy said.

“The economic crisis is here,” he told reporters after chairing an EU summit in Brussels today. “If we had a co-ordinated response to the financial crisis in Europe, shouldn't we have a co-ordinated response to the economic crisis in Europe?”

The vow came as the EU left unclear how it will dig into already strapped budgets to pay for as much as €1.3 trillion in loan guarantees and capital injections to steady Europe's teetering banks.

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Still, the EU rejected a continent-wide pump-priming program, diluting a statement drafted by Mr Sarkozy that called for the “necessary steps to react to the slowdown in demand.”

The final text spoke of the need to support growth and jobs. Germany, Europe's largest economy, today slashed its forecast for growth in 2009 to 0.2 per cent from a prediction of 1.2 per cent made in April, warning that export markets are drying up.

Mr Sarkozy said EU governments are sympathetic to a plea by carmakers for aid to

offset $25 billion in low-interest loans that US rivals including General Motors and Ford are set to get to help build environmentally friendly cars.

How can EU governments impose stricter fuel-emissions standards on carmakers “without giving them a helping hand?”, Mr Sarkozy said.

“We have to be concerned with competitive conditions in Europe.”

Facing new EU-imposed caps on carbon dioxide emissions, European carmakers want lending totaling €40 billion, Fiat SpA Chief Executive Officer Sergio Marchionne said earlier this month.

European car sales fell for the fifth consecutive month in September, the longest stretch since 2005, the Brussels-based European Automobile Manufacturers' Association said yesterday.

Plans to aid the auto industry threatened to unleash calls by other industries stung by the economic slowdown and the prospects of tighter environmental standards as part of EU efforts to fight climate change.

The European Investment Bank, the EU's project-finance arm, already plans a €30 billion program for small and midsized companies. The leaders today called on the European Commission to propose by the end of December other ways of backing European industries.