Sarkozy, Merkel urge swift action

Paris - The leaders of France and Germany on Wednesday called for quick action within the European Union to halt an economic downturn with measures such as an injection of state funds for small businesses, households and infrastructure projects.

President Nicolas Sarkozy and Chancellor Angela Merkel, in a joint newspaper column, insisted the slump will lead some members to surpass the EU's 3% limit on national deficits as a percentage of economic output.

The comments come just as the EU is expected to announce later Wednesday a two-year European Economic Recovery Plan, in which it calls on the 27 EU governments to spend about $130bn to support their economies.

The measures would complement a European "toolbox" recently agreed within the bloc to help banks. This time, the focus would be on stimulus for the overall economy, Sarkozy and Merkel wrote.

"It is crucial to prevent and impede a recessive spiral in our countries," they wrote in French daily Le Figaro and Frankfurter Allgemeine Zeitung in Germany. "We call on banks and all the financial institutions to fully use the facilities they've been given to maintain and support credit in the economy."

The measures could involve "financing investment and infrastructures, support for small- and mid-sized companies and direct support of households," they wrote. Member states would decide their own doses of state support.

Sarkozy and Merkel said the measures should also fit with the leaders' goal of long-term budget "sustainability" _ a topic they will take up with EU partners in the coming days.

As for the possible amount, Merkel and Sarkozy wrote that "one point of EU gross domestic product is a good target," suggesting the subject may come up at the bloc's summit meeting December 11 and 12.

Also Wednesday, French Finance Minister Christine Lagarde warned on France-Info radio that unemployment figures in the country "will be bad" in the coming months because of the economic slowdown.

Speaking later on France-Info radio, she took issue with Britain's move Monday to cut the basic sales tax, the Value Added Tax, to the EU minimum of 15% from the current 17.5% in a bid to jolt the economy.

Lagarde said France's government wouldn't cut the sales tax across the board in the same way because such a move would encourage imports, adding that she regretted the British decision to "go it alone" by lowering the VAT. France could target such a reduction only in specific sectors such as the automobile industry, she said.

- AP