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The European Unions fiscal stimulus package is insufficient to breathe fresh life into the blocs recession-hit economy, Nobel prize-winning economist Paul Krugman said on Tuesday. Krugman, during a seminar at EU headquarters, reiterated that US President Barack Obamas spending package was too small to kick-start the economy and noted that the 27-nation blocs was even more modest.
"The European response really is disappointing," he told reporters. He said the United States and the EU, which have similar economic output, should spend about 4 percent of gross domestic product annually to try to revive their economies, while Obamas plan envisaged 2.5 percent yearly and Europes even less. Krugman warned that the United States could fall into a "deflationary trap" unless it spent more and follow the example of Japan from the 1990s, when that countrys economy stagnated for a decade.
The EU puts its two-year stimulus measures at 400 billion euros ($520 billion), or 3.3 percent of its output. It has rebuffed US calls for more spending. Krugman noted the EUs generous social security system meant the economy was stimulated automatically during a downturn to a much higher degree than in the United States. "It is quite likely there will be less human misery in Europe than in the US," he said.

Copyright Reuters, 2009

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