Eurogroup rules out cut in VAT rates

Eurogroup ministers have welcomed the commission’s €200bn economic recovery plan, pledging their support for a coordinated European approach, but have firmly ruled out any VAT cuts.

The UK last week reduced its VAT rate to the agreed European minimum of 15 per cent, but Eurogroup president and Luxembourg’s prime minister Jean-Claude Juncker said that none of the countries using the euro would be following the British lead.

“Member states of the Eurogroup take the view that the price effect of a general reduction in the standard rate hasn’t the elasticity effect and doesn’t guarantee a proper impact on consumption,” he told journalists on Monday night.

“Not one of the 16 members of the Eurogroup was thinking of reducing the standard rate of vat. The UK has done it, and we can’t rule out the Ecofin group doing it, but the Eurogroup will not.”

Cyprus and Luxembourg are the only other EU countries with a standard rate of VAT at the 15 per cent minimum (VAT rates in the EU were harmonised in 1991), but most other EU countries are arguing that a reduction would not yield the rise in consumer spending it would take to stimulate demand and create greater confidence in the economy.

Meanwhile, EU economic affairs chief Joaquín Almunia has said that it’s important to wait until next year before the impact of any national stimulus measures become clear.

The commission has asked all member states to submit national plans before the end of this year, and while it is stressing a coordinated approach to the crisis, Juncker said it’s more important that all countries agree with the “general direction” proposed by the commission.

Almunia said, “The general consensus is that normal market mechanisms won’t allow the market to pick up. We’re all agreed on the need for active fiscal measures beyond automatic stabilisers, which are very important. It’s also the consensus of the international community, as we saw at the Washington meeting.”

Europe’s economy ministers are meeting in Brussels on Tuesday to flesh out a number of financial measures in preparation for next week’s summit of heads of state and government.

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