The early responses to the financial turmoil included liquidity injections and interest-rate cuts by the European Central Bank and a financial market reform programme drawn up in late 2007. By late 2008 the EU had designed an economic recovery plan

Commission Communication – A European Economic Recovery Plan; COM(2008) 800

During 2009, the European Economic Recovery Plan started to come into effect. Its priorities were restoring business and consumer confidence, kick-starting lending and investments, and supporting and creating jobs. Central to the plan was the ability of the European Union to catalyse cooperation. The EU could exert its influence because it was able to harness Member States' and Community action, using the strengths of each part of Europe to best effect. This allowed the EU to help in shaping the global response to the crisis.

The recovery plan was a considered response with a clear eye to the future. It called for investments to improve Europe's competitiveness, not just to rebound from the crisis but to foster economic growth. It specifically envisaged boosting the economy through accelerated investments in smart sectors – transport infrastructure, green technologies, and energy efficiency. These are the sectors that promote longer-term economic activity and employment, while complementing the EU’s wider goals of sustainability, mobility, and energy security.

The Economic and Monetary Union built around the euro – and particularly its Stability and Growth pact – delivered benefits to Member States and to citizens. Even in the midst of the crisis, the Stability and Growth Pact remained the cornerstone for the EU budgetary framework, because it was sufficiently flexible to implement the anti-crisis measures, but still provided a framework for the consolidation strategies for the future. Competitive devaluations were avoided. The ECB and the Commission acted quickly to ensure coordinated responses across Europe.

The EU was able to act swiftly, decisively and coherently because its Member States were united by broad consensus on economic and monetary policy. European authorities, parliaments, governments and central banks showed they were capable of taking decisions, even in difficult circumstances, that helped protect many separate national currencies from the fallout of the financial crisis.

EU investment was directed at carefully-selected targets – including sectors of evident importance to the EU economy as a whole, sectors with good prospects of rapid job-creation, sectors that match broad EU policies and strategies in energy, environment, smaller firms, or cohesion, and sectors that can sharpen the EU’s competitive edge as recovery replaces crisis. The concept of a smart eco-efficient economy – with a focus on high-skill work in high-tech and low-carbon innovation - was discussed in the Energy

Transport, telecommunications and energy Council Conclusions, 30/31 March 2009; http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/trans/107025.pdf

In February, the Commission presented a package of support measures for the automotive industry

Commission Communication - Responding to the crisis in the European automotive industry; COM(2009) 104

The support for EU industry was particularly focused on small and medium-sized enterprises, since they are the largest source of employment in Europe. The difficulties that many successful smaller firms were experiencing in financing their running costs and investments were putting the livelihoods of millions of workers and their families at risk. New lending from the European Investment Bank helped protect jobs by providing access to affordable finance. In the first five months of the year, loans to smaller firms doubled in volume compared to the same period in 2008.

Due to its access to funding from the financial markets and its status as the bank of the Member States, the European Investment Bank proved a very flexible tool in the crisis, increasing and reorienting its lending in line with EU priorities. In late 2008, the EIB indicated that it would increase its lending to smaller firms by about 50 % to € 30bn over the four-year period 2008-2011. The most important European Investment Bank funding for smaller firms comes via EIB loans for SMEs and EIB loans to SMEs: risk sharing schemes. The pipeline for 2009 amounted to € 10.9bn, with roughly the same level foreseen for 2010. The bank also provided a further € 1bn for developing mezzanine financing markets for smaller firms, of which some € 200m was earmarked for 2009. And it put pressure on its intermediary banks to disburse funds quickly.

Hard times hit firms fast, and the first victims are often employees. Employment is primarily a matter for Member States, but as the financial crisis reached into the real economy of jobs and growth, the EU introduced measures to help combat rising unemployment and relieve the pressures on businesses. The crisis highlighted the importance of social policies in support of workers who lose their jobs.

Action to defend the real economy of jobs and enterprise also required steps to get markets moving again. During 2009, financial markets still needed nursing and liquidity was still tight – constraining economic activity among businesses and consumers. Sharp reductions in key Eurozone interest rates continued in order to encourage lending. They fell from 2.5 % in December 2008 to a historical low of 1 % in July 2009.

Lowering interest rates was not the only weapon deployed by the European Central Bank. It took further non-standard monetary policy measures after the extra liquidity injections and long-term liquidity provision in 2007. It had reinforced its efforts in 2008 by moving to a scheme under which, rather than allowing auctions to determine the cost of central bank lending and thus possibly limit its volume, the bank fixed a low interest rate for lending to financial institutions and then supplied as much liquidity as was required at that price. The impact of this approach was intensified in 2009 by twice offering unlimited liquidity at 1 % with one year maturity (double the previous longest maturity).

The EU streamlined some of its procedures in order for citizens to gain quicker access to its instruments.

The requirement for prior approval by the Commission for funding from the European Investment Bank was temporarily dropped, accelerating the procedure for projects costing € 50 million (or € 25 million for environment-related schemes) Some 900 such large-scale projects are being implemented in 2007-2013, representing a total investment of € 120 billion. The Commission also prepared simplified procedures to allow faster implementation of structural and cohesion fund investments.

An agreement to reduce the costs of trade mark registration by 40 % as of May 2009 was designed to save EU businesses up to €60 million annually. A further agreement by governments to accept e-invoicing from smaller firms – via a change to the VAT directive on invoicing rules – was estimated to save up to € 18 billion a year by reducing burdens on business, supporting small and medium sized enterprises, and helping member states to tackle fraud. (The EU’s Better Regulation programme also contributed: more details appear in Chapter Four).

The strategic objective of the European Economic Recovery Plan was to prepare for a return to growth. The aim was to put the EU in the best possible position for when the crisis recedes: a competitive economy in tune with the needs of the future. It was therefore vital to ensure that the many short-term actions taken to support employment, enterprise and the financial sector were consistent with the EU’s longer term aims.

This strategy of preparing for future growth was a common thread running through many of the initiatives and actions taken at Member State and EU level in response to the economic crisis. It was also reinforced in the Communication on Driving European Recovery adopted in March 2009. Throughout the crisis, the Member States remained united in accepting the need for structural reforms as the precondition for a sustainable future.

From the start of the crisis, the EU consistently argued at international level for better regulation. The full role now played by the Commission in the G20 as well as in the G8 gave it a springboard to help shape decisions at the global level, and it was also influential in discussions on revamping financial regulation at world level. The EU influence was apparent in the declaration from the G20 meeting of world leaders in London in April, on setting up a new Financial Stability Board, which now includes representatives from the European Commission, Spain, Netherlands, and all the G20 countries, to cooperate with the International Monetary Fund to provide early warning of macro-economic and financial risks. And after the Pittsburgh G20 summit in September, Barroso said he had secured a real commitment from the G20 to a sustainable, ethical and balanced global economy. The meeting agreed to rein in exorbitant bonuses and hold international finance to account. The October European Council welcomed the G20 commitment to take measures to strengthen the international financial regulatory system, including reform of international standards for compensation.

The EU argued consistently for trade to remain open, and vigorously opposed the erection of protectionist barriers. And it advocated support to continue for liquidity in financial markets as long as necessary to allow sustained recovery from the crisis.

The Commission was first to act on the G20 London Summit with a strategy to support developing countries. The meeting urged respect for promises of aid, greater use of development aid to leverage other funds, frontloading and refocusing existing commitments on the most vulnerable. The EU also took the lead in making existing aid more effective, with the 27 Member States and the Commission working together.

Less than a week after the meeting, the Commission outlined a range of actions which the EU could take immediately to help developing countries weather the ongoing economic crisis. Barroso said at the time: I said it before the G20, I said it at the G20 meeting and now I say it again: the recession must not, cannot, will not be used as an excuse for going back on our promises to keep on increasing aid.