By Brian Love, European Economics Correspondent
PARIS, Nov 27 (Reuters) - It is easy to announce that Europe must spend 200 billion euros ($260 billion) fighting recession, as the European Commission did on Wednesday.
It is harder for the many governments that must come up with such colossal amounts to do so ultra-rapidly, not to mention in a coordinated and neighbourly fashion that maximises the impact without stoking tensions over cross-border trade competition.
That is the challenge they must rise to in the coming weeks, and speed of delivery is paramount, economists say.
Germany, however, has made it clear so far that it will not let loose in a hurry with public finances it has spent years getting into balance.
Failure to move fast could tip Europe into a more prolonged slump in activity than anticipated, as Tokyo learned the hard way in the 1990s, Japan's "lost decade", according to the international team of economists at Deutsche Bank.
OECD chief economist Klaus Schmidt-Hebbel, who sees eight million job losses in the industrialised world in the next two years and believes the world's first truly global recession is no longer unthinkable, urged governments this week to hit hard and swiftly with tax cuts, rebates and extended social benefit payments to bolster demand and counter economic paralysis.
This, he said, would work much faster than grand projects to build roads, bridges and other public infrastructure, which while good for creating jobs take too long to get off the ground and too long to wind up when the troubled times have passed.
If anything, Germany has more firepower to pump prime the economy with public funds than the likes of France, which has a far larger public deficit, according to the economics department of the Organisation for Economic Co-operation and Development.
COORDINATION NOT SO EASY
The European Commission, the executive arm of the 27-member European Union, floated the idea of an EU-wide stimulus package worth 200 billion euros, or roughly the equivalent of 1.5 percent of the EU's total gross domestic product, on Wednesday.
That is big money, and shows the pace at which things have degenerated since September, when EU finance ministers said they saw no need for Europe to hatch stimulus packages on the scale now being discussed.
Most of it though is not the Commission's money to commit and the prescriptions depend on how willing governments are to sign up, which is far from a foregone conclusion as far as Europe's biggest economy, Germany, is concerned.
Of the 200 billion euros, 170 billion euros is money that the Commission reckons national governments will produce, and the remaining 30 billion would be extra money provided by the European Investment Bank, the EU's investment lending arm.
Beyond the money itself the Commission's proposal seeks to serve another purpose.
It makes clear that governments will be freed from the constraints of Europe's deficit limits while they fly to the rescue and encourages them to commit to restore state finances to more sustainable long-term levels a few years down the road.
German leader Angela Merkel warned on Wednesday against a "race for billions", showing her reluctance to let loose with public money after years of painful efforts to get rid of the country's public deficit.
Merkel is sounding far less thrusting than the likes of Britain's Gordon Brown and French President Nicolas Sarkozy.
Brown's government unveiled a national stimulus package worth 20 billion pounds ($31 billion) this week, including a cut in value-added sales tax (VAT) that will take effect as the Christmas shopping season peaks.
Marco Annunziata, chief economist at UniCredit bank, notes that the Commission suggests something along those lines would be good in other European countries because it supports demand fast.
"It creates an incentive to spend now...but several European governments have already rebuffed the idea," he said.
Sarkozy has promised a "quite massive" French plan will be announced in the next week or so.
By contrast, Merkel is saying her government, which raised VAT last year to balance public finances, says she will not rush into further outlays, and that VAT reductions are not an option, illustrating the limits of coordination at pan-European level.
Back in 1997, Tokyo too raised VAT, just as financial crisis swept Asia, exacerbating what was already a five-year-old downturn.
Where Europe's stimulus may also generate friction is when it comes to aid targeted at specific industries and above all the car industry, which is hit both sides of the Atlantic by plummeting sales.
Washington is working on a $25-billion rescue package for the U.S. auto industry and European carmakers are clamouring for 40 billion euros ($52 billion), raising the risk of a tit-for-tat skirmish over fair competition.
French carmaker Peugeot Citroen, which cut 7,400 jobs in 2007 through voluntary redundancy, last week announced plans to cut a further 3,500, prompting Sarkozy to promise help for an industry that remains a huge employer in France and Germany.
What remains to be seen is whether that goes beyond provision of low-cost loans from the EIB. Finance ministers will get a chance to broach the matter when they meet on Monday and Tuesday in Brussels. (Editing by Toby Chopra)