Euro nations rule out sales tax cuts

Finance ministers from the 15 nations that share the euro saw a European Commission proposal for ambitious public spending measures and tax breaks in 2009 and 2010 as going "in the right direction," Luxembourg Prime Minister Jean-Claude Juncker said after leading the economy talks.

They do not want to shift the EU minimum rate for value added tax below 15 percent, he said.

Britain--which does not use the euro--on Monday cut sales tax from 17.5 percent to 15 percent until the end of 2009 in an effort to accelerate sluggish spending as the country's economy brakes sharply.

German Finance Minister Peer Steinbrueck was skeptical about such a tax cut, warning that a small reduction can cause problems by shrinking state revenues without encouraging shoppers to start blowing cash.

"You must explain to me whether they would really buy a DVD player for euro39.60 instead of euro39.90," he told reporters.

The finance ministers talks--which continue Tuesday between all 27 EU nations--are the first time governments are talking about a coordinated economy stimulus program.

If fully implemented, the "European Economic Recovery Plan" announced last week would see them spend 1.5 percent of the EU's gross domestic product in "timely, targeted and temporary" economic stimulus measures. The issue tops the agenda of a Dec. 11-12 meeting of the EU leaders.

Of the euro200 billion the European Commission has proposed, euro170 billion ($214 billion)--or 1.2 percent of the EU's GDP--would come from national governments themselves and run the gamut from outright tax breaks to credit guarantees for ailing industries, to soft loans to exploit new green technologies.

The remainder would be financed from the EU budget and the European Investment Bank. The investment bank would boost lending for regional development projects by euro15 billion ($19 billion).