The UK’s pre-budget report yesterday included about a 1% fiscal stimulus plan.  There has been much talk of a large stimulus from the new Obama Administration in the US with some reports suggesting it may be in the $500-$700 bln range.  More immediately the focus will shift to the European Commission and its announcement expected tomorrow. 

Some reports suggest the EU plan could be in the area of 130 bln euros.  The EC President Barroso indicate the plan with be “targeted and temporary”, focusing on investment in energy efficiency.  It appears that the plan also will seek to coordinate domestic plans, but won’t require the same measures throughout the membership.  Early indications suggest that the EU plan, which appear to be largely guidelines, may require governments commit to 1-1.5% of GDP to a joint program. 
While the French seem more ambitious than Germany, both support the EU plan and have ruled out duplicating the UK’s sales tax cut, but ay increase aid to their auto manufacturers.  The way the aid is provided is key to avoiding trade conflicts.  The EU and the European Investment Bank are reportedly considering loans for research and development for greener cars.  There is some competitive pressures too.  For example if the US auto bailout is more significant, European officials will be forced to reconsider. 

The initiative that is expected be unveiled tomorrow will most likely approved at the next EC meeting in December.  All this sounds good, but therein lies the rub.  Like we saw with the Chinese fiscal stimulus plan unveiled earlier this month, much of what the EU plan may turn out to be largely already announced or anticipated national efforts.  The actual new initiatives may turn out to be quite limited. 

Assuming that officials will not get it exactly right, they could err on doing too much or doing too little.  The risk is that many policy makers are still thinking on too small of a scale.  The BOE’s King acknowledged today that UK banks may need more capital injection.  In the US, Citigroup got a $20 bln injection on top of the TARP’s initial allocation.  The cost of support AIG and Fannie Mae and Freddie Mac have increased significantly.