Eurogroup’s Juncker backs 1 pct/GDP fiscal boost

The European Union's fiscal boost plan should amount to at least 1 percent of gross domestic product, and the European Central Bank has room to cut interest rates, Eurogroup chairman Jean-Claude Juncker said on Tuesday.

"One percent is the amount we would need in order to react in a proper way to the crisis," Juncker told a news conference, speaking about an economic stimulus package to be presented by the European Commission on Wednesday.

The European Union's executive is to propose a short, sharp boost to the recession-hit European economy, including value added tax cuts, which Germany has said would amount to 130 billion euros, or some 1 percent of the EU's economic output.

A draft proposal, obtained by Reuters, showed the Commission saw room for interest rate cuts by the ECB, a view supported by Juncker, who chairs monthly meetings of the 15-nation euro zone.

"As the inflation forecasts are clearly indicating that inflation is decreasing, I do think — as the president of the ECB has said — that there is room for further rate cuts," he said.

The ECB has cut rates by half a percentage point on two occasions since October, bringing its key refinancing rate down to 3.25 percent. Most analysts expect it to cut the rate again by the same amount next month.

Juncker also said the EU should return to its basis budget rules within 2-3 years. Those require EU countries to keep their budget deficits below 3 percent of GDP.

The fiscal boost is expected to bring deficits in many of the EU's 27 countries above the level. The draft proposal showed the Commission was ready to condone excessive deficits in 2009 and 2010.