BRUSSELS, BELGIUM - THE European Commission was poised to launch on Wednesday a sweeping package to lift government spending and ease some taxes across Europe in the hope of snapping the economy out of recession.

Usually the guardian of budgetary rigour, the European Union's executive arm will urge members to loosen the purse strings and ease some taxes in the face of the worst economic downturn in decades, according to draft proposals.

While governments will be given greater leeway on fiscal discipline, they will be expected to return to cutting their public deficits from 2011 at the latest.

The commission's proposals will call for stepped-up government spending to focus on initiatives such as handouts to the poor and the unemployed, longer jobless benefits and more money for investments in small and mid-sized firms.

The package also includes plans to bring forward spending at the EU level on social programmes and investment in green technology for the car and building sectors, the draft said.

'Only through a significant stimulus package can Europe counter the expected downward trend in demand, with its negative knock-on effects on investments and employment,' said the draft document, obtained by AFP.

'Therefore, the commission proposes that member states agree a coordinated budgetary stimulus package which should be timely, targeted and temporary, to be implemented immediately,' it said.

The draft proposals did not say how much the stimulus package could be worth, but commission chief Jose Manuel Barroso has said it should be at least one percent of EU output, which would amount to about 130 billion euros (S$255 billion).

The proposals also do not offer a sharp increase in EU cash, relying instead on accelerating already planned spending at the European level.

The EU executive will urge heads of state and government to formally sign on to the plan at their December 11-12 summit and asked finance ministers to ensure that it is followed up afterwards.

While Brussels has been drafting pan-European recovery plans, a growing number of individual EU countries have pressed ahead with their own national packages.

Austria, Britain, France, Germany, Hungary, Italy, The Netherlands and Spain already have plans of their own in various states of preparation.

German Chancellor Angela Merkel warned against a 'race' between EU states over the size of their economic stimulus measures and said that Berlin - one of the few European states with strong finances - was already doing enough.

'We should not fall into a race of billions (of euros),' Ms Merkel said in a speech to the German parliament.

Earlier this month Berlin unveiled measures aimed at boosting Europe's largest economy that Ms Merkel says are worth 32 billion euros and should constitute Germany's contribution to the EU measures.

Whatever form the EU package ultimately takes it will probably be dwarfed by similar measures underway in other major economies with the incoming US administration working on plans reportedly worth as much as US$700 billion (S$1.05 trillion).

'I see a significant risk that Europe's fiscal policy response to the crisis might be too slow and insufficiently ambitious, mirroring the cautious monetary policy response,' said economist Marco Annunziata at Italian bank Unicredit.

The commission's draft proposals said that there is 'scope for further reductions in interest rates' in light of the fast deteriorating economic conditions.