March 10 (Bloomberg) -- European Union finance ministers rejected calls from the U.S. to do more to battle the economic crisis, setting the stage for a possible conflict at the Group of 20 meeting later this week.

“Recent American appeals insisting that the Europeans make an additional budgetary effort to combat the effects of the crisis were not to our liking,” said Luxembourg Finance Minister Jean-Claude Juncker after leading a meeting of euro-area finance chiefs in Brussels yesterday. “We want to see what the effect of the recovery package is going to be.” The ministers were joined today by their colleagues from the rest of the 27 EU nations.

The EU talks come ahead of a meeting of G-20 finance officials near London later this week to discuss fighting the financial crisis. That conference of the world’s largest industrialized and emerging-market countries may witness more efforts by the U.S., as well as China, to push other nations to bolster government spending in a bid to end the global recession.

The International Monetary Fund said in a report last week that only the U.S., Saudi Arabia, China, Spain and Australia are on track to meet the IMF’s target of introducing fiscal stimulus equivalent to 2 percent of gross domestic product this year. Germany’s efforts currently amount to 1.5 percent of GDP, which is double what France has passed, according to the IMF.

‘Exceptional’ Steps

Lawrence Summers, President Barack Obama’s top economic adviser, said yesterday in an interview in the Financial Times that world leaders need to pump more public money into their economies. U.S. Treasury Secretary Timothy Geithner on Feb. 13 urged other governments to take “exceptional” steps to confront the economic crisis.

German Finance Minister Peer Steinbrueck said EU officials were “clearly puzzled” by Summers’ comments in the newspaper. The U.S. government should better familiarize itself with economic-stimulus measures in Europe that “have already been started or are about to get started,” he said.

European governments “are not prepared to go further in the recovery package that we’ve put together,” Juncker said, adding that economic aid already in place amounts to at least 3.3 percent of the EU’s gross domestic product.

“The automatic stabilizers are much more powerful in Europe,” said Laurent Bilke, an economist at Nomura International Ltd. in London, referring to Europe’s system of unemployment benefits and entitlement payments. “To get the same reaction from governments in a downturn, the U.S. authorities need to take much more significant actions than their European counterparts.”

Banking Systems

Governments from Dublin to Athens have committed more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems and European leaders pledged to spend a combined 200 billion euros to haul their economies out of the worsening slump. The World Bank this week forecast the global economy will suffer the biggest recession since World War II this year, and IMF Managing Director Dominique Strauss-Kahn said today the world is in a “great recession.”

“We are confident that monetary-policy decisions, fiscal stimulus, and the packages of support to the banking sector will have positive effects in the coming months,” EU Monetary Affairs Commissioner Joaquin Almunia said yesterday in Brussels. “But it is still too soon to perceive these positive effects.”

The IMF has recommended greater coordination so that the global economy can receive a bigger punch from individual budget policies. The impact on U.S. GDP of higher public spending is almost half as strong if it isn’t matched elsewhere, the Fund’s economists estimate.

Budget Deficits

European budget deficits have swelled as governments pumped billions into their economies in an effort to revive growth. The EU, which forecasts that the 27-nation bloc’s overall budget shortfall will more than double this year to 4.4 percent of GDP, warned national leaders last month to bring their deficits back in line as soon as possible.

“All the fiscal monetary measures taken at some point will have an impact and then we’ll see an upturn which hopefully will be as steep as this downturn,” Cypriot Finance Minister Charilaos Stavrakis said today in Brussels.

Steinbrueck said Germany is “not discussing any additional measures” to boost Europe’s largest economy. He and French Finance Minister Christine Lagarde have signaled they want the G- 20 meeting to focus on tightening regulation.

Ministers reached a deal on extending reduced rates of value-added tax to labor-intensive industries including restaurants. France has been lobbying for EU approval of lower VAT rates but had failed to win agreement as German governments have been blocking the measure since at least 2002.

‘Very Tough’

“Talks were very tough,” Lagarde said. She refused to say how the reduced rate might be implemented for French restaurants. The reduced levy also applies to businesses such as hairdressers and textile and footwear repair, as well as books.

EU Taxation Commissioner Laszlo Kovacs extending lower VAT rates to other areas is unlikely. “Today it was evident that a large number of member states consider that this is the end of the road, that they do not want to have further discussion on further reduction of VAT rates,” Kovacs said.

Finance chiefs also supported doubling IMF resources to $500 billion as the lender helps to recapitalize banks in central and eastern Europe. Japan already has pledged an extra $100 billion. “Everybody must contribute,” France’s Lagarde said.

Dutch State Secretary of Finance Jan Kees de Jager said he proposed the EU contribute 100 billion euros the IMF’s funding. “There has yet to be made a decision on this,” De Jager said. “This was the first round, but no one said this is too much or too little money.”

To contact the reporters on this story: Jennifer Ryan in Brussels at jryan13@bloomberg.net; Agnes Lovasz in Brussels at alovasz@bloomberg.net.

Last Updated: March 10, 2009 14:14 EDT