The EU yesterday unveiled a recovery plan which calls for a €200-billion shot-in-the-arm for the European economy, a sum close to 1.5 per cent of the 27-member bloc's total gross domestic product.

The plan, announced by European Commission President Josè Manuel Barroso, includes economic initiatives such as tax cuts and allows EU governments some leeway in terms of the strict EU budgetary rules, particularly on structural deficit and debt, in order to incentivise their struggling economies.

The 27 EU leaders will be asked to approve this extraordinary economic recovery plan next month.

Although the Maltese economy is not expected to fall into a recession over the next two years, it would still be affected by the overall economic downturn.

The manufacturing sector, particularly those related to the automotive industry, has already felt the international pinch with companies announcing redundancies and shorter working weeks. Malta's economic growth was also revised downwards by the Central Bank.

The EU's plan is geared to serve as a tool box, recommending what its member states can do to shield their economies from recession. It combines coordinated national action with EU policy measures in a mutually reinforcing way.

The fiscal stimulus is complemented with proposals to speed up structural reforms under the Lisbon Growth and Jobs Strategy in member states, in particular those who needed to make their economies more competitive and ensure medium-term budgetary sustainability.

This fiscal stimulus and accompanying structural reforms are complemented by "smart investment" measures at both European and national level. The priority is to preserve and generate jobs now and in the future while accelerating the transition towards a knowledge-based and low carbon economy.

The recovery plan sets out a framework on how funds should be used to stimulate investment, "green" Europe's economies and boost energy efficiency.

It proposes mobilising existing funds, including social and cohesion funds, where up to €6.3 billion of payments will be brought forward, to help the unemployed and help with training and retraining. It includes proposals to stimulate labour markets and increase demand for energy-efficient goods and services through innovative use of taxation.

"The jobs and well-being of our citizens are at stake... This recovery plan is big and bold, yet strategic and sustainable," Mr Borrow said.

The government said the recovery plan confirmed its economic strategy as presented in the budget.