31 May 2018

EU Budget: A Reform Support Programme and an Investment Stabilisation Function to strengthen Europe's Economic and Monetary Union

[...]The Reform Support Programme will support priority reforms in all EU Member States, with an overall budget of €25 billion. It comprises three elements: a Reform Delivery Tool, to provide financial support for reforms; a Technical Support Instrument, to offer and share technical expertise; and a Convergence Facility, to help Member States on their way to joining the euro.

The European Investment Stabilisation Function will help stabilise public investment levels and facilitate rapid economic recovery in cases of significant economic shocks in Member States of the euro area and those participating in the European Exchange Rate Mechanism (ERM II). This Function will complement the role of existing national automatic stabilisers. Subject to strict criteria of sound macroeconomic and fiscal policies, loans of up to €30 billion can be rapidly mobilised, together with an interest rate subsidy to cover their cost. [...]

Performing and resilient economies: Reform Support Programme

The proposed Reform Support Programme will providefinancial and technical support to all EU Member States in order to pursue and implement reforms aimed at modernising their economies, notably reform priorities identified in the context of the European Semester. Targeted support will also be offered to those Member States wishing to join the euro. The Reform Support Programme will have an overall budget of €25 billion and will support reform efforts in areas such as product and labour markets, education, tax systems, capital markets, business environment as well as investment in human capital and public administration reforms. The Reform Support Programme will be open to all Member States which wish to benefit from it. It includes three separate and complementary instruments:

• A Reform Delivery Tool to provide financial support for key reforms identified in the context of the European Semester, with €22 billion available to all Member States. Intense dialogue has taken place in recent months with the Member States on how to develop this new instrument in the future, including by rolling out a pilot project with Portugal.
• A Technical Support Instrument to help Member States design and implement reforms and to improve their administrative capacity. This builds on the experience of the Structural Reform Support Service, which has supported over 440 reform projects in 24 Member States in recent years. The tool is available to all Member States and has a budget of €0.84 billion.
• A Convergence Facility of €2.16 billion that will provide dedicated financial and technical support to Member States having made demonstrable steps towards joining the euro. This Facility does not alter the criteria in place for accession to the euro but it will provide practical support to ensure a successful transition towards, and participation into, the euro for those Member States wishing to join.

Enhanced Stability: European Investment Stabilisation Function

The proposal to establish a European Investment Stabilisation Function aims to protect public investment in the event of large asymmetric shocks and help the economy rebound quickly. As shown by the crisis years, existing national stabilisation mechanisms may not be sufficient to absorb certain macroeconomic shocks and there are often risks of negative spill-over to other countries, with a particularly damaging impact on public investment levels and the real economy. This new instrument is focused on euro area Member States and countries participating in the exchange rate mechanism ERM II, which can no longer use their monetary policy as a lever for adjustment to shocks.

The new Function will complement the toolbox existing at national and European level to prevent crises from emerging on the one hand, including through the European Semester and corresponding EU funding, and to deal with situations of financial distress, through the European Stability Mechanism and Balance of Payments assistance, on the other.

In the event of large asymmetric shocks, this Function will:

• Provide up to €30 billion in back-to-back loans guaranteed by the EU budget. To minimise risks of moral hazard, Member States will have to comply with strict eligibility criteria based on sound financial and macroeconomic policies. The loans will give extra financial support at a time when public finances become stretched and should be geared towards maintaining growth-friendly public investments, which will in turn keep more people in jobs and enable the economy to recover more quickly.
• Include a grant component to cover the full costs of the interest. A new Stabilisation Support Fund will be set up in order to collect contributions from Member States equivalent to a share of their monetary income from the assets they hold in exchange of the banknotes they supply (commonly known as "seigniorage"). The revenues of this Fund will be assigned to the EU budget to provide the interest rate subsidies to the eligible Member States. Such an interest rate subsidy is important to make the instrument financially meaningful.

As set out in December 2017, this stabilisation function can be complemented over time by additional financing resources outside the EU budget, such as a possible role for the European Stability Mechanism or the future European Monetary Fund, and a possible voluntary insurance mechanism to be set up by the Member States. The Stabilisation Support Fund can also serve as a vehicle in this context. [...]

Full press release

Vice-President Valdis Dombrovskis' remarks at the press conference on the Economic and Monetary Union programmes

There will be three tools under the Reform Support Programme with a total budget of 25 billion euro:

First, there is the Reform Delivery Tool, which will offer financial support to the Member State upon implementation of agreed reforms. The Reform Delivery Tool will mobilise the bulk of the budget – 22 billion euro out of as I said 25 billion in total. At first, we will set this financial support according to geographical allocations, but any subsequent rounds will be competitive. There will be only one single payment at the end once all commitments have been successfully implemented. As such, there are both strong incentives to prepare and implement multiannual reform programmes, and robust safeguards against moral hazard.

Second, the Programme will continue to provide technical support for the design and implementation of reforms in Member States. Here we are reinforcing something which already works well. The demand for such tailor-made reform support currently exceeds our budgetary capacity for that, so we are offering additional financing.

And third, we also propose a dedicated Convergence Facility, which will offer financial and technical support for those non-euro Member States that take concrete steps to adopt the euro. We have stated clearly that the euro area should remain open and welcoming to new members. It is important that we accompany those who are ready to work hard to join the Euro Area [...]

Full remarks

Commissioner Moscovici's remarks on proposals for a Reform Support Programme and an Investment Stabilisation Function

[...]The Investment Stabilisation Function we are proposing today will help Member States in the euro area or in the Exchange Rate Mechanism – currently, Denmark – to absorb such shocks, through the provision of loans of up to 30 billion euros which would be guaranteed by the EU budget.

To receive this support, Member States will have to comply with strict eligibility criteria based on sound financial and macroeconomic policies. The loans will be available to countries having recently registered a significant increase in unemployment rates, to be used to maintain public investments, which were so badly hit and took so long to recover from the last crisis.

Of course, these loans would need to be reimbursed – what we are proposing today should not be seen, and this is important to us, as some sort of embryonic transfer union. This Commission is not proposing a transfer union. But the instrument does need to be financially meaningful for the country concerned, which is why we are also proposing to include a grant component. This Stabilisation Support Fund would cover the full cost of the interest on these loans, and would be financed through contributions from Member States equivalent to a share of their monetary income.[...]

Full remarks

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