28 March 2018

Financial Times: Brussels to propose €56bn raid on ECB profits

The proposal about the ECB would divert profits made by the eurozone’s 19 national central banks from printing banknotes straight into EU coffers. The commission estimates the revenue stream could generate €56bn during the seven-year span of the next EU budget. 

[...]More than 90 per cent of the so-called seigniorage profits are distributed by the ECB to the eurozone’s 19 central banks that often pass a portion on to their national treasuries. 

The commission is considering an ECB cash raid as a quick way to generate money for the common EU pot as several wealthier members, including the Netherlands and Austria, refuse to raise their contributions to the €1tn EU budget after the UK’s departure. 

“It is one of the low-hanging fruit ideas for the budget,” said one EU diplomat. Another senior official from a eurozone country said consultations had started between his national government and central bank over transferring seigniorage money to Brussels. 

The ECB said any changes to the way it distributes its profits would require a legal change to the bank’s statute. “Together with their own profits, the national central banks distribute it, according to national legislation, to their shareholders which are the finance ministries,” the ECB said in a statement. “The respective ministries and governments decide what they do with that money.” [...]

While the commission is responsible for proposing a plan on how to structure the common budget, final decisions on its size and composition will rest with national governments which are gearing for discussions over the coming months. 

In response to ideas from Emmanuel Macron, the French president, to reinforce the eurozone’s crisis-fighting armour, the commission will in May announce plans for a “fiscal stabilisation function” to protect investment spending when a eurozone member state suffers an economic downturn. 

But the idea, which falls short of the French vision for a rainy-day fund, already risks running into opposition led by the Dutch and the Finns who want governments to fix their public finances rather than gain access to more EU-wide funding. 

In an effort to assuage the concerns of hawkish governments, Brussels is exploring a system of grants and soft loans that eurozone countries can access in times of trouble. 

“We are now working on a concrete proposal which would work with loans and possible limited grants,” Valdis Dombrovskis, the commission vice-president, told MEPs on Tuesday. The commission is also leaning towards a design for the new system that would involve the European Stability Mechanism, the euro area’s sovereign bailout fund. [...]

Full article on Financial Times (subscription required)

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