EU plans €30bn fund to help crisis-hit eurozone countries
Loan scheme for single currency members hit by economic shock less ambitious than Macron’s proposa
Brussels is to propose a €30bn loan plan for countries hit by economic shocks, as it responds to French calls for a eurozone crisis-fighting budget.
The European Investment Stabilisation Function is far less ambitious than ideas put forward by French president Emmanuel Macron, who last year called for a fund amounting to several percentage points of eurozone gross domestic product.
But the European Commission will argue that its plan to be presented on Thursday is a “first step”, saying differences among eurozone governments and EU budgetary restraints prevent more ambitious proposals at this stage.
The commission’s plans, seen by the Financial Times, would allow it to borrow on capital markets to lend to countries facing one-off problems such as a natural disaster or a localised banking crisis. Countries could borrow to invest in infrastructure and other programmes to cushion an economic blow.
Interest on loans made to governments would be covered by a share of the profits that national central banks in the eurozone earn from issuing banknotes — a demand that is likely to stoke tensions with fiercely independent institutions such as Germany’s Bundesbank.
Total loans would be limited to €30bn with no country allowed to receive more than 30 per cent of available lending capacity. The scheme would be open to eurozone countries and aspiring members in the European exchange rate mechanism.
The creation of more joint eurozone spending power is a core strand of a reform plan for the single currency area being pushed by Mr Macron ahead of a summit of EU leaders in June.
Brussels acknowledges that a full-blown eurozone budget would require “strong political will and consensus” that does not yet exist among EU governments. France and southern eurozone countries are facing resistance from northern capitals, which rule out the need for more common spending pots in favour of governments taking greater responsibility for their national spending.
“The recipe for a larger cake is not centralised bailout funds and printing more money, but structural reforms and sound budgets,” Mark Rutte, the Dutch prime minister, said in a speech in Berlin in March. Mr Rutte is one of the most vocal opponents of a eurozone budget
Aware of the political tension, Brussels’ proposal aims to strike a balance between objections from north and south. In a nod to German fears about underwriting poorer countries’ spending, the text stresses that the stabilisation mechanism will result in no “permanent transfers” between eurozone countries, while governments will only be eligible for support if they have met core EU budget rules for the preceding two years.
Eligibility would also be linked to rises in a country’s unemployment rate, which must be higher than a 15-year rolling average and 1 per cent higher than in the same quarter the previous year.
Brussels’ draft plan allows for future upgrades to the scheme, saying it “should be considered as a first step in the development over time of a fully fledged insurance mechanism to cater for macroeconomic stabilisation”. The plan would need approval from EU governments and the European Parliament, with the proposal for sharing out central bank profits requiring unanimous agreement from capitals.
The proposal is distinct from the eurozone’s existing bailout fund, the European Stability Mechanism, which has a €500bn lending capacity and can be tapped by countries that have lost the ability to borrow on capital markets.
The commission plan would leave a door open to the ESM playing a role in administering the stabilisation fund.