European Commission unveils plan for new crisis-fighting budget

Proposed fund will allow euro members hit by once-off shock to borrow up to €30bn

European Commission president Jean-Claude Juncker: “The euro is the currency of our union – a strong and stable euro area is key to its members as well as to the EU as a whole.” Photograph: Getty Images

European Commission president Jean-Claude Juncker: “The euro is the currency of our union – a strong and stable euro area is key to its members as well as to the EU as a whole.” Photograph: Getty Images

 

The European Commission has announced plans for a new crisis-fighting budget that would allow euro zone members hit by once-off economic shocks to access loans of up to €30 billion.

The European Investment Stabilisation Function aims to protect public investment in the event of large asymmetric shocks, and help the relevant economy rebound quickly, the commission said.

It would see Brussels borrow on capital markets to lend to countries in the grip of a banking crisis or an equivalent shock.

Member states availing of the facility would also be provided with a subsidy to cover the interest payments funded from the profits euro zone central banks make from issuing bonds. This may be opposed by Germany’s strongly independent Bundesbank, but Brussels insists the interest rate subsidy is necessary to make the instrument “financially meaningful”.

The scheme would 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 commission said.

The scheme would be open to euro zone countries and aspiring members in the European exchange rate mechanism.

The commission also announced plans for a €25 billion Reform Support Programme to bolster existing reform agendas by various member states. It will be targeted at boosting the “administrative capacity” of certain states, but will also be offered to aspiring member states wishing to join the euro within a defined time-frame.

Broader agenda

The commission said both proposals were part of a broader agenda to deepen Europe’s Economic and Monetary Union.

“The commission is putting the EU budget at work to boost the performance, resilience and response capacity of all member states, whether already in the euro or preparing to join,” said European Commission president Jean-Claude Juncker. “The euro is the currency of our union – a strong and stable euro area is key to its members as well as to the EU as a whole.”

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said: “Today’s two proposals amount to one coherent whole, equipping us with new tools to both strengthen the cohesion of the euro area and to prepare for its future expansion.”