On Thursday 31 May, Valdis Dombrovskis, the Commissioner for the euro and Social Dialogue, and Pierre Moscovici, the Commissioner for Economic and Financial Affairs, presented detailed proposals to create a European investment stabilisation function and a programme of support for socio-economic reforms.
These proposed regulations follow on from the institution’s recommendations concerning Economic and Monetary Union (EMU), in the framework of its proposed multiannual financial framework 2021-2027, which was presented on 2 May (see EUROPE 12013). They also echo the proposals for the deepening of the EMU of 6 December last year (see EUROPE 11920). The two instruments were considered at the time, but their architecture had not been defined exhaustively. This is now the case with today’s proposals, which, according to Moscovici, translate an “economic and fiscal balance”, based on three principles: accountability, solidarity and balance between member states. The idea is to “avoid a two-speed Eurozone”, he added. Dombrovskis stressed the need to strengthen the European economies, “because this is the only way to secure prosperity for our people”.
Reform Support Programme. A key point of the proposal on the multiannual financial framework 2021-2027, structural reforms are inherent to EU economic policy in the framework of the ‘European Semester’ exercise. To assist the member states in setting these reforms in place, the Commission is proposing to create a support programme for them, which will be open to all member states and have a budget of €25 billion. The programme will consist of three tools.
A reform delivery tool, with a budget of €22 billion, will be available to all member states. If the proposal is adopted as it stands, member states would be able to present the Commission with the reforms it plans to carry out in the framework of the ‘European Semester’ and, following an examination, the institution would make a decision on the commitments and level of support. The member states would then have three years to take the necessary measures and the Commission would pay them the amount promised following an examination of these measures.
A technical support instrument, based on the current structural reform support service, has also been proposed, to help member states design and implement the reforms in question. To do this, the Commission suggests a budget of €840 million for this tool.
Finally, the institution proposes a convergence facility, with a budget of €2.16 billion, to help EU member states that are not in the Eurozone but wish to adopt the single currency. The applicable procedures would then be similar to those in place for the first two tools and the support may be of both a technical and financial nature.
European Investment Stabilisation Function. The second instrument tabled by the Commission - the European Investment Stabilisation Function - was also anticipated. This mechanism aims to support member states hit by an asymmetric economic shock confirmed by indicators relating to the unemployment rate and requiring a sufficiently high level of public investment to tackle this.
This instrument would be available to Eurozone states and those participating in the exchange rate mechanism ERM II and therefore no longer independent in monetary policy terms. However, its use would be conditional on compliance with strict macroeconomic criteria, particularly budgetary ones, for a period of two years.
In practice, this mechanism would provide loans of up to €30 billion. On the basis of a Commission proposal, the institution would borrow a certain amount on the markets, which it would lend on to the member state in question. The member state would then repay this money to the Commission, which then reimburses its creditors.
In order to keep the costs of these loans at zero for the member states benefiting from the instrument, a stabilisation support fund would be set in place and financed by the member states on the basis of their share of monetary revenue from the assets they own in exchange for the banknotes they supply. The fund would then be used to cover the full cost of the interest on the loans.
Somewhat lukewarm reception. The French minister for the economy and finance lost no time in reacting to this Commission proposal, referring to it as a “step in the right direction”, but adding that “the Eurozone needs a convergence and stabilisation budget”. This criticism came as no surprise as in recent months, the French President, Emmanuel Macron, has made the case for the Eurozone to have its own budget.
The S&D group in the European Parliament took a stronger position through MEP Pervenche Berès, who considers that “neither of these tools will be sufficient (…). The Eurozone needs a real budget, not a token effort”. (Original version in French by Lucas Tripoteau)