Eurozone Finance Ministers reached agreement on the modalities for future fiscal capacity for the euro area beginning in 2021 on the night of Wednesday 9 to Thursday 10 October.
But doubts remain about the possibility for euro area countries to increase the allocation to this budget for the Eurozone beyond the envelope - the sum of 17 billion euros has been advanced - which will come from the 2021-2027 multiannual financial framework.
“At about midnight, ministers agreed on the critical elements of governance and financing, which will make the Budgetary Instrument for Convergence and Competitiveness (BICC) an innovative tool, different from other EU funds”, said Eurogroup President Mário Centeno on Thursday morning. The Commissioner for Economic and Financial Affairs, Pierre Moscovici, praised a “significant first step, far from being symbolic”, but which calls for further progress. As for the French Finance Minister, Bruno Le Maire, he considered that the budget for the euro area will be “a reality” by 2021 at the latest.
The process of activating fiscal capacity will be as follows: the Euro Summit and the Eurogroup will define the economic priorities for the euro area, which will be set out in a recommendation at the level of the monetary area. In the spring, Member States will submit a reform and investment plan to complement their national fiscal policy programmes under the Stability and Growth Pact. The Commission will approve the projects.
Eighty percent of the total funds allocated to fiscal capacity will be allocated according to a key based on a country's population and national GDP, so that lagging countries receive more. The remaining 20% will be used more flexibly to respond to specific situations.
A country will receive at least 70% of its national contribution. Dutch Minister Wopke Hoekstra welcomed this provision as “positive for Dutch taxpayers”, while the Netherlands would currently receive only 12% of its national contribution to the EU’s structural funds.
Each country will have to provide co-financing for 25% of the funds it receives, which can be adjusted - and halved - in the event of a severe economic downturn. According to some, this modulation in itself includes an element of stabilisation, in addition to support for reforms and investment.
For those countries outside the euro area that so wish, an independent convergence and reform instrument will also be created, Mr Centeno said. Others, such as Denmark and Sweden, will be able to claim a specific financial agreement if they do not wish to participate, perhaps a budget discount in the next MFF.
Intergovernmental agreement
Not surprisingly, the issue of funding was the focus of the discussions. The fiscal capacity of the euro area will be financed under the MFF up to the share of the reform delivery tool reserved for the Nineteen, i.e. around €17 billion between 2021 and 2027.
The Netherlands, supported by Finland and Austria, is opposed to the Nineteen drafting an intergovernmental agreement (IGA) that would allow them to increase the allocation of the future budget for the euro area.
To increase the fiscal capacity envelope, we need another intergovernmental agreement and, on this point, “there is no agreement”, Mr. Centeno acknowledged. He added: “We are not prejudging future decisions of euro area countries on their commitment to ratify an agreement on potential additional resources. But we’re still working on it”.
The Eurogroup working group was tasked with working on the need for an IGA as well as its content and modalities, and with submitting a report to Ministers in time for a European Council decision on the 2021-2027 MFF.
See the terms of the Eurogroup agreement: https://bit.ly/2M3o8RH (Original version in French by Mathieu Bion)