EU to propose € 30 bn anti-crisis fund
The European Commission has set out proposals for a new €30 billion fund to help euro zone countries recover from sudden financial shocks.
The fund is designed to help stabilise public spending levels and rapid economic recovery in eurozone members where “large asymmetric shocks” have occurred.
The European Commission’s vision appears to be less of a fund but will, instead, act as a lender to offer loans instead of grants. The interest rate on the loans will be subsidised, and the Member States are not to contribute to the €30 billion budget.
The Commission will, instead, guarantee a 0% interest rate on the loan, according to an EU official that clarified points of the proposal on May 31, who added that the point of the initiative is to encourage the stability of the Member States’ economy and to steer them towards less austerity policy decisions. This course of action could substitute the Member States’ internal economic buffers, which aren’t always in a position to handle one-off non-systemic crises in the Eurozone.
Any country that wishes to activate the European Investment Stabilisation Function loans will have to be fully compliant with the Stability and Growth act for two consecutive years and respect any European Council decision if the country falls under a corrective or preventive mechanism if macroeconomic imbalances occur. The Member States should also not be subjected to a European Stability Mechanism (ESM) programme, which safeguards and provides instant access to financial assistance programmes for Eurozone members who are in financial difficulty.
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% higher than in the same quarter from the previous year. According to the Commission’s proposal, this “should be considered as a first step in the development of a fully-fledged insurance mechanism to cater for macroeconomic stabilisation”.
The Commission said that this proposal is distinct from the Eurozone’s existing bailout fund – the European Stability Mechanism – as it has more than ten times the lending capacity of the EISF, at €500 billion. Brussels has said, however, that it could leave the door open for the ESM to play a bigger role.
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, where the Dutch are expected to vote against the proposal. Germany is expected to vote in favour as Berlin hopes to preserve the Franco-German alliance to help strengthen the sagging euro.