EU Budget: A Reform Support Programme and an Investment Stabilisation Function to strengthen Europe’s Economic and Monetary Union

Both proposals are part of the broader agenda to deepen Europe’s Economic and Monetary Union and make use of the EU budget to strengthen the performance and resilience of our interdependent economies. The proposals combine the key principles of solidarity and responsibility at all levels and deliver on the commitments made by President Juncker in his 2017 State of the Union Address. They also build on the vision set out in the Five Presidents’ Report of June 2015, the reflection paper of May 2017 and the Commission’s roadmap for deepening Europe’s Economic and Monetary Union from last December with three principles at its core: unity, efficiency and democratic accountability. Yesterday’s proposals will firmly anchor the euro area into the Union’s long-term budget. The Reform Support Programme will support priority reforms in all EU Member States, with an overall budget of €25 billion. It comprises three elements: a Reform Delivery Tool, to provide financial support for reforms; a Technical Support Instrument, to offer and share technical expertise; and a Convergence Facility, to help Member States on their way to joining the euro. The European Investment Stabilisation Function will help stabilise public investment levels and facilitate rapid economic recovery in cases of significant economic shocks in Member States of the euro area and those participating in the European Exchange Rate Mechanism (ERM II). This Function will complement the role of existing national automatic stabilisers. Subject to strict criteria of sound macroeconomic and fiscal policies, loans of up to €30 billion can be rapidly mobilised, together with an interest rate subsidy to cover their cost. President Jean-Claude Juncker said: “The Economic and Monetary Union is first and foremost about improving the lives of all Europeans. As we look to our future and celebrate the 20^th anniversary of our single currency, we must equip the EU and our euro area with the necessary tools to deliver even more prosperity and stability. Today’s proposals are about making the Economic and Monetary Union the protecting and uniting force that it was conceived to be. 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. 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.”

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “Today we take the next steps towards completing Europe’s Economic and Monetary Union. By fostering reforms at the national level and stabilising public investment during downturns, our proposals will reinforce the resilience of individual economies and the euro area as a whole. We also propose a dedicated instrument to support reforms in those Member States that are on their way to joining the euro. Our end goal is to achieve better living and social standards for all Europeans.” 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. They also combine the exercise of responsibility with the provision of solidarity, encouraging our Member States to reform while offering them financial support to ease that often difficult process. This is what the European Union must be about!”

Important steps have been taken to strengthen the Economic and Monetary Union in recent years, but its architecture remains incomplete. Yesterday’s proposals address some of the remaining challenges and show how the EU budget can be mobilised in support of stability, convergence and cohesion in the euro area and the EU as a whole. The instruments proposed yesterday are complementary to, and will work in full synergy with, the reform priorities identified in the context of the European Semester of economic policy coordination, as well as other EU funding instruments for jobs, growth and investment, such as the European Structural and Investment Funds, the new InvestEU Fund and the Connecting Europe Facility. Performing and resilient economies: Reform Support Programme The proposed Reform Support Programme will providefinancial and technical support to all EU Member States in order to pursue and implement reforms aimed at modernising their economies, notably reform priorities identified in the context of the European Semester. Targeted support will also be offered to those Member States wishing to join the euro. The Reform Support Programme will have an overall budget of €25 billion and will support reform efforts in areas such as product and labour markets, education, tax systems, capital markets, business environment as well as investment in human capital and public administration reforms. The Reform Support Programme will be open to all Member States which wish to benefit from it. It includes three separate and complementary instruments:

• A Reform Delivery Tool to provide financial support for key reforms identified in the context of the European Semester, with €22 billion available to all Member States. Intense dialogue has taken place in recent months with the Member States on how to develop this new instrument in the future, including by rolling out a pilot project with Portugal.
• A Technical Support Instrument to help Member States design and implement reforms and to improve their administrative capacity. This builds on the experience of the Structural Reform Support Service, which has supported over 440 reform projects in 24 Member States in recent years. The tool is available to all Member States and has a budget of €0.84 billion.
• A Convergence Facility of €2.16 billion that will provide dedicated financial and technical support to Member States having made demonstrable steps towards joining the euro. This Facility does not alter the criteria in place for accession to the euro but it will provide practical support to ensure a successful transition towards, and participation into, the euro for those Member States wishing to join.

Enhanced Stability: European Investment Stabilisation Function The proposal to establish a European Investment Stabilisation Function aims to protect public investment in the event of large asymmetric shocks and help the economy rebound quickly. As shown by the crisis years, existing national stabilisation mechanisms may not be sufficient to absorb certain macroeconomic shocks and there are often risks of negative spill-over to other countries, with a particularly damaging impact on public investment levels and the real economy. This new instrument is focused on euro area Member States and countries participating in the exchange rate mechanism ERM II, which can no longer use their monetary policy as a lever for adjustment to shocks. The new Function will complement the toolbox existing at national and European level to prevent crises from emerging on the one hand, including through the European Semester and corresponding EU funding, and to deal with situations of financial distress, through the European Stability Mechanism and Balance of Payments assistance, on the other. In the event of large asymmetric shocks, this Function will:

• 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 loans will give extra financial support at a time when public finances become stretched and should be geared towards maintaining growth-friendly public investments, which will in turn keep more people in jobs and enable the economy to recover more quickly.
• Include a grant component to cover the full costs of the interest. A new Stabilisation Support Fund will be set up in order to collect contributions from Member States equivalent to a share of their monetary income from the assets they hold in exchange of the banknotes they supply (commonly known as “seigniorage”). The revenues of this Fund will be assigned to the EU budget to provide the interest rate subsidies to the eligible Member States. Such an interest rate subsidy is important to make the instrument financially meaningful.

As set out in December 2017, this stabilisation function can be complemented over time by additional financing resources outside the EU budget, such as a possible role for the European Stability Mechanism or the future European Monetary Fund, and a possible voluntary insurance mechanism to be set up by the Member States. The Stabilisation Support Fund can also serve as a vehicle in this context. Next steps A swift agreement on the overall long-term EU budget and its sectoral proposals is essential to ensure that EU funds start delivering results on the ground as soon as possible. Delays would mean that the architecture of Europe’s Economic and Monetary Union remains incomplete, with necessary reforms taking longer to become a reality and a sub-optimal absorption capacity in the event of shocks. An agreement on the next long-term budget in 2019 would provide for a seamless transition between the current long-term budget (2014-2020) and the new one and would ensure predictability and continuity of funding to the benefit of all. Background Yesterday’s proposals build on the vision set out in the Five Presidents’ Reportof June 2015, the Reflection Papers on the Deepening of the Economic and Monetary Unionand the Future of EU Financesof spring 2017, the Commission’s Roadmap for deepening Europe’s Economic and Monetary Union and the Communication on new budgetary instruments for a stable euro area within the Union framework of 6 December 2017, as well as the Communication on the next Multiannual Financial Framework of 2 May 2018. These proposals are part of the ongoing process to strengthen and deepen Europe’s Economic and Monetary Union. All reforms initiated so far have been driven by the need to combine solidarity and responsibilityat all levels and this is also a central priority of yesterday’s proposals. They are part of President Juncker’s broader Roadmap for a more United, Stronger and more Democratic Unionas well as the resulting Leaders’ Agendaon the road to Sibiu, where on 9 May 2019 important decisions on the future of Europe should be taken. The proposals are presented ahead of the inclusive Euro Summit on 28-29 June 2018 where EU leaders will meet with a view to taking decisions before the European parliament elections in 2019.