Eurozone sharpens up new anti-shock fund

Commissioner for Economic, Pierre Moscovici, said that the budgetary instrument is not “the eurozone budget we dreamt of”, but it is a “first and useful step”. Moscovici, the most senior member of the Eurogroup, attended his last meeting after more than seven years. [Olivier Hoslet/EPA/EFE]

Finance ministers of the 19-member euro area reached agreement late on Wednesday (9 October) on the details of a “budgetary instrument” for the eurozone, including stronger measures to support countries hit by a sudden economic shock.

After marathon talks, ministers succeeded in narrowing down differences between countries like France and Spain, who want the new budget to have a proper “stabilisation” function and others like the Netherlands who are against any new fiscal transfers.

The so-called new budgetary instrument for convergence and competitiveness (BICC) is primarily aimed at supporting reforms and investments in eurozone countries, and is expected to be up and running in 2021. As such, it is therefore not a real budget, critics say.

No agreement on euro budgetary tool- ministers send ‘hot potato’ back to leaders  

EU finance ministers failed to reach an agreement in the early hours of Friday (14 June) on an anti-shock instrument to shield the euro, as they continued to clash over almost every feature on the agenda, including the source of funding.

After the meeting, French finance minister, Bruno Le Maire, tweeted that the deal included the allocation and use of budgetary resources, the governance of the instrument, and the potential reduction in co-financing that member states must provide to receive fresh cash during a downturn.

“It is a solid basis for finalising the eurozone budget in 2020,” Le Maire added.

The overall figure however remains to be decided, as its funding will be part of the multiannual financial framework (2021-2027), the EU’s long-term budget. 

Member states have committed to concluding the negotiations of the MFF by the end of this year.

The fund is expected to be worth around €17 billion for all the 19 euro area members for seven years, a figure far from the “several percentage points“ of the region’s GDP once envisaged by French President Emmanuel Macron, one of the big defenders of a proper eurozone budget.

However the figure could be increased in a latter phase, via ad-hoc transfers by the participatory countries.

One of the most controversial issues was the inclusion of some features in the instrument that would support national economies in case of economic distress.

One of the elements was the modulation of national co-financing in exceptional situations. The other option considered was setting aside part of the total amount for countries suffering a severe economic shock.

Spain had warned over the past weeks that, without these elements, it would not support the new instrument. 

After the Eurogroup meeting, Spanish sources told that they were satisfied with how the negotiation went. 

The Spanish government has defended “a very firm position” to ensure that the fund brings “added value”, said Minister of Economy, Nadia Calviño, on her way into the meeting.

She argued that, without these countercyclical features, the new instrument would be similar to other existing EU funds.

Rutte: 'I will never support stabilisation mechanisms at euro level'

In an exclusive interview with after the European Council, Dutch Prime Minister, Mark Rutte, said on Friday (21 June) that he “will never support” new budgetary instruments to stabilise the euro area if an economic shock hits the region.

Dutch finance minister Wopke Hoekstra celebrated the deal, for different reasons.

He wrote on his Twitter account after the meeting that “good steps were taken” in the Eurogroup in regards to the budgetary instrument. 

“Better spending of EU money, by linking the budget to reforms,” he added. 

Hoekstra told reporters on his arrival that it was “critically important” for his country to ensure the conditionality of the fund, meaning that the reforms were linked to the disbursements. 

But the final result is far from the eurozone budget that many voices warned is still missing in the monetary union, including the European Commission and the ECB.

Outgoing Economic Affairs commissioner Pierre Moscovici said before the Eurogroup started that the proposal on the table was not “the eurozone budget we dreamt of”.

But it was a “first and useful step” to progress toward that direction.

Moscovici, the most senior member of the Eurogroup, attended his last meeting after more than seven years. He said that “we need efficiency and common rules, but also solidarity” in the monetary union.

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