EU seeks fresh money to fend off crisis

The European Commission is looking at ways of increasing the EU’s financial resources to fight the ongoing financial turmoil and avert a potential long period of recession across the continent, with high unemployment and low consumption.

After an extraordinary meeting yesterday (29 October), the Commission proposed raising the capital base of the European Investment Bank (EIB) and doubling the current ceiling for issuing EU-denominated bonds.

The fresh money would aid EU countries in trouble, with Hungary recently making use of an EU bond facility for the first time since the nineties (EURACTIV 29/10/08).

Brussels is also considering accelerating payments to member states under the current EU budget and expanding the scope of the European Globalisation Fund, a special scheme with a budget of €500 million which was set up in 2006 to help industry restructure in the face of international competition.

The proposals will be part of a wider package of measures to be published on 26 November.

A stronger role for the European Investment Bank (EIB)

At their next meeting in Brussels on 4 November, EU finance ministers will discuss increasing the EIB’s budget. The bank’s annual capital is currently around €165 billion, covered by each EU member state in proportion to its economic weight.

An increase of the bank’s capital is already scheduled for 2010, but the Commission is now pushing for this to happen at an earlier stage. By distributing loans to EU companies and for key projects, the EIB could contribute to tackling the shortage of credit caused by the financial turmoil, the EU executive said. “This is time for solidarity,” said Commission President José Manuel Barroso as he announced the proposal.

But member states appear less keen on increasing their commitments to the common bank at this stage.

Under current conditions, the bank can rely on almost €100 billion to fund loans. Indeed, the EIB is entitled to lend a maximum of 2.5 times its capital, which means a total of €412 billion. Its outstanding loans currently amount to €325 billion.

It is not the first time during the crisis that the EU has turned to the EIB to fend off recession threats. In September, EU finance ministers agreed to raise the bank’s lending capacity by €30 billion to support borrowing by SMEs (EURACTIV 15/09/08).

EU bonds resurface

Joaquin Almunia, the EU economic affairs commissioner, also proposed raising the maximum amount available for issuing EU bonds to €25 billion, up from the current €12 billion to help EU members through the crisis. 

Created in 1988, the facility has not been used since the early nineties. But now Hungary, which has been hit hard by the crisis, has become the first country to make use of the facility (EURACTIV 29/10/08). Other Eastern EU countries might follow, although Almunia yesterday rejected having had contacts on the issue with other potential beneficiaries.

Reshaping existing tools: Cohesion policy and globalisation fund

The Commission is also looking at reviewing the use of funds already available. The EU budget for cohesion policy totals over €350 billion for the period 2007-2013. The funds are meant to close the development gap between EU regions. Funding is allocated at local level after a lengthy procedure. The EU executive has now said it “will explore the scope for accelerating investment projects and for bringing forward payments to member states.”

The Globalisation Fund, a facility created in 2006 to cope with the employment side effects of surging world trade, will also be put to use. At present, the fund has a budget of €500 million. Part of the funding has been already used to help workers in 12 different cases. The Commission reckons that over 16,000 people have received help so far, at an overall cost of €67.6 million.

The review of the fund’s scope had already been announced by the EU executive and was scheduled for October, before the financial crisis began to hit Europe. Now the Commission is proposing the same measure again, but there is no indication that the amount of funding available will be increased.

Read more with Euractiv

Hungary offered €6.5 billion EU loan to face turmoil

Crisis-hit Hungary will be the first EU country to benefit from a European facility worth up to €12 billion to address the ongoing financial turmoil, the European Commission has announced. Nicolas Sarkozy, French president and current EU chair, will propose to raise the ceiling to €20 billion at an EU summit next week.