European Council mulls stability pact leniency

This article is part of our special report Investment for regions.

SPECIAL REPORT: The European Council is mulling the idea of allowing member states to offset money designated for co-financing projects, using structural funds from their annual budgets under the stability and growth pact, EURACTIV has learned.

The proposal would enable member states to contribute to projects identified under the Juncker plan using structural funds, and offset their share of co-financing such investments from their balance sheets within the European semester.

The plan would impact significantly on southern European member states stricken by the financial crisis.

It would also address warnings voiced by political representatives of Europe’s regions that Juncker’s €315 billion investment plan could divert money away from the EU’s existing structural funds.

Under Juncker’s plan (see background), member states have been offered the opportunity to top-up amounts in the European Fund for Strategic Investments (EFSI) – which will act as the investment vehicle of the plan.

Fears that exemptions will funnel money to Juncker plan

The Commission has pledged that member state contributions to the EFSI will not be counted for the purposes of the stability and growth pact.

At a plenary session held yesterday (13 February), the Committee of the Regions (CoR) adopted a resolution calling for such flexibility to be extended across all cohesion and structural funds.

The CoR fears that national co-financing money from these instruments will leak to the new Juncker plan.

Read >> Regions warn Juncker plan could eat cohesion funds

Yesterday’s resolution reflected a similar demand made by the CoR last month.

Extending the exemption to all national and regional investment matching EU structural funds would be resisted by fiscal hawks, since the total earmarked for the structural funds within the EU’s multiannual financial framework (MFF) is roughly €350 billion.

Moreover, that sum mobilises similar volumes of national and regional co-financing, with the EU share of investment ranging between 50% and 85% of total spending.

That sum considerably outstrips the likely contribution of member states to the Juncker plan, with EFSI underpinned with €5 billion coming from the European Investment Bank and an €8 billion guarantee from existing EU funds designed to secure a contribution of €16 billion in total, from the institutions.

However a compromise is under consideration at the Council, EU officials told EURACTIV.

Optimism that stability fund flexibility can be extended

Instead of extending the Commission’s flexibility proposal to all structural funds, the plan would see those projects identified for investment by the Juncker plan opened to structural fund co-financing from the member states.

In this scenario, co-financing mobilised structural funds would also be exempt from budget calculations within the stability and growth pact.

“The Commission has acknowledged – through its flexibility provision under the Juncker plan – that it is possible to apply such flexibility to the stability pact,” said one EU official, adding: “The issue is now under consideration among high-level Council officials who feel that this would be a viable option.”

The European Commission unveiled the mechanism for its much-heralded €315 billion investment plan on 25 November 2014.

The cash is aimed at investments towards Europe’s crisis-ravaged south, away from the wealthier north in an effort to boost solidarity.

The idea is to create a new European Fund for Strategic Investments (EFSI), with €5 billion coming from the European Investment Bank and an €8 billion guarantee from existing EU funds designed to secure a contribution of €16 billion in total from the institutions.

The €8 billion guarantee will come over a three-year period from the Connecting Europe Facility (€3.3 billion); Europe’s research programme Horizon 2020 (€2.7 billion) and so-called “budget margin”, or unused funds, worth €2 billion.

The resulting EFSI fund totaling €21 billion is expected to generate €240 billion for long-term investments and €75 billion for SMEs and mid-cap firms over the period 2015-2017.

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