May 2, 2018 / 9:16 AM / a year ago

EU proposes to set aside euro zone money in next budget

BRUSSELS, May 2 (Reuters) - The European Commission will propose on Wednesday a pool of money in the next long-term EU budget for supporting investment in the euro zone during economic shocks, to help pay for structural reforms and to help join the euro, a draft document showed.

The money earmarked especially for the euro zone, or for those who plan to join it, is a response to calls from French President Emmanuel Macron last year for a separate budget for the euro zone of several hundred billion euros.

Germany, the euro zone’s biggest contributor to the EU budget, does not believe the 19 countries that now share the euro need a separate budget, or, if at all, a very small one.

The Commission sees a separate euro zone budget as divisive at a time when the EU’s unity is under strain from Britain’ exit from the bloc next year, and it therefore proposed the euro zone funds as part of the wider EU budget of 27 countries.

The draft, seen by Reuters, has blank spaces where the Commission will insert concrete amounts in billions of euros at a meeting on Wednesday. But the numbers are likely to be much closer to the German, rather than the French views.

The Commission proposal for the European Union’s budget that spans 2021-2027 calls for the establishment of an enhanced Structural Reform Support Programme that would offer technical support and financial incentives for reforms suggested by the European Commission as part of the annual economic monitoring.

It said the next EU budget should also have a Convergence Facility to support changes in non-euro zone EU countries that want to join the euro.

“The focus will be on those reforms that can contribute most to the resilience of domestic economics and have positive spill-over effects on other member states,” said the draft proposal, pointing to labour market and tax reforms, capital markets development and improvement in business environment and human capital.

To help euro zone governments absorb large economic shocks not of their own making, the next long-term EU budget should have what the Commission called an Economic and Monetary Union Stabilisation function made up of loans and grants.

“In the event of a large asymmetric shock, it is proposed to offer a loan at preferential interest rates to euro area Member States in order to stabilise its public investment expenditures,” the draft proposal said.

“The back-to-back loans will be provided by the EU budget complement by an interest rate subsidy in the form of a grant,” it said.

The grants are to be financed from contributions calculated as a proportion of national monetary income distributed to central banks, called seniorage. (Reporting By Jan Strupczewski Editing by Alastair Macdonald and Janet Lawrence)

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