7 Financial assistance for Member States
(a)
(31611)
9606/10
(b)
(31796)
12119/10
COM(10) 383
|
Council Regulation establishing a European financial stabilisation mechanism
Draft amending budget No. 7 to the general budget 2010: statement of expenditure by section: Section III Commission
|
Legal base | (a) Article 122(2) TFEU; ; QMV
(b) Article 314 TFEU; co-decision; QMV
|
Document originated | (a) 10 May 2010
(b) 12 July 2010
|
Deposited in Parliament | (a) 25 May 2010
(b) 15 July 2010
|
Department | HM Treasury
|
Basis of consideration | Two EMs of 15 July 2010 and Minister's letter of 18 July 2010
|
Previous Committee Report | None
|
Discussion in Council | (a) 9 May 2010
(b) 26 July 2010
|
Committee's assessment | Politically important
|
Committee's decision | For debate in European Committee B
|
Background
7.1 At an extraordinary meeting of the ECOFIN Council on 9 May
2010 agreement was reached for a Regulation creating a European
Financial Stabilisation Mechanism (EFSM), as part of a comprehensive
package of measures to preserve financial stability in the EU.
The Regulation was based on Article 122(2) TFEU, which allows
EU financial assistance to be granted to a Member State facing
"severe difficulties caused by natural disasters or exceptional
occurrences beyond its control". It provides for the EU Budget
to guarantee EU borrowing to support Member States in need, up
to the level of 60 billion (£49.10 billon). Support
under the EFSM would be provided in parallel with IMF funding
and would be subject to joint EU/IMF conditionality.
7.2 The Financial Regulation governing EU budgetary
matters allows the Commission, in exceptional or unforeseen circumstances,
to submit Draft Amending Budgets to alter the EU Budget for the
current financial year.
The documents
7.3 The Regulation establishing the EFSM, document
(a), details the process, terms and conditions for any activation
of the mechanism:
- a Member State seeking activation
of the EFSM must discuss with the Commission, in liaison with
the European Central Bank, an assessment of its financial needs
and submit a draft economic and financial adjustment programme
to the Commission and the Economic and Financial Committee;
- the committee would then agree a mandate for
the Commission, in parallel with IMF staff, to negotiate a programme
of support with the Member State;
- the final decision of the provision of financial
assistance would be taken by the ECOFIN Council, acting by a qualified
majority on a proposal from the Commission;
- the financial details of the assistance are unequivocal
and non-negotiable;
- the funds underlying the assistance would exist
as a loan or credit line and would be raised from the capital
markets or financial institutions;
- all financial transactions would be carried out
in euros and be supervised by the European Central Bank;
- the Member State would have to open a special
account with its own central bank to manage the assistance;
- in order to maintain the Commission's reputation
in the markets and maximise the effect of funding, it would raise
funds at the most appropriate time in between planned disbursements;
- any raised funds not currently required would
be held in a dedicated cash or securities account and could not
be used for any other purpose than for the one already agreed
under the loan;
- interest payments due under the loan would be
paid to an account with the European Central Bank;
- if the Member State requested an improvement
on the interest of the loan, the Commission could re-finance all
or part of its initial borrowing or restructure the financial
conditions;
- costs incurred by the EU in concluding and carrying
out any operation connected to the assistance would be borne by
the Member State;
- once the programme had commenced and the details,
such as the size of tranches and timing of their release, were
decided, the Member State would provide all necessary information
and data to the Commission;
- the Commission would then decide on the release
of further instalments based on this information;
- the European Court of Auditors and the Commission,
including the European Anti-Fraud Office, have the right to carry
out any technical or financial controls and audits that they consider
necessary; and
- the case of the Member State would be reviewed
every six months, effective from the time that the Regulation
was enacted.
7.4 The Commission's Draft Amending Budget (DAB)
No. 7 to the 2010 EU Budget, document (b), proposes creation of
a new budget line for the guarantee provided by the EU under the
EFSM, and a corresponding article on the revenue side of the EU
budget.
7.5 To grant financial assistance under the EFSM,
the Commission will raise the funding required by borrowing on
the capital markets or with financial institutions on behalf of
the EU. Should the debtors default, the Commission may draw on
its cash resources to service the debt provisionally. Subsequently,
the operation may need to be budgeted within the EU Budget and
so creation of a new line on expenditure side of the EU Budget
is proposed. At the same time, a corresponding new article on
the revenue side is also proposed, for the eventuality that reimbursements
after an initial default, or any other revenue arising from the
exercise of rights in connection with the guarantee, also need
to be budgeted.
7.6 The DAB proposes a token entry (a so-called "pour
memoire" entry) for commitment and payment appropriations
as well as for revenue. If it becomes necessary, the Commission
would propose a transfer or amending budget to provision the budget
line with the relevant appropriations.
The Government's view
7.7 On the Regulation establishing the EFSM, document
(a), the Economic Secretary to the Treasury (Justine Greening)
comments that:
- the facility created is available
to all Member States;
- a similar facility, the Medium Term Balance of
Payment facility, already exists for non-euro area Member States
and had previously been used to provide EU support to Hungary,
Latvia and Romania in parallel with IMF support;
- the Government believes that financial problems
within the euro-area should be primarily resolved by euro-area
Member States however, it is in the interests of all Member
States to support a stable and fully functioning euro-area;
- on 9 May 2010 the ECOFIN Council also agreed
up to 440 billion (£359.70 billon) to complement this
Regulation through a Special Purpose Vehicle, the European Financial
Stabilisation Facility;
- this is a voluntary intergovernmental agreement
of euro-area Member States, lasting three years, which has no
bearing on the EU Budget; and
- the Government has chosen not to participate
in the Special Purpose Vehicle, will not make contributions and
there is, therefore, no question of any liability arising to the
UK.
7.8 On the financial implications of the Regulation
the Minister says that:
- up to 60 billion (£49.10
billon) of emergency finance could be provided;
- should the mechanism be called upon the Commission
would raise the money on capital markets, guaranteed by the EU
Budget;
- loans would be granted in parallel with IMF programmes
and would be subject to policy conditionality;
- only where there were defaults on loan repayments
would the EU Budget be called on to meet the cost of that repayment;
- this would require an increase in the Budget
and, in turn, an increase in Member States' contributions to the
EU Budget;
- as an indicative guide, the UK's GNI-share contribution
to the 2010 budget is currently estimated at 13.8%; and
- any increase to the UK's contribution would be
within the limits of the ceiling already agreed by Parliament
through the European Communities (Finance) Act 2008.
7.9 Finally, the Minister says that the Government
regrets that we (and the Lords EU Committee) did not have time
to consider this document before it was agreed. However, she comments
that "It should be noted that whilst agreement on behalf
of the UK was given by the previous administration, cross-party
consensus had been gained."
7.10 The Minister says that DAB No. 7/2010, document
(b), is necessary to make the EFSM fully operational and, as such,
the Government supports its proposals. She adds that the proposals
have no immediate financial implications.
7.11 In her letter covering her two Explanatory Memoranda
the Minister first reiterates that the EFSM is part of a package
of exceptional measures agreed to support vulnerable EU economies,
that it was endorsed by decisions of the previous administration,
but that the Government judges these decisions to be an appropriate
response to the crisis and that it is regrettable that the draft
Regulation could not be scrutinised. Secondly the Minister reiterates
the description of the DAB's purpose, its technical nature and
that it has no immediate resource implications. She then outlines
the rushed timetable for considering the proposal, publication
on 13 July 2010 and adoption by the Council on 26 July 2010, which
was to ensure that there is no undue delay in making the EFSM
operational, in the event that a Member State should need to draw
upon the funds available at short notice. The Minister continues
that it is important that the EFSM is seen to have the full backing
of Member States if it is to achieve its purpose and therefore
that the UK supports the technical steps proposed in the DAB.
She regrets therefore that, in this instance, the Government must
override the scrutiny reserve resolution in order to give its
support to the measures proposed.
Conclusion
7.12 We are grateful to the Minister for the information
she gives us about the Regulation establishing the European Financial
Stabilisation Mechanism, document (a), and the rationale for it.
As for the scrutiny breaches we note and accept the need for the
urgent adoption of both measures, even though proper scrutiny
was not possible. However given the possible budgetary liability
the UK maybe exposed to we recommend the documents should be debated
in European Committee B.
|