15 Mutual financial assistance for
non-eurozone Member States
| (a)
(35374)
14698/13
COM(13) 709
(b)
(35382)
14605/13
COM(13) 708
|
Draft Council Decision granting mutual assistance for Romania
Draft Council Decision providing precautionary EU medium-term financial assistance to Romania
|
| Legal base | (a) Article 143 TFEU; —; QMV
(b) Council Regulation (EC) No. 332/2002; —; QMV
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| Documents originated | 10 October 2013
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| Deposited in Parliament | 15 October 2013
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| Department | HM Treasury
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| Basis of consideration | EM of 15 October 2013
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| Previous Committee Report | None
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| Discussion in Council | 22 October 2013
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
15.1 The EU can provide mutual assistance to non-eurozone
Member States threatened with difficulties as regards their balance
of payments. Such balance of payments assistance in the form of
medium-term financial assistance is designed to ease a country's
external financing constraints.
15.2 Romania requested a new EU medium-term financial
assistance programme in July, jointly with an IMF stand-by arrangement,
following the end of its second programme in June. Its second
programme was a joint EU-IMF precautionary programme and no funds
were disbursed either by the EU or the IMF. The Romanian government
has implemented substantial reforms since 2009 with the support
of its two programmes and largely corrected its external and internal
economic imbalances and improved its economic and financial stability.
15.3 Romania does not face an imminent financing
gap and is expected to maintain full access to sovereign debt
markets. However the economy remains vulnerable to exchange rate
volatility, reversal of international capital flows and deteriorating
economic conditions. In such a scenario, marked by liquidity constraints,
Romania's financing costs could increase abruptly. In addition,
adverse developments in the eurozone could cause renewed pressure
on the banking sector.
The documents
15.4 In light of the vulnerabilities and risks
to its balance of payments the Commission recommends providing
Romania with a precautionary medium-term financial assistance
of €2 billion (£1.672 billion) conditional on the Romanian
authorities' commitment to implement fiscal, financial and structural
reforms. The modalities involve two Council Decisions, the first
to grant mutual assistance, as in document (a), and the second
to provide for that assistance in the form of precautionary medium-term
finance, as in document (b).
15.5 The Commission and the IMF negotiated the
modalities and contents with the Romanian authorities in July
and reached a staff-level agreement. While under present market
conditions Romania does not intend to draw down the loan, the
precautionary assistance can be expected to help consolidate macroeconomic,
budgetary and financial stability and, through the pursuit of
structural reforms, increase the resilience and the growth potential
of the Romanian economy. It will also carry over the unfulfilled
conditions from the second programme.
15.6 The main contents of a new programme would
be as follows:
- fiscal consolidation: Romania
has successfully corrected its excessive deficit, reducing its
budget deficit from 9% of GDP in 2009 to just below 3% in 2012.
A new programme would support further consolidation efforts aimed
at reaching the medium term objective of a structural budget deficit
of 1% of GDP by 2015 and maintain it thereafter, in line with
Stability and Growth Pact requirements;
- fiscal governance and structural fiscal reforms:
the IMF and the World Bank will provide extensive technical assistance
to the Romanian government for public financial management and
control;
- public debt management: the authorities will
improve public debt management in order to reducing funding costs
and increase the average maturity of public debt;
- financial sector regulation and supervision:
the Romanian authorities will continue improving the bank resolution
framework and the legislation on the Deposit Guarantee Fund. They
will take steps to further develop the capital markets, refrain
from adopting or promoting legislation that undermines credit
discipline and amend legislation to strengthen non-bank financial
sector supervision; and
- structural reforms: The Romanian government's
structural reform agenda aims to improve market functioning, increase
resilience to external shocks and increase Romania's long-run
growth potential. It will step up the restructuring of state-owned
enterprises, improve the business environment, facilitate access
to finance for small and medium-sized enterprises and complete
pension reforms by equalising the pensionable age of men and women.
The Government's view
15.7 The Economic Secretary to the Treasury (Nicky
Morgan) comments that the Government believes that it is in the
UK's interest that Romania's economy is stable and supports the
steps taken to achieve this. She says that the draft Decisions
have no direct policy implications for the UK and outlines the
financial implications thus:
- the proposals could have financial
implications for the UK;
- a credit line would be made available to Romania,
albeit one which it does not intend to draw down as it faces no
imminent threat to its balance of payments;
- if the credit line remains unused there would
be no UK exposure;
- if Romania asked to draw down the loan, the Commission
would raise money on international capital markets, using the
EU budget as a guarantee — this would create a contingent
liability for the UK;
- only in the event that Romania were to default
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; and
- any increase to the UK's contribution would be
within the limits of the EU Own Resources ceiling already approved
by Parliament through the European Communities (Finance) Act 2008.
Conclusion
15.8 Whilst clearing these documents from
scrutiny, we draw them to the attention of the House as indicative
of Romania's present economic situation.
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