EU finance ministers to clash over future eurozone budget financing

BRUSSELS, Oct 3, (RTRS): European Union finance ministers will clash next week over how to fund a small pool of money specifically for eurozone countries to finance investment and reforms to align their economies with each other and boost competitiveness.

The discussions among the finance ministers of the 27 countries that will remain in the EU after Britain leaves the bloc will bring to an end two years of talks that have reduced France’s ambitious idea of a eurozone budget to a bare minimum.

The key issue still to be resolved is whether the ring-fenced budget should be financed only from the wider, longterm EU budget of both euro and noneuro countries, or if it should have external sources of revenue like dedicated taxes.

French President Emmanuel Macron proposed in 2017 that the euro zone should create its own budget of several percentage points of GDP to narrow differences in economic performance among the 19 countries using the euro and provide a means to stabilise countries hit by economic shocks.

He wanted such a budget, of substantially more than 200 billion euros, to be financed from dedicated taxes and provide the economic counterweight to the single monetary policy of the European Central Bank. His position was, to some extent, shared by Germany, Italy, Spain and Slovakia.

But fierce opposition from the Netherlands and other northern countries like Ireland, Finland, Austria, Belgium and the Baltics, worried about the extra spending and moral hazard, means the end-result will fall well short of Macron’s vision.

The budget, or the Budgetary Instrument for Competitiveness and Convergence (BICC), is likely to be only around 17.5 billion euros – the eurozone’s share of the 25 billion euro pool of funds proposed by the European Commission to support reforms in the next EU long-term budget.

The money would be divided between the 19 eurozone countries over seven years leaving around 130 million euros per euro zone country per year, if the money is distributed evenly.

“The whole thing is a charade ... to save President Macron’s face. The time and effort put into the BICC negotiations are in no proportion whatsoever to its final economic importance,” a senior eurozone official said.

The meagre funds would finance only investment and reforms, with their use not permitted to stabilise economies hit by economic shocks not of their own making, a result of concerns from the Netherlands and its allies about free-riding and moral hazard.