REPORT FROM THE COMMISSION TO THE COUNCIL Report on the Union's facility providing medium-term financial assistance for Member States' balances of payments pursuant to Article 10 of Council Regulation (EC) No 332/2002
Date: 2017-08-30
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU loan, Hungary, Latvia, Romania, balance of payments, balance of payments assistance, economic recovery, financial aid, non-participating country (euro area)

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 30.8.2017  COM(2017) 459 final   REPORT FROM THE COMMISSION TO THE COUNCIL Report on the Union's facility providing medium-term financial assistance for Member States' balances of payments pursuant to Article 10 of Council Regulation (EC) No 332/2002  
 
 
1.  SUMMARY 

This  is  a  report  of  the  Commission  to  the  Council  on  the  use  of  the  Union’s  facility 
providing  medium-term  financial  assistance  for  Member  States’  balances  of  payments 
pursuant  to  Council  Regulation  (EC)  No  332/20021  of  18  February  2002  (the  ‘BoP 
Regulation’ or ‘BoP Instrument’). On the basis of this report by the Commission and taking 
into  account  the  opinion  of  the  Economic  and  Financial  Committee  (EFC),  the  Council  is 
required to examine the extent to which the instrument still serves its purpose in terms of its 
principle, arrangements and the ceiling for outstanding loans under the instrument. 

Since  2012,  Romania  has  requested  and  received  precautionary  assistance  under  the 
instrument. Hungary repaid its loan in April 2016 whereas EUR 0.7 billion in loans to Latvia 
is still outstanding. These beneficiary Member States saw the sustainability of their balance of 
payments situation improve rapidly, enabling renewed access to market-based financing. 

The Commission assesses the instrument as follows: 

  Since the last revision in May 2009, the instrument has proven its effectiveness given 
that beneficiary Member States have seen the sustainability of their balance of payments 
improve rapidly and have quickly regained access to market-based financing. 

  Currently  at  EUR  50  billion,  the  ceiling  for  outstanding  loans  (in  terms  of  principal) 

and credit lines under the instrument appears appropriate. 

  The  modifications  suggested  in  the  Commission  proposal  for  a  new  Council 
regulation (COM(2012) 336 final) remain both necessary and appropriate: developments 
in  the  regulatory  framework  and  the  same  borrowing  rules  as  those  under  Regulation 
(EU)  No  407/20102  of  11  May  2010  establishing  a  European  financial  stabilisation 
mechanism  should  be  introduced  and  the  use  of  credit  lines  clarified.  In  addition,  it 
should  be  clarified  that  the  instrument  may  be  used  to  finance  the  (indirect) 
recapitalisation of credit institutions and that policy conditions may be adjusted primarily 
to address these problems. 

2.  INTRODUCTION 

Pursuant to the BoP Regulation, the BoP Instrument was created to provide Union medium-
term financial assistance to Member States which have not adopted the euro3 (Member States 
with a derogation) and are experiencing, or are threatened with, difficulties in their balance of 
payments.  This  financial  assistance  is  either  in  the  form  of  an  EU  loan  or  a  credit  line. 
Furthermore,  the  BoP  Regulation  stipulates  that  the  Council  should  regularly  examine  the 
extent to which the instrument still serves its purpose in terms of its principle, arrangements 
and  ceiling.  The  Council  examination  should  be  made  on  the  basis  of  a  report  from  the 
Commission and after the EFC has delivered an opinion. 

Based  on  its  most  recent  assessment,  the  Commission  submitted  a  proposal  dated  22  June 
2012  (COM(2012)  336  final)  to  modify  the  BoP  Regulation.  However,  Council  members 
were unable to agree a common position because of objections by one Member State. 

1 OJ L 53, 23.2.2002, p. 1. 
2 OJ L 118, 12.5.2010, p. 1. 
3 Currently, nine Member States fall into this category: Bulgaria, Croatia, Czech Republic, Denmark, Hungary, 
Poland, Romania, Sweden, and the United Kingdom (concerning the latter, Protocol 15 annexed to the Treaties 
specifies that Articles 143 and 144 of the Treaty on the Functioning of the European Union (TFEU) continue to 
apply). 

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3.  STATE OF PLAY AND APPROPRIATENESS OF THE BOP INSTRUMENT 

Since  2012,  one  Member  State,  Romania,  has  requested  and  received  assistance  under  the 
instrument.  The  assistance  was  formally  agreed  in  October  2013  and  expired  in  September 
2015. It ran in parallel with a stand-by arrangement (SBA) of the International Monetary Fund 
(IMF).  As  with  the  agreement  covering  2011-13,  the  assistance  available  for  2013-15  was 
treated as precautionary and not drawn upon. 

The  precautionary  assistance  by  the  EU  amounted  to  EUR  2  billion,  while  the  IMF 
contributed  up  to  SDR  1.75  billion  (around  EUR  2  billion)  on  the  basis  of  an  equally 
precautionary SBA. The aim of the supported adjustment programme was to assist Romania 
in  consolidating  macroeconomic,  fiscal  and  financial  stability,  and  in  so  doing  increase  the 
resilience  and  growth  potential  of  its  economy;  improve  its  administrative  capacity;  reform 
the  tax  administration;  improve  public  financial  management;  and  restructure  state-owned 
enterprises. 

Hungary fully repaid its loan in April 2016 whereas EUR 0.7 billion of Latvia’s loan is still 
outstanding.  The  precautionary  assistance  for  Romania,  following  up  on  two  previous 
arrangements (one of which on a precautionary basis), has demonstrated the versatility of the 
instrument.  Romania  still  had  EUR  3.5  billion  left  to  repay  from  the  non-precautionary 
support disbursed in 2010-11. 

Table 1: Residual repayment obligations under the BoP Instrument (as of August 2017) 

Year 

2017 

2018 

2019 

2020 
2021 
2022 
2023 
2024 
2025 

Country 

Capital  
repayment 

Interest  
payment 

Grand Total 

Latvia 
Romania 
Latvia 
Romania 
Latvia 
Romania 
Latvia 
Latvia 
Latvia 
Latvia 
Latvia 
Latvia 

Grand Total 

1,150 

1,350 
500 
1,000 

200 
4,200 

6 
32 
23 
77 
23 
34 
6 
6 
6 
6 
6 
6 
231 

6 
1,182 
23 
1,427 
523 
1,034 
6 
6 
6 
6 
6 
206 
4,431 

In EUR million 

Against this backdrop, the remaining capacity of the instrument currently stands at EUR 45.8 
billion. No request for further support has been received so far. 

Generally, all of the beneficiaries mentioned above saw the sustainability of their balance of 
payments situation improve rapidly, and therefore access to market-based financing could be 
re-established. Hence, the instrument fulfilled its role effectively. 

At  the  same  time,  during  2010-13,  the  toolbox  of  international  financial  assistance 
instruments had been extended to include more flexible and more preventive instruments. In 
the  euro  area,  the  European  Stability  Mechanism  (ESM)  has  a  comprehensive  toolkit  to 
address the funding needs of its members. In the Union, the European Financial Stabilisation 
Mechanism  (EFSM),  broadly  similar  in  its  workings  to  the  BoP  Instrument,  introduced  a 

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more flexible framework for borrowing and lending operations for macro financial purposes. 
In contrast, the BoP Instrument had not witnessed further change. 

By consequence, it was suggested that the rules for credit lines in the BoP Regulation should 
be clarified, while those for borrowing and lending operations should be aligned to the more 
flexible ones applicable to the European Financial Stabilisation Mechanism (EFSM). 

Furthermore, the multilateral surveillance framework was enhanced, with the adoption of the 
‘six pack’ and the ‘two pack’. Regulation (EU) 472/20134 on the strengthening of economic 
and budgetary surveillance, in particular, contains a number of provisions to avoid duplication 
of reporting obligations for euro area countries receiving financial assistance, via a suspension 
of  the  Macro-economic  Imbalances  Procedure  (MIP)  and  the  European  semester  and 
monitoring under the financial arrangements of these countries instead of under the preventive 
arm of the Stability and Growth Pact (SGP). Moreover, Regulation 472/2013 also sets a very 
clear  framework  for  the  surveillance  of  euro-area  countries  after  the  end  of  financial 
assistance ("post-programme surveillance). It was suggested that similar provisions should be 
introduced for non-euro area Member States receiving support through the BoP Instrument. 

4.  CONTENT OF THE LEGISLATIVE PROPOSAL AND STATE OF PLAY 

The  Commission  submitted  a  legislative  proposal,  COM(2012)  336  final,  to  revise  the  BoP 
Instrument  on  22  June  2012.  But  rather  than  amending  the  BoP  Regulation,  the  proposal 
consists in a new regulation to cancel and replace the existing one. It contains the following 
main modifications to the BoP Instrument: 

  A  more  flexible  toolkit:  a  dedicated  credit  line  instrument  can  take  the  form  of  a 
precautionary  conditioned  credit  line  (PCCL),  which  is  a  credit  line  based  on  eligibility 
conditions, or an enhanced conditions credit line (ECCL), which is a credit line based on 
the combination of eligibility conditions and new policy measures. Access to a PCCL is to 
be limited to Member States whose economic and financial situation is still fundamentally 
sound and which fulfil an agreed set of eligibility criteria. Access to an ECCL is to be open 
to Member States which do not qualify for accessing a PCCL but whose general economic 
and financial situation remains sound. They are to adopt corrective measures. 

  Greater  transparency  and  accountability:  the  relevant  committee  of  the  European 
Parliament  may  offer  the  Member  State  concerned  the  opportunity  to  participate  in  an 
exchange of views on progress made in the implementation of the adjustment programme. 
Commission  representatives  may  be  invited  by  the  national  parliament  of  the  Member 
State  concerned  to  participate  in  an  exchange  of  views  on  the  progress  made  in  the 
implementation of the macro-economic adjustment programme. 

  Enhanced surveillance: consisting in wider access for the Commission to the information 
needed  for  a  close  monitoring  of  the  economic,  fiscal  and  financial  situation  of  the 
Member  State  concerned  and  a  regular  reporting  by  the  Commission.  A  Member  State 
under  enhanced  surveillance  is  to  adopt  measures  to  address  the  potential  sources  of 
economic difficulties. 

  Streamlining of surveillance procedures: by replacing a number of monitoring steps under 
the  preventive  arm  of  the  SGP  and  the  European  semester  by  the  macro-economic 
adjustment  programme  and  its  monitoring.  In  the  same  way,  the  revised  Regulation  also 
suspends  the  MIP  when  a  Member  State  is  subject  to  a  macro-economic  adjustment 

4  Regulation  (EU)  No  472/2013  of  the  European  Parliament  and  of  the  Council  of  21  May  2013  on  the 
strengthening  of  economic  and  budgetary  surveillance  of  Member  States  in  the  euro  area  experiencing  or 
threatened with serious difficulties with respect to their financial stability - OJ L 140, 27.5.2013, p. 1. 

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programme  and  requires  post-assistance  surveillance  for  Member  States  that  have 
reimbursed less than 75% of the financial assistance received. 

In addition to these changes proposed by the Commission, the European Parliament requested 
including  the  possibility  to  provide  loans  to  non-euro  area  Member  States  to  recapitalise 
financial  institutions  (indirect  recapitalisation  instrument).  In  response  to  this  request,  the 
Commission  agreed  to  clarify  that  financing  needs  stemming  from  the  necessity  to  re-
capitalise financial institutions could be addressed with the instrument and that the necessary 
conditionality could be adjusted to address primarily these problems. 

The Council discussed the amended Commission proposal for the last time in December 2013 
with a view to agreeing a Common Position. The proposal received broad support, with the 
exception of one Member State. Since then, the legislative process has been at a standstill. 

5.  CONCLUSIONS AND RECOMMENDATIONS 

Since  2012,  the  BoP  Instrument  has  been  effectively  fulfilling  its  role,  with  the  latest 
beneficiary  Member  States  successfully  restoring  a  sustainable  balance  of  payment  position 
and repaying the assistance on time.  

The ceiling of EUR 50 billion for outstanding loans in principal appears adequate. There is no 
need  to  revise  this  ceiling  taking  into  consideration  that  the  remaining  capacity  of  the 
instrument currently stands at EUR 45.8 billion with no further requests. 

It  has  proven  highly  effective  in  the  past  and  is  a  strong  signal  that  the  Union  has  both  the 
willingness and capacity to stand by all of its Member States in difficult times. This is proof 
of particular value given the current uncertainties. 

At  the  same  time,  it  became  apparent  that  the  instrument  had  to  be  adapted  to  reflect  the 
institutional  innovations  that  have  been  taking  place  since  the  last  revision  of  the  BoP 
Instrument,  mainly  concerning  the  euro  area.  For  this  purpose,  the  Commission  submitted 
proposal  COM(2012)  336  final  which  remains  under  discussion  in  the  Council.  The 
Commission  proposes  to  finalise  the  legislative  process,  because  it  improves  the  procedure 
and  therefore  contributes  to  a  level  playing  field  between  Member  States.  Furthermore,  the 
Commission  sees  the  changing  political  environment  as  an  opportunity  to  provide  new 
momentum to the proposal.  

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