COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE EUROPEAN CENTRAL BANK NEW BUDGETARY INSTRUMENTS FOR A STABLE EURO AREA WITHIN THE UNION FRAMEWORK
Date: 2017-12-06
Institutions: European Commission, Secretariat-General
Subjects: EU aid, EU financial instrument, Economic and Monetary Union, banking, budgetary discipline (EU), economic stabilisation, euro area, general budget (EU), inclusion in the budget, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 6.12.2017 COM(2017) 822 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND  THE EUROPEAN CENTRAL BANK NEW BUDGETARY INSTRUMENTS FOR A STABLE EURO AREA  WITHIN THE UNION FRAMEWORK  
 
 
1. 

INTRODUCTION 

In  his  2017  State  of  the  Union  address  and  accompanying  Letter  of  Intent,  President  Juncker 
announced  the  Commission's  intention  to  make  concrete  proposals  for  the  creation  of  
a  dedicated  euro  area  budget  line  within  the  EU  budget,  providing  for  the  following  functions:  
(1) structural reform assistance, building on the Commission's Structural Reform Support Programme; 
(2) a stabilisation function; (3) a backstop for the Banking Union; and (4) a convergence instrument to 
give pre-accession assistance to Member States on their way to joining the euro.  

These ideas are further detailed in this Communication, which is part of a package of initiatives 
to deepen Europe's Economic and Monetary Union.1 The package builds, in particular, on the Five 
Presidents'  Report  on  completing  Europe's  Economic  and  Monetary  Union  of  22  June  20152  and  on 
the Commission's Reflection Paper on the deepening of the Economic and Monetary Union of 31 May 
2017.3 

Deepening  the  Economic  and  Monetary  Union  and  modernising  EU  public  finances  are  key 
strands  in  the  debate  on  the  future  of  Europe  initiated  by  the  Commission's  White  Paper  of  
1 March 2017.4 This was further highlighted in the Reflection Paper on the future of EU finances of 
28 June 2017.5 At the current juncture, there is a window of opportunity to launch concrete forward-
looking  proposals  on  both  the  future  of  the  Economic  and  Monetary  Union  and  on  how  future  EU 
public finances can help to respond to identified challenges.  

European  value added is at the heart of the debate on European  public finances.  EU resources 
should be used to finance European public goods. Such goods benefit the EU as a whole and cannot be 
ensured efficiently by any single Member State alone. In line with the principles of subsidiarity and 
proportionality,  the  EU  should  take  action  when  it  offers  better  value  for  every  taxpayer's  euro 
compared to action taken at national, regional or local level alone. 

Deepening  the  Economic  and  Monetary  Union  is  good  for  both  the  euro  area  and  the  EU  as  
a whole. A more integrated and performing euro area would bring further stability and prosperity to all 
in the EU while ensuring that Europe's economic voice is strongly heard on the global stage. The new 
budgetary instruments presented in this Communication seek to tackle some of the specific needs of 
euro  area  Member  States  and  those  on  their  way  to  joining  the  euro,  while  keeping  in  mind  their 
broader needs and aspirations as EU Member States. In doing so, it also seeks to maximise synergies 
between existing and future instruments, as they will be presented by the Commission in May 2018 as 
part of its proposals for the post-2020 EU Multiannual Financial Framework. 

1   COM (2017) 821, 6 December 2017. 
2   Completing Europe's Economic and Monetary Union, Report by Jean-Claude Juncker, in close cooperation 

with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz, 22 June 2015. 

3   COM (2017) 291, 31 May 2017. 
4   COM (2017) 2025, 1 March 2017. 
5   COM (2017) 358, 28 June 2017. 

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2. 

EU PUBLIC FINANCES TODAY 

EU  public  finances  include  the  EU  budget  and  several  other  euro  area  and  European 
mechanisms  and  financing  instruments.  These  contribute  to  Member  States'  economic  and  social 
development and support shared EU-level priorities (see appendix for an overview).  

The deepening of the Economic and Monetary Union is one these common priorities. It requires 
determined actions from individual Member States as well as adequate support from the EU budgetary 
and policy coordination instruments. This communication sets out proposals and ideas on how better 
to use the EU budget as a way to strengthen the resilience of our interdependent economies. Progress 
made by both euro and non-euro countries in implementing reforms and converging upwards will be 
beneficial to all. 

The  EU  budget  already  has  a  comprehensive  range  of  instruments  at  its  disposal  with  a 
significant  impact,  ranging  from  grants  to  financial  instruments,  but  it  remains  comparatively 
small.  At  about  1%  of  the  total  EU  Gross  Domestic  Product,  the  EU  budget  is  limited  in  size 
compared  to  national  budgets  and  it  is  further  constrained  by  the  need  to  be  in  annual  balance. 
Nevertheless,  EU  instruments  have  significant  strategic  and  economic  impact  in  several  Member 
States  and  sectors.  Currently,  the  EU  budget  does  so  mostly  through  grants  to  economic  actors  or 
public authorities channelled directly by the European Institutions or jointly with the Member States. 
In  particular,  in  some  Member  States,  the  European  Structural  and  Investment  Funds  have  in  recent 
years accounted for more than half of total public investment, contributing strongly to the process of 
the economic and social catching-up of regions and countries across Europe. Moreover, given that its 
support is spread over several years, the EU budget also has a certain stabilising effect on the level of 
public investments over time and, as shown by the support given to the Greek economy, it can play a 
stabilising role in the event of economic difficulties.6 Although limited in size, there are also a number 
of EU-level instruments that can specifically help cushion economic shocks at national or local level.7  

Since the start of the current Commission, the European Structural and Investment Funds and 
other  relevant  programmes  have  been  complemented  by  the  European  Fund  for  Strategic 
Investments.  The  so-called  "Juncker  Plan"  has  supported  private  investment  across  Europe  and 
provided  a  flexible  way  to  multiply  the  effects  of  limited  public  funds  in  triggering  private 
investment.8 

6    On 15 July 2015, the Commission presented the Communication "A new start for jobs and growth in Greece" 
(COM (2015) 400) and proposed a series of exceptional measures which helped to maximise the absorption 
of EU funds in support of the Greek real economy. 

7    Other such mechanisms include the Youth Employment Initiative, which provides support to Member States 
and regions facing high youth unemployment; the European Union Solidarity Fund, which provides financial 
assistance to Member States/regions affected by major disasters; and the European Globalisation Adjustment 
Fund, which provides support to people losing their jobs as a result of major structural changes in world trade 
patterns or as a result of a global economic and financial crisis.  

8    By the end of November 2017, the deals approved under the European Fund for Strategic Investments (EFSI) 
amount to EUR 49.6 billion in financing and are located in all 28 Member States, with the European Fund for 
Strategic  Investments  expected  to  trigger  EUR  251.6  billion  in  investments  overall.  Around  528,000  small 
and medium-sized companies (SMEs) are expected to benefit from improved access to finance. 

2 

 
 
 
 
                                                            
In very specific cases, the EU is empowered to borrow and lend. This is notably the case for the 
management for loans provided under the Balance of Payments Facility9 to support non-euro Member 
States in the event of difficulties in their balance of payments.  It is also the case for loans provided 
under the European Financial Stabilisation Mechanism.10 Since the funds raised and the corresponding 
loans  are  back-to-back  operations,  there  is  no  direct  impact  on  the  EU  budget  as  long  as  recipient 
Member States honour their obligations.  

In  addition  to  grants  and  loans,  EU  support  has  also  increasingly  taken  the  form  of  technical 
support. With the establishment in 2015 of the Structural Reform Support Service, the Commission 
expanded its technical support and is helping Member States, upon their request, to carry out reforms 
in key policy areas and to strengthen their public administrations. 

The actions supported directly by the EU budget are complemented by a number of European 
or  euro  area  tools  and  bodies.  Some  of  these  operate  within  the  EU  institutional  framework  but 
outside  the  EU  budget,  such  as  the  European  Investment  Bank.  Others  are  outside  the  Union  legal 
framework, such as the European Stability Mechanism. While the European Investment Bank supports 
projects  contributing  to  jobs  and  growth  in  Europe  and  beyond,  the  European  Stability  Mechanism 
provides financial assistance to euro area Member States experiencing severe financing difficulties.  

EU-level funds and financial tools today 

Source: European Commission. EFSM: European Financial Stability Mechanism. BoP: Balance of Payments. 

While  the  EU  budget  has  always  promoted  upward  social  and  economic  convergence  and  the 
lending  firepower  available  at  EU  level  was  increased  in  recent  years  to  respond  to  extreme 
circumstances, macroeconomic stabilisation has not been an explicit objective of the EU budget 
so far. The experience of the crisis years has also shown that the architecture and scope of EU public 
finances do not yet fully match the specific needs of the Economic and Monetary Union – neither for 
the euro area Member States, nor for Member States on their way to joining the euro area.  

9    Council  Regulation  (EC)  No  332/2002  of  18  February  establishing  a  facility  providing  medium-term 

financial assistance for Member States' balances of payments (OJ L 53, 23 February 2002, p.1). 

10   The  European  Financial  Stabilisation  Mechanism  was  set  up  on  11  May  2010  on  the  basis  of  Council 
Regulation (EU) No 407/2010 of 11 May 2010 (OJ L 118, 12 May 2010, p.1). It functions in a similar way as 
the balance of payments facility but is available to all Member States, i.e. including euro area Member States.  

3 

 
 
 
                                                            
The response to these challenges does not necessarily need to be financial at first. Much progress 
has  already  been  made  and  more  should  be  done  to  improve  the  regulatory  framework  and  policy 
framework at both EU and national levels. A roadmap for further work is outlined as part of today's 
package.11  

However, among the lessons drawn over the years, three linked and well-identified challenges have to 
be better addressed by EU public finances:  

(1)  To  promote  and  support  structural  reforms  in  the  Member  States  in  order  to  achieve 
greater  resilience  of  economic  structures  and  better  convergence  in  performances.  This  is 
notably the case for countries sharing the single currency but also for Member States on their way 
to joining the euro, as resilient structures are essential for a smooth participation in the euro area. 
The  crisis  years  have  clearly  shown  the  importance  of  having  modern  economic  and  social 
structures  able  to  respond  swiftly  to  shocks  in  order  to  avoid  aggravating  economic  or  social 
distress. They have also had a sizeable impact, exacerbated in certain parts of Europe, in terms of 
economic output, unemployment, investment and bank bailouts. It is only now almost ten years 
after  the  crisis  hit  that  there  are  signs  that  the  longer-term  process  of  convergence  in  living 
standards has resumed. 

(2)  To  support  euro  area  Member  States  to  respond  better  to  rapidly  changing  economic 
circumstances  and  stabilise  their  economy  in  the  event  of  large  asymmetric  shocks.  As  a 
result  of  the  unification  of  monetary  policy  in  a  single  currency  area,  macroeconomic  policy 
instruments  in  the  hands  of  participating  Member  States  are  no  longer  the  same.  While  each 
country differs and the size and structure of the economy matter in terms of likelihood of being 
exposed to shocks, the crisis highlighted the limitations of means available to individual euro area 
Member States to absorb the impact of large asymmetric shocks, with some losing access to the 
markets  to  finance  themselves.  In  several  instances,  this  resulted  in  protracted  recessions  and 
negative spill-overs to other Member States. 

(3)  To sever the link between sovereign debt and the situation of the banks, to reduce systemic 
risks and to reinforce the collective response capacity for possible major bank failures, also 
to  prevent  contagion.  A  backstop  to  enhance  the  capacity  of  the  Single  Resolution  Fund  for 
coping with bank resolutions was already agreed in principle in 2013. This backstop is meant to 
act  as  last-resort  insurance  and  is  important  to  strengthen  confidence  further  in  the  European 
banking system. 

With this in mind, there are ways to develop shared budgetary instruments at EU level that can 
contribute  to  the  stability  of  the  euro  area  and  also  benefit  the  EU  as  a  whole.  To  ensure  their 
success and effectiveness, and to maximise their efficiency for the taxpayer, these instruments must be 
conceived in full synergy with other budgetary instruments existing in the broader Union framework. 
The  modernisation  of  EU  public  finances,  with  proposals  from  the  Commission  to  follow  in  May 
2018, will be a unique opportunity for the EU and the euro area to equip themselves with the means 
that are needed. 

11   COM (2017) 821, 6 December 2017. 

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3. 

MODERNISED AND FORWARD-LOOKING EU PUBLIC FINANCES  

The  Reflection  Paper  on  the  future  of  EU  finances  set  the  scene  for  a  modern  and  forward-looking 
budgetary  framework  post-2020.  In  line  with  President  Juncker's  State  of  the  Union  address,  this 
Communication focuses on four specific functions: 

  This  Communication  presents  a  new  way  to  support  national  reforms  identified  in  the 
European  Semester  of  economic  policy  coordination,  building  on  both  budgetary  and 
technical  support.  First  steps  are  proposed  for  the  period  2018-2020  in  the  form  of  targeted 
changes to the Common Provisions Regulation governing the European Structural and Investment 
Funds  and  a  reinforcement  of  the  current  Structural  Reform  Support  Programme.  For  the  post-
2020 Multiannual Financial Framework, the Commission intends to present a new reform delivery 
tool to support Member States' agreed reform commitments financially. Moreover, it will propose 
to  strengthen  technical  support  for  the  period  post-2020,  building  on  the  experience  of  the 
Structural Support Reform Programme.  

  This Communication proposes to set up a dedicated convergence facility for Member States 
on  their  way  to  joining  the  euro.  For  the  period  2018-2020,  the  Commission  proposes  to 
establish a dedicated work stream under the Structural Reform Support Programme. For the period 
post-2020, this should be turned into a dedicated facility. The choice of reform priorities will be 
discussed and monitored as part of the European Semester. 

  This  Communication  lays  down  the  key  features  of  a  backstop  to  the  Banking  Union.  This 
consists  of  a  credit  line  or  guarantees  through  the  European  Stability  Mechanism/European 
Monetary Fund, to be provided directly to the Single Resolution Fund.  

  This Communication presents some key features for the roll-out of a stabilisation function as 
a way of preserving investment levels in the event of large asymmetric shocks. The stabilisation 
function  is  conceived  for  the  euro  area  Member  States  and  should  be  open  to  the  other  EU 
Member States. This would need to be reflected in the eventual financial design. 

These functions are described in more detail  in the subsequent  sections. However, before looking at 
the fine print, a number of overarching principles should be kept in mind.  

  Firstly, while certain functions target the more specific needs of euro area Member States on 
the one hand, and non-euro Member States on the other, they are all anchored in a common 
EU approach and a vision of the broader EU framework. A clear picture of overall EU public 
finances  –  today  and  tomorrow  –  is  essential  when  designing  these  instruments:  this  will  help 
reinforce the synergies between all actors and financing tools, avoid duplications and, ultimately, 
ensure a greater return for each euro spent collectively. This is all the more necessary since, as is 
recalled  throughout  today's  package,  the  future  of  euro  and  non-euro  Member  States  is  closely 
intertwined, and the distinction between them is becoming less relevant over time.  

  Secondly,  while  the  rest  of  this  paper  looks  mainly  at  the  expenditure  side  of  EU  public 
finances,  a  modernised  system  of  own  resources  could  also  contribute  in  the  future.  For 
instance,  the  revenue  side  of  the  EU  budget  already  provides  a  certain  degree  of  economic 
stabilisation,  in  particular  through  the  own  resource  based  on  Gross  National  Income,  which 
accounts  for  almost  75%  of  total  own  resources,  and  which  reflects  relative  economic 

5 

 
 
 
performance.12  This means that just as the spending side of the EU budget has evolved over time, 
further improvements should also be considered on the revenue side.13 Possible sources of further 
revenues  were  for  instance  identified  by  the  High  Level  Group  for  Own  Resources.14  These 
considerations  are  not  developed  in  this  text  but  will  be  explored  in  view  of  the  post-2020 
Multiannual Financial Framework. They can be complementary to what is presented below. 

  Thirdly,  these  functions  should  operate  hand  in  hand  with  the  policy  framework  provided 
for  by  the  European  Semester  of  economic  policy  coordination,  including  the  Stability  and 
Growth  Pact.  The  European  Semester  is  the  main  tool  for  the  coordination  of  Member  States' 
economic  policies  at  EU  level.  It  allows  Member  States  to  discuss  their  economic,  social  and 
budgetary priorities and to monitor progress at specific times throughout the year. In the context of 
the  European  Semester,  the  Stability  and  Growth  Pact  and  the  Macroeconomic  Imbalances 
Procedure serve to ensure sound public finances and to prevent risks of imbalances. Progress has 
also been made in establishing a greater link between the priorities of the European Semester and 
the  European  Structural  and  Investment  Funds,  by  introducing  ex-ante  and  macroeconomic 
conditionalities.15 Moreover, by making best use of the flexibility built  into  the existing  rules of 
the  Stability  and  Growth  Pact,  the  current  Commission  has  strengthened  the  link  between 
investment, structural reforms and fiscal responsibility, while taking better account of the cyclical 
economic  conditions  faced  by  Member  States.16  Looking  ahead,  it  will  be  essential  to  keep 
strengthening the coherence and impact of all these instruments.  

  Fourthly, the four functions discussed here are closely interlinked. They can operate as part of 
the  global  approach  to  a  modernised  EU  framework.  Given  the  focus  on  the  Economic  and 
Monetary  Union,  the  explanations  naturally  refer  to  the  EU  priorities  and  financing  instruments 
linked to jobs, growth, investment and macroeconomic stability. However, this does not prejudge 
other elements of the Multiannual Financial Framework proposals that will follow in May 2018. 

For the period post-2020, it is possible to design a way forward that maximises the impact of EU 
public finances. This way forward is summarised in the graph below. A lot of the elements are well 
known:  as  is  the  case  today,  a  number  of  EU  funds  and,  in  particular,  the  European  Structural  and 
Investment  Funds  will  continue  to  exist  as  a  vehicle  for  fostering  real  convergence,  alongside  other 
financing  sources  such  as  those  provided  under  the  "Juncker  Plan"  and  other  EU-level  instruments. 
Irrespective of the exact funding source, support will still take one of the three basic following forms: 
technical assistance, grants or loans. 

12  The fact that these contributions are based on the Gross National Income of each Member State means that 
their absolute amount changes over time depending on the economic cycle, all other things being equal. 
13   Unlike national budgets, the EU budget cannot incur debt, as its revenue and expenditure must be in annual 
balance. Instead, it relies on financing through "own resources" There are three main types of own resources 
today: contributions from Member States based on their income level measured by Gross National Income, 
contributions based on Value Added Tax, and customs duties collected at the external borders of the Union. 
14   See the Reflection Paper on the future of EU finances of 28 June 2017, which also took inspiration from the 
final report and recommendations of the High Level Group on Own Resources December 2016. This Group 
was  chaired  by  former  Italian  Prime  Minister  and  EU  Commissioner  Mario  Monti  and  was  composed  of 
members designated by the European Parliament, the Council and the European Commission. 

15   See also Article 4 of the Common Provisions Regulation (EU) No 1303/2013 of the European Parliament and 

of the Council of 17 December 2013. 

16   COM (2015) 12, 13 January 2015.  

6 

 
 
 
                                                            
National  reform  priorities  will  still  be  identified  by  Member  States  as  part  of  their  annual 
national programmes in the context of the European Semester of economic policy coordination. As 
explained in the 2018 Annual Growth Survey,17 efforts need to continue on implementing reforms that 
are underway and this often takes time and discussion. This is why the Commission is advocating a 
more multiannual approach and a more collective review of reform commitments.  

Alongside  national  reform  priorities,  Member  States  will  develop  their  own  investment 
priorities, which could be reflected in a national platform of investment.  These platforms would 
bring together relevant actors, at different levels of authority, in each Member State, in order to define 
multiannual  investment  priorities,  to  support  pipelines  of  projects,  which  could  also  be  part  of 
European projects, and to identify sources of funding and support, including from the EU. 

Maximising the impact of EU public finances: a possible way forward 

Source: European Commission 

While  this  construction  is  relatively  similar  to  today's  realities,  two  new  features  would  be 
added.  The  first  one  is  a  reform  delivery  tool  that  would  provide  extra  grants  to  support  national 
efforts in implementing the reforms identified as priorities in the European Semester. The second one 
is a stabilisation function that could provide quick support and help to maintain national investment 
levels  in  the event  of  large  asymmetric  shocks,  typically by  filling  the  financing  gap  of  pre-existing 
pipelines of projects and/or supporting skills upgrading. These two new features are further explained 
below. 

17   COM(2017) 690, 22 November 2017. 

7 

 
 
 
 
                                                            
4. 

STRUCTURAL REFORM SUPPORT  

Appropriate  national  policies  are  essential  for  the  smooth  functioning  of  a  more  integrated 
Economic and Monetary Union. Since many critical policy areas that are decisive remain primarily 
in  the  hands  of  the  Member  States,  their  coordination  and  the  sequencing  of  reforms  under  the 
European Semester is essential to maximise their effectiveness, not only at national level, but also at 
EU level.  

Greater support to structural reforms could be achieved through two complementary legs: 

a) a reform delivery tool to support Member States' reform commitments, and 

b) technical support for specific actions at the request of the Member States. 

A reform delivery tool to support Member States' reform commitments  

With a view to supporting Member States in implementing the reforms identified in the context 
of the European Semester, the Commission intends to propose a new reform delivery tool under 
the  post-2020  Multiannual  Financial  Framework.  This  new  tool  would  be  made  available  to 
Member  States  committing  to  reforms  discussed  in  dialogue  with  the  Commission  and  agreed  in 
reform commitments.  

This new reform delivery tool would seek to support a broad range of reforms. The focus should 
be on those reforms that can contribute most to the resilience of domestic economies and have positive 
spill-over effects on other Member States. These include reforms in product and labour markets, tax 
reforms, the development of capital markets, reforms to improve the business environment as well as 
investment in human capital and public administration reforms.  

The  reforms  to  be  supported  would  be  identified  in  multiannual  reform  commitment  packages 
presented  and  monitored  together  with  the  National  Reform  Programmes.  The  reform 
commitments would be proposed by the Member States themselves and would include a set of reform 
measures with clear milestones and targets (see box below). Member States with excessive imbalances 
identified  in  the  Macroeconomic  Imbalances  Procedure  would  be  invited  to  present  such  reform 
commitments  as  a  means  of  tackling  the  issues  that  are  highlighted.  A  peer  review  process  would 
ensure  that  the  reform  proposals  benefit  from  the  experience  of  other  Member  States  as  well  as  an 
assessment by the Commission. 

Once  the  reform  commitment  package  is  agreed,  the  monitoring  and  reporting  on  the 
implementation of its milestones would be aligned with the European Semester. National Reform 
Programmes would be the source of information on progress and should provide information on steps 
towards  reform  completion.  The  annual  Country  Reports  produced  by  the  Commission's  services 
would provide an updated assessment of reform progress. The process for the award of support under 
this tool would need to be carefully calibrated to make sure the decision is timely and has sufficient 
ownership.  

8 

 
 
 
 
 
 
 
For the period 2018-2020, such a system could be tested in a pilot phase by offering the possibility 
to  Member  States  to  use  part  of  the  performance  reserve  in  the  current  European  Structural  and 
Investment  Funds  to  support  reforms  instead  of  specific  projects.  To  this  end,  amendments  to  the 
Common Provisions Regulation are presented today as part of the package. 

Support to structural reforms via a reform delivery tool 

1.  Relevant  structural  reforms  should  be  proposed  by  the  Member  States  themselves  within  the 

context of the challenges identified in the European Semester process. 

2.  In a first phase, following a dialogue with the Commission, a reform commitment package would 
cover  a  number  of  reforms  to  be  implemented  over  a  three-year  period  at  the  start  of  the 
Multiannual Financial Framework programming period post-2020.  

3.  The agreed reform commitment packages would provide for a detailed set of measures, milestones 
for  implementation  and  a  calendar  for  completion  within  a  maximum  period  of  three  years. 
Member States would report on progress together with their National Reform Programmes. 

4.  A  second  round  of  reform  commitment  packages  could  be  agreed  in  the  course  of  the 

programming period, for example at the request of a new government. 

5.  Criteria would be drawn up by the European Commission for assessing progress at the different 
milestones  in  order  to  help  Member  States  with  their  reforms.  The  quantitative  and  qualitative 
targets and milestones would provide the basis for the assessment for the financial support. 

Technical support for specific actions at the request of a Member State 

As a complement, the Commission is planning to enhance significantly the technical support that 
it  offers  to  Member  States  for  the  design  and  implementation  of  reforms.  Since  the  Structural 
Reform  Support  Programme  was  launched,  the  requests  for  support  by  Member  States  have 
significantly exceeded the amount of funding available for the annual cycles (see box below). 

As  a  first  step,  the  Commission  proposes  to  double  the  financial  envelope  of  the  current 
Structural Reform Support Programme, thus bringing it to EUR 300 million for the period up to 
2020,  also  to  cover  the  needs  of  Member  States  on  their  way  to  joining  the  euro  (see  below).  This 
would allow for the rapid deployment of additional technical support for envisaged structural reforms 
at the current juncture. Based on this experience, the Commission also intends to propose a follow-up 
programme to the Structural Reform Support Programme under the post-2020 Multiannual Financial 
Framework. 

9 

 
 
 
 
 
 
 
 
The Structural Reform Support Programme 

The Structural Reform Support Programme was agreed early in 2017 by the European Parliament and  
the  Council  following  a  proposal  from  the  Commission.  Its  aim  is  to  finance  tailor-made  technical 
support to Member States to help them with their reform plans. It has a budget of EUR 142.8 million 
for the period from 2017 to 2020. The support is available to all EU Member States, is demand-driven 
and requires no co-financing. 

The  technical  support  covers  reforms  in  the  areas  of  governance  and  public  administration,  public 
financial  management,  the  business  environment,  labour  markets,  health  and  social  services,  the 
financial  sector  and  access  to  finance.  It  draws  on  good  practices  and  expertise  from  across  the 
European  Union,  as  well  as  from  international  organisations,  the  private  sector  and  within  the 
Commission. The programme is implemented by the Commission's Structural Reform Support Service 
in  cooperation  with  other  Commission  services  and  mobilises  experts  from  all  over  Europe  and 
beyond. 

The Structural Reform Support Service has so far supported 15 Member States to carry out over 150 
projects. Under the Structural Reform Support Programme 2018 cycle, the Structural Reform Support 
Service has received 444 requests for support from over 20 Member States, leading to a substantial 
excess demand for the Programme's limited budget. 

5. 

A  DEDICATED  CONVERGENCE  FACILITY  FOR  MEMBER  STATES  ON 
THEIR WAY TO JOINING THE EURO  

The euro is the currency of the EU18 and all Member States – except Denmark and the United 
Kingdom – are legally committed to join the euro area eventually. As President Juncker said in his 
2017 State of the Union address: "The euro is meant to be the single currency of the European Union  
as a whole. All but two of our Member States are required and entitled to join the euro once they fulfil  
all conditions. Member States that want to join the euro must be able to do so."  

As foreseen in Article 140 of the Treaty on the Functioning of the EU, Member States need to 
have  achieved  a  high  degree  of  sustainable  convergence  in  order  to  adopt  the  euro.  This  is 
assessed based on the fulfilment of the four convergence criteria listed in Article 140 and in Protocol 
No  13  annexed  to  the  Union  Treaties.  In  addition  to  these  formal  criteria,  the  resilience  of  the 
economic  structures  is  also  essential  for  the  smooth  transition  and  participation  in  the  euro,  in 
particular to absorb shocks.   

The resilience of economies depends on a number of factors. Member States should manage their 
budgets  in  accordance  with  the  principles  of  sound  public  financial  management,  creating  fiscal 
buffers  in  good  times  and  ensuring  a  high  return  on  public  expenditure,  including  through  well-
functioning  public  administrations.  Their  regulatory  and  supervisory  institutions  should  be  ready  to 

18  In Declaration 52 annexed to the Treaty of Lisbon, 16 Member States (Belgium, Bulgaria, Germany, Greece, 
Spain,  Italy,  Cyprus,  Lithuania,  Luxembourg,  Hungary,  Malta,  Austria,  Portugal,  Romania,  Slovenia  and 
Slovakia)  declared  that  for  them  the  "euro  as  the  currency  of  the  European  Union"  would  continue  as  a 
symbol to express the sense of community of the people in the European Union and their allegiance to it. By 
means  of  a  parliamentary  resolution  of  27  November  2017  of  the  French  National  Assembly,  France  has 
taken steps to adhere to that declaration. 

10 

 
 
 
 
 
                                                            
participate in the Banking  Union. Properly functioning labour and  product markets should  allow  for 
the rapid expansion of new activities and high levels of employment and productivity.  

As part of its technical assistance activities, the Commission proposes to set up a dedicated work 
stream to offer targeted support to Member States on their way to joining the euro. The technical 
support will be offered upon request and will cover all policies that can help achieve a high degree of 
convergence,  such  as  support  for  reforms  in  the  areas  of  public  financial  management,  the  business 
environment,  the  financial  sector,  labour  and  product  markets,  and  the  public  administration.  
This  technical  support  will  be  funded  through  the  Structural  Reform  Support  Programme.  It  will  be 
fully  voluntary  and  offered  without  any  co-financing  from  the  beneficiary  Member  States.  This 
proposal  is  reflected  in  the  amendment  to  the  Structural  Reform  Support  Programme  Regulation 
presented alongside this package.  

For the period post-2020, the Commission will propose a dedicated convergence facility, as part 
of the follow-up to the Structural Reform Support Programme, in order to support Member States in 
their concrete preparation for a smooth participation in the euro area. This is irrespective of the formal 
process towards euro adoption, which is part of a specific monitoring process.19  

Member States concerned can also decide, already now, to reprogramme part of their technical 
assistance budget available under the European Structural and Investment Funds for projects to 
be  supported  by  the  Structural  Reform  Support  Service.  Progress  with  the  reforms  on  the  ground, 
including those linked to the reform delivery tool presented above, will continue to be monitored in the 
context of the European Semester. 

6. 

A BACKSTOP FOR THE BANKING UNION  

The  creation  of  a  backstop  for  the  Single  Resolution  Fund  was  agreed  by  Member  States  in 
2013, as a complement to the political agreement on the Single Resolution Mechanism Regulation.20 
As last-resort insurance in the event of a bank resolution, a common backstop would only be activated 
in the event that the resources available in the Single Resolution Fund were insufficient to finance the 
resolution  of  the  bank(s)  concerned.  This  would  enhance  confidence  of  all  parties  concerned  in  the 
actions to be taken by the Single Resolution Board. 

Four years on, this backstop is still not operational. The September 2017 State of the Union address 
and  the  October  2017  Communication  on  completing  the  Banking  Union21  emphasise  the  need  for 
such a backstop to be made operational as a matter of priority.  

The Reflection Paper on the deepening of the Economic and Monetary Union identified certain 
criteria  that the backstop should meet to be operational in  the event of a  crisis. It should be of 
adequate size to be able to fulfil its role and be able to be activated swiftly in times of crisis. It should 
also  be  fiscally  neutral,  given  that  the  Single  Resolution  Mechanism  Regulation  stipulates  that  the 
banking  sector  in  the  Banking  Union  must  reimburse  any  potential  disbursements  from  the  Single 
Resolution Fund.  

19   According to Article 140 of the Treaty on the Functioning of the EU, the Commission and the European 
Central Bank present a report at least every two years. The next reports are expected in May 2018. 

20    Statement  of  Eurogroup  and  Economic  and  Financial  Affairs  Council  Ministers  on  the  Single  Regulation 

Mechanism backstop, 18 December 2013. 

21   COM(2017) 592, 11 October 2017. 

11 

 
 
 
 
                                                            
A common backstop through the European Stability Mechanism/European Monetary Fund 

The Commission is today putting forward a proposal for the setting up of a European Monetary 
Fund,  which  foresees  that  the  future  European  Monetary  Fund  should  provide  a  credit  line  or 
guarantees directly to the Single Resolution Fund.  

Most Member States have expressed their support for the integration of the backstop function 
into the European Stability Mechanism. The Commission welcomes the technical preparatory work 
already carried out to this end. This is also the most pragmatic and efficient solution. The European 
Stability Mechanism (in the future the European  Monetary Fund) would build on its experience and 
proven track record of tapping markets, even in a challenging environment.  

This arrangement should be extended as needed to include on an equal footing all members of 
the Banking Union. Whenever a new Member State joins the Banking Union without joining the euro 
area, it should provide a national parallel facility alongside the European Monetary Fund's support to 
the  Single  Resolution  Fund.  Appropriate  governance  arrangements  will  ensure  that  the  legitimate 
interests of non-euro area Member States participating in the Banking Union are taken into account. 
This is foreseen in today's proposal for the creation of a European Monetary Fund. 

Governance 

Recognising the importance of managing the failure of a bank while avoiding any contagion or 
disruption  of  financial  stability,  the  Single  Resolution  Mechanism  Regulation  provides  for 
specific  decision-making  arrangements.  The  decision-making  procedures  for  the  adoption  of  a 
resolution  scheme  are  subject  to  short  deadlines  so  that  they  can  be  completed,  when  necessary 
overnight, before markets reopen.22   

The  backstop  should  be  available  at  the  point  of  time  when  the  resolution  scheme  enters  into 
force. In the event that amounts additional to those readily available in the Single Resolution Fund are 
needed (i.e. the backstop), the European Monetary Fund's decision-making process on the use of the 
backstop  must  be  quick  and  predictable.  It  must  not  entail  additional  conditionality  beyond  the 
requirements  of  the  Regulation  on  the  Single  Resolution  Mechanism.23  The  appropriate  governance 
arrangements  therefore  need  to  be  rapid  and  reliable,  ensuring  equal  treatment  across  the  Banking 
Union.  

22   Article18 of the Single Resolution Mechanism Regulation. 
23   Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing 
uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in 
the  framework  of  a  Single  Resolution Mechanism  and  a  Single  Resolution  Fund  and  amending  Regulation 
(EU) No 1093/2010; see Article 18. 

12 

 
 
 
 
 
 
 
 
                                                            
7. 

STABILISATION FUNCTION  

A  stabilisation  function  at  European  level  would  provide  the  possibility  to  activate  resources 
rapidly  to  deal  with  shocks  that  cannot  be  managed  at  the  national  level  alone.  The  Five 
Presidents’ Report and the Reflection Paper on the deepening of the Economic and Monetary Union 
have set out the rationale for such an instrument and important principles have been identified, which 
remain valid.24 Access to the stabilisation function would be subject to eligibility criteria and an agreed 
mechanism to trigger its use. The rest of this section envisages a stabilisation function intended for the 
euro area Member States and open to all who wish to participate. 

Such  a  stabilisation  function  would  only  complement  the  stabilisation  role  played  by  national 
budgets in the event of large asymmetric shocks. Given their central role in the economy, national 
budgets will continue to be the main fiscal policy instrument for Member States to adjust to changing 
economic circumstances. This is why Member States need to continue to build up and sustain adequate 
fiscal  buffers,  notably  in  good  times,  as  foreseen  by  the  Stability  and  Growth  Pact.25  In  case  of  a 
downturn, Member States would first use their automatic stabilisers and discretionary fiscal policy in 
line  with  the  Pact.  Only  if  these  buffers  and  stabilisers  are  not  sufficient,  in  the  case  of  large 
asymmetric shocks, should the stabilisation function at European level be triggered.  

Such  a  function  would  help  soften  the  effects  of  asymmetric  shocks  and  prevent  the  risk  of 
negative  spill-overs.  The  objective  is  to  provide  resources  to  a  Member  State  hit  by  a  shock  that 
would otherwise force it to turn to the market for financing – in potentially difficult circumstances – 
with possible impacts on the deficit/debt position of the Member State concerned. 

Key features of a stabilisation function 

In order to be effective, the stabilisation function should fulfil several criteria. In particular, it should 
be: 

  Distinct from and complementary to existing instruments in the EU public finances toolbox.  
Such a function should fill the gap between, on the one hand, existing instruments financed from 
the EU budget for jobs, growth and investment and, on the other hand, financial assistance under 
the European Monetary Fund in extreme cases. Looking ahead, it is also important to consider the 
role of existing instruments under the EU budget with some stabilisation effect.26 These could also 
be enhanced to assist in shock absorption more effectively in the future, as a complement to what 
is presented here. Likewise, it is worth considering the idea of a temporary increase of the EU 

24   A number of guiding principles were mentioned. A stabilisation instrument should i) minimise moral hazard 
and not lead to permanent transfers, ii) be strictly conditional on clear criteria and continuous sound policies, 
in particular those leading to more convergence within the euro area,  iii) be developed within the EU legal 
framework, iv) be open and transparent vis-à-vis all EU Member States, and v) not duplicate the role of the 
European Stability Mechanism – the future European Monetary Fund – as crisis management tool. 

25   In recent years, the Stability and Growth Pact has been reinforced to take account of what makes sense for a 
given  Member  State  at  the  particular  juncture  of  its  economic  cycle,  for  instance  to  avoid  being 
contractionary  when  the  circumstances  call  for  the  reverse.  The  Stability  and  Growth  Pact  provides  for 
additional buffers in good times and the necessity for a smaller fiscal effort to be undertaken during difficult 
economic conditions. 

26   See footnote 7 in particular for examples of existing EU instruments designed to smoothen and/or absorb 

shocks. 

13 

 
 
 
                                                            
co-financing  rate  and/or  a  possible  modulation  of  the  level  of  pre-financing  of  the 
European Structural and Investment Funds depending on the circumstances.27 

  Neutral over the medium-term and not lead to permanent transfers between Member States. 
The stabilisation function should be constructed in such a way that all participating Member States 
would have the same probability to benefit and would contribute consistently. 

  Contribute  to  sound  fiscal  policy  and  minimise  moral  hazard.  There  would  be  no 
conditionality  attached  to  the  support  but  there  would  be  strict,  pre-defined  eligibility  criteria 
based on sound macroeconomic policies in order to access the stabilisation function. As a general 
principle, only Member States that comply with the EU surveillance framework during the period 
preceding the large asymmetric shock should be eligible for access. This will avoid moral hazard 
and create an additional incentive for compliance with sound fiscal and structural policies.  

  Contribute to financial stability. It should reduce the risk that a beneficiary Member State ends 

up needing a programme from the European Monetary Fund.  

  Economically  meaningful  in  the  steady  state.  It  should  be  large  enough  to  provide  real 
stabilisation at Member State level. Estimates suggest that to be effective in the euro area, such a 
function  should  allow  for  overall  net  payments  of  at  least  1%  of  Gross  Domestic  Product. 
Moreover,  to  be  credible,  the  stabilisation  function  needs  to  have  sufficient  resources  available, 
even in the middle of the downturn. This could imply some form of a borrowing capacity, bearing 
in mind the need to ensure that the EU budget remains in balance.  

  Timely and effective. For those Member States fulfilling the eligibility criteria for accessing the 
stabilisation function, triggering should be activated automatically and rapidly on the basis of pre-
defined  parameters  (for  example,  based  on  a  large  temporary  negative  deviation  from  their 
unemployment or investment trend).  

 

Include  a  budget  support/grant  component.  Relying  only  on  a  system  of  loans  could  have  a 
limited impact, since the Member State could simply borrow in the markets or access one of the 
existing  precautionary  credit  lines.  On  the  other  hand,  a  loan  component  has  the  merit  of 
addressing  some  possible  liquidity  concerns  without  creating  risks  of  permanent  transfers.  A 
stabilisation  instrument  via  a  system  of  grants  could  have  stronger  and  more  immediate 
macroeconomic effects.  

There  are  different  ways  of  envisaging  such  a  stabilisation  function.  The  Commission  outlined 
three different options in its Reflection Paper on the deepening of the Economic and Monetary Union.  
First, a European Investment Protection Scheme could protect investment in the event of a downturn, 
by supporting well-identified priorities and already planned projects or activities at national level, such  
as  infrastructure  or  skills  development.  Second,  a  European  Unemployment  Reinsurance  Scheme 
could act as a "reinsurance fund” for national unemployment schemes. Third, a rainy day fund could 
accumulate funds from Member States on a regular basis and disbursements would be triggered on a 
pre-defined basis. These options all have their merits and can also be combined over time. 

27   Such  exceptional  measures  were  taken  to  support  Greece  in  recent  years.  Modulating  co-financing  rates 
could have a one-off stabilisation effect as it would help to keep afloat public investment which otherwise the 
Member States may be unable to finance. Adjusting pre-financing level could for instance mean advancing 
payments  from  the  European  Structural  and  Investment  Funds  agreed  for  the  whole  Multiannual  Financial 
Framework period, subject to lower payments later on. 

14 

 
 
                                                            
What  the  Commission  envisages  here  is  a  stabilisation  function  which  can  support  investment 
levels at national level and which can be developed over time, starting with loans and a relatively 
limited  grant  component.  This  would  be  in  line  with  the  importance  this  Commission  attributes  to 
investment as a driver of long-term growth, and would allow for a swifter roll-out in comparison to the 
two  other  options.  Given  the  architecture  and  composition  of  the  EU  budget  (annual  balance  and 
limitation on own resources), a stabilisation function would have to be constructed in such a way that 
it  can  reach  its  full  potential  over  a  certain  period  of  time,  notably  to  reach  the  necessary  financial 
firepower. 

The  stabilisation  function:  a  dedicated  vehicle  bringing  EU  public  finances  together  to  respond  to 
large asymmetric shocks 

In  this  construction,  a  dedicated  vehicle  managed  by  the  Commission  could  bring  together 
different  sources  of  funding  at  European  level  in  an  efficient  way  to  provide  the  stabilisation 
function. This vehicle would be based on the logic of a European Investment Protection Scheme and 
would  aim  to  support  well-identified  priorities  and  already  planned  projects  or  activities  at  national 
level, such as those identified in the context of the national investment platforms mentioned above.  

Subject  to  strict  eligibility  criteria,  the  Member  State  facing  a  large  asymmetric  shock  would 
automatically  be  entitled  to  benefit  from  the  assistance  provided  through  the  stabilisation 
function. A mixed support based on loans and budget support would kick in, which could be based on 
three components that can be progressively developed: 

  The  EU  budget  and  the  European  Monetary  Fund  could  provide  loans  guaranteed  by  the 
EU  budget  to  the  affected  Member  State.  The  European  Monetary  Fund  could  play  a  role  of 
back-office  to  the  stabilisation  function  by  providing  precautionary  loans  to  deliver  short-term 
liquidity  support.  This  would  be  complemented  by  back-to-back  loans  guaranteed  by  the  EU 
budget (for this, a limited borrowing capacity could be constructed in the post-2020 Multiannual  
Financial  Framework28).The  beneficiary  Member  State  would  reimburse  those  loans  to  the 
stabilisation function.  

  The EU budget could provide some limited annually budgeted grant support to the Member 
States  concerned.  The  corresponding  appropriations  would  be  committed  on  a  specific  budget 
line,  possibly  as  part  of  the  European  Structural  and  Investment  Funds  for  the  participating 
Member States. This budgetary line would feed every year into the stabilisation function  to help 
build  up  its  capital.  To  avoid  the  crowding-out  of  resources  for  other  EU  policies,  the  related 
budgeted  expenditure  would  be  counted  against  the  'margin'  between  the  Multiannual  Financial 
Framework and the own resources ceilings.29 

  An  insurance  mechanism  based  on  voluntary  Member  States'  contributions  could 
complement  the  grant  support  of  the  stabilisation  function  over  time.  Member  States  could 
contribute annually to this dedicated fund outside the EU budget and/or could agree on setting up a 
dedicated  work  stream  of  resources.  Once  Member  States  have  committed  to  contribute  and 

28   It has to be noted that an increase of the own resources ceiling could be necessary, depending on the amount 

envisaged.  

29   The own resources decision and the Multiannual Financial Framework Regulation would have to be adjusted 

accordingly. 

15 

 
 
 
 
                                                            
sufficient  resources  are  accumulated,  this  mechanism  would  reinforce  the  capacity  of  the 
stabilisation function. 

A European stabilisation function in support of investment 

Source: European Commission 

The Commission will continue to assess the further implications for the EU budget in the context of 
the  preparation  of  the  post-2020  Multiannual  Financial  Framework  and  will  make  the  necessary 
proposals. 

16 

 
 
 
 
 
 
 
 
 
 
 
 
8. 

CONCLUSIONS  

With this Communication, the Commission presents ideas for new budgetary instruments for a stable 
euro area within the Union framework. 

For the period 2018-2020, the Commission proposes:  

  To ensure a swift agreement, by mid-2018, and operationalisation, by 2019, of a backstop function 
to the Single Resolution Fund. This proposal is contained in the proposal for the establishment of a 
European Monetary Fund in the Union framework. 

  To strengthen the activities of the Structural Reform Support Service in order to support reforms 
in all Member States, and to put in place a dedicated work stream for Member States on their way 
to  joining  the  euro.  This  is  reflected  in  the  proposal  to  amend  the  Structural  Reform  Support 
Programme Regulation, with the objective of doubling the budget available for the activities of the 
Structural Reform Support Service for the period up to 2020.  

  To  extend  the  possibility  to  use  the  current  performance  reserve  in  the  European  Structural  and 
Investment Funds in support of structural reforms, as a way to test the idea of a reform delivery 
tool in a pilot phase. This is reflected in a targeted change to the Common Provisions Regulation 
covering the European Structural and Investment Funds. 

For the period after 2020, the Commission intends to present its proposals in May 2018, as part of the 
post-2020 Multiannual Financial Framework, which would include the following:  

  A reform delivery tool to support Member States' reform commitments. 

  Further technical support for specific actions at the request of the Member States. 

  A dedicated convergence facility for Member States on their way to joining the euro. 

  A stabilisation function for euro area Member States and open to all, in the event of large 

asymmetric shocks.

17 

 
 
 
 
 
 
 
Appendix 1: Overview of available funds and firewalls 

Source: European Commission 

18