COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on the establishment of a European Investment Stabilisation Function
Date: 2018-05-31
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU aid, EU investment, Euro Group (euro area), coordination of EMU policies, economic and social cohesion, economic stabilisation, financial aid, public finance, public investment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 31.5.2018  SWD(2018) 298 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on the establishment of a European Investment Stabilisation Function {COM(2018) 387 final} - {SEC(2018) 277 final} - {SWD(2018) 297 final}  
 
 
Impact assessment on the Commission proposal for a Regulation of the European Parliament and of the Council 
on the establishment of a “European Investment Stabilisation Function”. 

Executive Summary Sheet 

Why? What is the problem being addressed?  

A. Need for action 

The problem to be addressed by this initiative, in summary, is the insufficient ability of available instruments to 
absorb  large macroeconomic shocks  in  the euro area.  In  modern  economies,  fiscal  and monetary  policies are 
the  main  means  for  managing  business  cycles.  The  euro  area  is  however  confronted  with  a  particular  set-up: 
monetary policy can only focus on aggregate fluctuations of the zone, while fiscal policy is 'decentralised' and in 
principle  can  respond  to  country-specific  shocks.  This  arrangement  appears  viable  for  normal  times  but  it  is 
confronted with critical problems whenever large economic disruptions arise. This has especially been illustrated 
by  developments  in  the  economic  and  financial  and  the  euro  crisis,  which  has  evidenced  strong  limits  to  the 
functioning  of  national  automatic  stabilisers  for  coping  with  asymmetric  shocks,  even  sometimes  in  Member 
States with sound fiscal credentials. This has resulted in a pro-cyclical pattern for fiscal policies, which has also 
been detrimental to the quality of public finances and in particular public investments. 

What is this initiative expected to achieve?  

The initiative is expected 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. More specifically, it should 
contribute  to  a  reduced  amplitude  and  asymmetries  of  business  cycle  fluctuations  across  Member  States.  It 
should back a conduct of fiscal policies that is more counter-cyclical, or at least reduce the risks of pro-cyclicality. 
It  should  contribute  to  smoother  public  investment  trajectories  and  economic  cohesion.  It  should  add  to  the 
prevention of full-fledged financial market crises. At the same time, it should preserve cross-country neutrality. 

What is the value added of action at the EU level?  

In  line  with  the  subsidiarity  principle,  a  stabilisation  function  would  in  severe  circumstances  act  as  a 
complementary  tool.  In  a  currency  union,  there  are  several  lines  of  defence  against  disruptive  shocks. 
Integrated, European markets are indispensable to absorb economic shocks efficiently across  Member States. 
National  governments  play  a  key  role  in  the  stabilisation  of  the  European  economy  against  shocks.  Among 
existing common European instruments, the ECB is at the forefront of regular macroeconomic stabilisation. Even 
with  all  these  elements  in  place,  national  fiscal  policies  risk  being  overwhelmed  calling  for  support  at  the 
European level. In the presence of large shocks, fiscal (automatic) stabilisers may become insufficient to ensure 
proper stabilisation. The euro area therefore needs a fiscal instrument to help coping with large shocks. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  

The impact assessment examined  three policy options for  a stabilisation  function, besides option 1, the status 
quo: Option 2 corresponds to the Commission proposal, namely a European Investment Stabilisation Function, 
which  would  provide  loans  together  with  limited  grants  to  Member  States  affected  by  large  shocks  in  order  to 
maintain public investment activity. Option 3 is an insurance mechanism. Regular contributions, in particular in 
normal and good economic times, or an own resource would be accumulated in a fund. When a Member State is 
affected by a large shock, it would benefit from support in form of pay-outs/grants. A limited borrowing capacity 
would likely be needed to ensure credible and continuous operation. Option 4 is a dedicated euro area budget. A 
common  budget  would  not  primarily  target  economic  stabilisation,  but  rather  the  provision  of  European  public 
goods.  Still,  reliance  on  cyclical  revenues  and  countercyclical  spending,  possibly  enhanced  discretionary 
elements, would contribute to macroeconomic stabilisation at the EU level. 

1 

 
 
 
 
 
 
 
 
 
 
 
A European Investment Stabilisation Function (option 2) is the preferred option at this stage. It would contribute 
to the cohesion objective by offering financing support in the event of a large asymmetric shock. This will provide 
a  strong  incentive  to  protect  key  public  investments  and  thereby  preserve  essential  growth-enhancing 
expenditures at an appropriate level. The macroeconomic stabilisation impact in this option is limited by the fact 
that support takes the form of a loan. At the same time, option 2 also appears more politically feasible, at least in 
the  near  future,  since  risks  of  permanent  transfers  and  moral  hazard  are  fairly  limited.  Overall,  given  these 
considerations option 2 is in the current circumstances the preferred option. 

Who supports which option?  

There  is  a  lively  debate  on  the  need  and  form  of  a  possible  stabilisation  function.  Some  Member  States 
positively  support  further  fiscal  integration  as  a  crucial  component  of  EMU  deepening.  The  case  for  ambitious 
fiscal integration, in the form of a euro area budget that would notably provide stabilisation, has been made by 
the  French  President.  The  national  ministries  of  economy  or  finance  from  Italy  and  Spain  have  issued  papers 
lining out proposals for specific funds providing macroeconomic stabilisation. However, doubts have also been 
raised in other constituencies on the value added and risks from a common stabilisation instrument. The Prime 
Minister of the Netherlands has been explicitly sceptical in a recent speech. Some Member States appear open 
to  further  discussions  without  necessarily  being  supportive.  The  coalition  agreement  underpinning  the  current 
German government mentions a future investment budget for the euro area that could also provide stabilisation. 

What are the benefits of the preferred option (if any, otherwise main ones)?  

C. Impacts of the preferred option 

A European Investment Stabilisation Function (option 2) would contribute to the cohesion objective by offering 
financing support in the event of a large asymmetric shock affecting a Member State. This support would target 
the benefit of public investments in priority sectors and be subject to a trigger and eligibility conditions. It would 
facilitate the execution of a counter-cyclical fiscal policy, by allowing fiscal stabilisers to play. In practice, it allows 
maintaining  adequate  spending  levels,  including  in  investment,  even  though  tax  revenues  decline  due  the 
erosion of tax bases. The powerfulness of the scheme would depend on its precise design and parametrisation. 
The macroeconomic stabilisation impact in this option is limited by the fact that support takes the form of a loan. 

The  scheme  would  foster  outcomes  in  sharp  contrast  to  the  past  crisis  where  public  investment  was  often 
sizeably cut and many Member States had to revert to pro-cyclical fiscal policies in the wake of market pressure. 
The  European  Investment  Stabilisation  Function  (option  2)  would  contribute  to  more  counter-cyclical  national 
fiscal policies and more stable investment. This would ultimately add to reduced amplitude and asymmetries of 
business  cycle  fluctuations  and  contribute  to  the  prevention  of  full-fledged  financial  market  crises.  In  fine,  it 
would contribute to the integrity of the Union. 

What are the costs of the preferred option (if any, otherwise main ones)?  

No negative economic, social and environmental costs are expected. 

How will businesses, SMEs and micro-enterprises be affected?  

The  proposed  “European Investment  Stabilisation  Function” would  contribute  to  more  stable  public  investment 
activity and to a more stable macroeconomic environment, ultimately fostering a higher macroeconomic growth 
path. As such, this would also benefit micro-enterprises and SMEs. However, it is not expected to have a direct 
impact on individual firms, which could be measured in a microeconomic setting/model. 

Will there be significant impacts on national budgets and administrations?  

The provision of back-to-back loans by the EU budget entails the need for guarantees from the EU budget and 
ultimately from Member States. While this adds to the provisioning requirements for Member States, the cost of 
such  provisioning  is  very  low.  Similarly,  the  cost  of  the  envisaged  interest  subsidy  would  be  limited  in 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
macroeconomic terms.  

Will there be other significant impacts?  

No, no further significant impacts are expected. 

When will the policy be reviewed?  

D. Follow up 

An evaluation of the mechanism in its entirety would be conducted after a certain number of years (possibly 3-5 
years).  Such  a  delay  appears  sufficient  to  allow  for  a  review  of  the  first  cases  of  activation  and  their  impact. 
However,  given  the  unknown  and  by  definition  random  occurrence  of  large  shocks  it  is  not  excluded  that  the 
sample of activation might be limited by that time.  

3