18 November 2013

Bloomberg: EU considers loans in return for economy overhauls

The idea is to spur reform in areas like labour policy, vocational training or the judicial system, the official said on condition of anonymity because the proposal is still in early planning stages. The loans could be most attractive to smaller countries that don’t have reliable market access, while bigger nations might benefit from looser budget targets in exchange for reform commitments.

National diplomats will get their first look at the plan next week during a preparatory meeting for an EU leaders’ summit in December. At the summit, heads of government aim to settle on a framework for designing so-called contractual agreements that would supplement existing EU budget rules.

If the contractual agreements proceed, they would be aimed at countries that aren’t already bound by a fully-fledged rescue programme or sanctions tied to macro-economic imbalances, the EU official said.

There aren’t yet any fixed proposals about where the money for loans might come from. Preliminary ideas include the European Stability Mechanism or a similar new vehicle that could raise money in the markets and lend to individual nations on behalf of the currency bloc. The overall proposal could be extended to nations that plan to join the euro as well as those already using the common currency, the official said.

"What we have done until now is to create layers of surveillance and belt-tightening on Member States", said one EU official with knowledge of the process. "The whole idea of contractual arrangement is slightly different. We are trying to figure out how we can get commitments from Member States before they enter into a 'red zone'", the contact added.

All countries need structural reform now or later, say EU officials. What Germany, with its ageing population, will have to do down the line "will probably be bigger than what France has to do now", said the official.

So for the contracts idea to work, believe EU officials, the country must itself draw up a plan of action to tackle a - normally highly politically sensitive - structural issue and then get some sort of reward. The plan could then be implemented with the Commission.

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Further reporting © EUObserver

© Bloomberg