March 8, 2019 / 1:28 PM / 2 months ago

EU finance ministers to discuss how to spend a future euro zone budget

BRUSSELS (Reuters) - European Union finance ministers will discuss on Monday how to spend a euro zone budget they seek to create in the future, with focus on support for structural reforms and investment, euro zone officials involved in the preparation of the talks said.

European Union flags fly outside the European Commission headquarters in Brussels, Belgium, March 6, 2019. REUTERS/Yves Herman

Finance ministers from the 27 countries that will remain in the European Union after Britain leaves are seeking ways to deepen the economic integration of the single currency area.

A future budget for the 19 countries that share the euro, and those in the waiting room to join it, is their flagship idea that is to be worked out in more detail over the next three months and fully presented in June.

On Monday, the ministers are to go through options on what kind of expenditure would be paid for out of such a budget, the size of which has yet to be specified, on what conditions, and whether the support should be in grants or loans.

The size of the budget, its revenues and governance is to be discussed in the coming months. It is also yet to be determined whether the euro zone budget would be part of the broader long-term European Union budget, or be separate and to what extent.

The European Commission and the European Central Bank say that to complete the Economic and Monetary Union it is necessary to have pool of money to play a stabilising role in case of economic downturns to complement the single monetary policy.

German Finance Minister Olaf Scholz seems to be of a similar view and floated the idea of a pan-euro zone unemployment insurance scheme that would come to the rescue of stretched national public finances in a recession.

But he did not get the support of the rest of the German government and with several other euro zone countries, notably the Netherlands, strongly against, the idea has been excluded from the political talks of the ministers.

The European Commission, which will ultimately have to prepare the final version of the euro zone budget proposal before it becomes EU law, has so far proposed the euro zone budget should be 55 billion euros.

Of that total, 25 billion euros (21.5 billion pounds) would come from the EU budget and would be used to support reforms and convergence between economies while the remaining 30 billion would be loans, guaranteed by the EU budget, to support investments in countries facing temporary economic shocks.

France and Germany, the two key players in the debate, said in a joint paper in February countries getting money from the euro zone budget for their projects or reforms would have to co-finance substantial from national budgets.

Paris and Berlin also said the euro zone budget could be used for guarantees to leverage private investment projects. The two countries said that support for investment, usually the first to suffer during an economic downturn, would play a stabilising role.5

Reporting By Jan Strupczewski; Editing by Toby Chopra

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