September 28, 2017 / 12:36 PM / 22 days ago

Factbox - Ideas on setting up a euro zone budget

BRUSSELS (Reuters) - European governments and institutions want to create a euro zone budget to make the single currency area more economically stable and finance various new joint initiatives that the bloc may undertake after Britain leaves in 2019.

FILE PHOTO: French President Emmanuel Macron delivers a speech to set out plans for reforming the European Union at the Sorbonne in Paris. REUTERS/Ludovic Marin/Pool

Top euro zone officials expect key decisions on the euro zone’s future, including a potential budget, to be taken in the first half of 2018. Below are ideas on the euro zone budget floated by some of the key players:

EURO ZONE BUDGET

The European Central Bank believes setting it up is the most important of all the proposed new elements because it would create an alternative to ECB monetary policy to react to crises.

Germany, France and the executive European Commission all agree a euro zone budget would be useful, but they differ on its size and purpose.

SIZE

French President Emmanuel Macron has said the euro zone budget should be several hundred billion euros.

German Chancellor Angela Merkel has rejected that, saying it should be “small amounts”.

The head of the ESM euro zone bailout fund, Klaus Regling, suggested 1-2 percent of euro zone Gross National Product, which would be some 100-200 billion euros.

European Commission President Jean-Claude Juncker rejected a separate budget for the euro zone, saying that what was needed was “a strong euro area budget line within the EU budget.”

Since the whole EU budget is around 1 percent of the EU’s gross national income (GNI), a part of it dedicated to the euro zone would be much closer in size to the view of Germany than to that of France.

FINANCING

Macron wants the budget to be funded from environmental and digital economy taxes which would become the EU’s “own resource”, like customs duties are now. He also said corporate taxes, once they are harmonised, could fund such a budget.

Merkel mentioned “contributions” rather than dedicated taxes.

This would be the spirit of the Commission’s model as well, because the EU budget, of which the euro zone budget would be a part, comes mainly from country contributions based on GNI.

Senior euro zone officials are also considering the idea of contributions, for instance from national unemployment benefit contributions, which would be paid into a budget modelled on a rainy day fund.

Finally, the budget could be a pool of paid-in capital, a bit like the euro zone bailout fund is now, which could then be leveraged in various ways to provide loans to euro zone countries in some kind of economic trouble.

HOW TO SPEND IT

Macron wants to spend the money on jobs, security, protection against migration, development of the digital economy, environment protection as well as investment and stabilisation against economic shocks.

Merkel aims to use the money mainly to support structural reforms in euro zone countries.

The Commission suggested protection of public investment from economic downturns and an unemployment insurance scheme in cases of a sudden rise of the unemployment level.

Some senior euro zone officials say the budget should mainly help counter so-called asymmetric shocks - crises that happen in a single euro zone country rather than the entire bloc - in the form of cheap loans with no conditions attached.

They say investment is already being taken care of by the European Fund for Strategic Investment (EFSI) and the European Investment Bank, while cash transfers to less developed members are handled by structural and cohesion funds in the EU budget.

(This version of the story has been refiled to add word ‘that’ in the lede paragraph.)

Reporting by Jan Strupczewski; editing by Mark Heinrich

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