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14698/13
COM (2013) 709 final
14605/13
COM (2013) 708 final
EXPLANATORY MEMORANDUM ON EUROPEAN UNION DOCUMENT
PROPOSAL FOR A COUNCIL
ASSISTANCE FOR ROMANIA
DECISION
GRANTING
MUTUAL
PROPOSAL FOR A COUNCIL DECISION PROVIDING PRECAUTIONARY
EU MEDIUM-TERM ASSISTANCE TO ROMANIA
October 2013
Submitted by HM Treasury
SUBJECT MATTER
1. This Commission document recommends granting mutual assistance and
providing precautionary EU medium-term financial assistance to Romania.
2. The EU can provide mutual assistance to non-euro area Member States
when a Member State is threatened with difficulties as regards its balance
of payments. Balance of Payments assistance in the form of medium-term
financial assistance is designed to ease a country’s external financing
constraints.
3. Romania requested a new EU medium-term financial assistance
programme in July, jointly with an IMF stand-by arrangement, following the
end of their second programme in June 2013.
4. Romania’s second programme was also a joint EU-IMF precautionary
programme and no funds were disbursed either by the EU or the IMF. The
government implemented substantial reforms since 2009 with the support
of its two programmes and large corrected its external and internal
economic imbalances and improved its economic and financial stability.
5. Romania does not face an imminent financing gap and is expected to
maintain full access to sovereign debt markets. However the economy
remains vulnerable to exchange rate volatility, reversal of international
capital flows and deteriorating economic conditions. In such a scenario,
marked by liquidity constraints, Romania’s financing costs could increase
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abruptly. In addition, adverse developments in the euro area could cause
renewed pressure on the banking sector.
6. In light of the vulnerabilities and risks to its balance of payments the
Commission recommends providing Romania a precautionary mediumterm financial assistance of £1.672 billion conditional on the Romanian
authorities’ commitment to implement fiscal, financial and structural
reforms.
7. The Commission and the IMF negotiated the modalities and contents with
the Romanian authorities in July and reached a staff-level agreement.
While under present market conditions Romania does not intend to draw
down the loan, the precautionary assistance can be expected to help
consolidate macroeconomic, budgetary and financial stability and, through
the pursuit of structural reforms, increase the resilience and the growth
potential of the Romanian economy. It will also carry over the unfulfilled
conditions from the second programme.
8. The main contents of a new programme would be as follows:
a. Fiscal consolidation: Romania has successfully corrected its
excessive deficit, reducing its budget deficit from 9% of GDP in
2009 to just below 3% in 2012. A new programme would support
further consolidation efforts aimed at reaching the medium term
objective of a structural budget deficit of 1% of GDP by 2015 and
maintain it thereafter, in line with the Stability and Growth Pact
requirements.
b. Fiscal governance and structural fiscal reforms: The IMF and the
World Bank will provide extensive technical assistance to the
government for public financial management and control.
c. Public debt management: The authorities will improve public debt
management in order to reducing funding costs and increase the
average maturity of public debt.
d. Financial sector regulation and supervision: The authorities will
continue improving the bank resolution framework and the
legislation on the Deposit Guarantee Fund. The authorities will take
steps to further develop the capital markets, refrain from adopting or
promoting legislation that undermines credit discipline and amend
legislation to strengthen non-bank financial sector supervision.
e. Structural reforms: The government’s structural reform agenda aims
to improve market functioning, increase resilience to external
shocks and increase Romania’s long-run growth potential. The
government will step up the restructuring of state-owned
enterprises, improve the business environment, facilitate access to
finance for small and medium-sized enterprises and complete
pension reforms by equalising the pensionable age of men and
women.
MINISTERIAL RESPONSIBILITY
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9. The Chancellor of the Exchequer has responsibility for United Kingdom
policy on European Union monetary and economic issues. The Foreign
and Commonwealth Secretary is responsible for overall United Kingdom
policy towards the European Union.
INTEREST OF DEVOLVED ADMINISTRATIONS
10. Policy towards the Economic and Monetary Union is a reserved matter
under the UK's devolution settlements and no devolved administration
interests arise. The devolved administrations have therefore not been
consulted in the preparation of this EM.
LEGAL AND PROCEDURAL ISSUES
i.
Legal basis
11. The Recommendation for a Council Decision for granting mutual
assistance for Romania is based on Article 143 of the TFEU and the
proposal for a Council Decision providing precautionary EU medium-term
financial assistance to Romania is based on Council Regulation (EC) No.
332/2002 and in particular Article 3(2).
ii.
Legislative procedure
12. Council Decision on the basis of a proposal from the European
Commission after consulting the Economic and Financial Committee.
iii.
Voting procedure
13. Qualified majority of Member States.
iv.
Impact on United Kingdom Law
14. None
v.
Application to Gibraltar
15. Not applicable.
vi.
Analysis of Fundamental Rights Compliance
16. No issues arise.
APPLICATION TO THE EUROPEAN ECONOMIC AREA
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17. No issues arise.
SUBSIDIARITY
18. The proposal falls under the exclusive competence of the Union. The
subsidiarity principle therefore does not apply.
POLICY IMPLICATIONS
19. This Decision is addressed to Romania and has no direct policy
implications for the UK beyond those outlined in the Financial Implications
section.
20. The Government believes that it is in the UK’s interest that Romania’s
economy is stable and supports the steps taken to achieve this.
REGULATORY IMPACT ASSESSMENT
21. Not applicable.
FINANCIAL IMPLICATIONS
22. The Council Decision could have financial implications for the UK.A credit
line will be made available to Romania, albeit one which they do not intend
to draw down as they face no imminent threat to their balance of
payments.
23. If the credit line remains unused there would be no UK exposure.
24. If Romania requested to draw down the loan, the Commission would raise
money on international capital markets, using the EU budget as a
guarantee. This would create a contingent liability for the UK.
25. Only in the event that Romania were to default on loan repayments would
the EU budget be called on to meet the cost of that repayment. This would
require an increase in the budget, and in turn, an increase in Member
States’ contributions to the EU budget. Any increase to the UK’s
contribution would be within the limits of the EU Own Resources ceiling
already approved by Parliament through the European Communities
(Finance) Act 2008.
CONSULTATION
26. Not applicable.
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TIMETABLE
27. The Commission is aiming to put forward the Recommendation for a vote
at the General Affairs Council on 22 October.
NICKY MORGAN MP
ECONOMIC SECRETARY
HM TREASURY
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