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February 16, 2018

How big will the euro budget be?

FAZ has a story that the European Commission has, for the first time, put numbers to its proposals for a eurozone budget inside the EU budget. The numbers are truly shocking - as low as €25bn over a period of seven years, which is a little over €3bn a year. The GDP of the eurozone is around €10tr. So we are talking about 0.03% of eurozone GDP. 

The newspapers prefer to talk about billions over several years because this way they get more impressively-sounding numbers. But what does 0.03% of GDP buy?

In a paper setting out various options, the Commission sets out an action plan made up of three components: one of them would be a fund to reward member states for structural reforms. The second component is a convergence facility - financial support for members that want to join the euro - of which Bulgaria would be the first recipient. The €25bn relate only to those two programmes. They are a form of structural funds.

A third component would be a stability facility to deal with asymmetric shocks. This would not be funded directly from the EU budget, but through a fund to be built up over many years. The paper lists four financing options:

  • credits secured on the EU budget;
  • credits directly from a future European monetary fund; 
  • direct contributions from the EU budget;
  • a financial leverage instrument based on voluntary contributions by member states.

The paper notes that while there is a discussion on extended powers of the ESM, these points have not even been proposed, and they are unlikely to be agreed by all 19 euro member states.

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