Friday, February 22, 2013

ECB - A blueprint for a deep and genuine economic and monetary union

Brussels, 30.11.2012
COM(2012) 777 final/2
Annule et remplace le document COM(2012) 777 final du 28.11.2012.
A blueprint for a deep and genuine economic and monetary union
Launching a European Debate

3.2.3 A redemption fund

"...A clearly reinforced economic and fiscal governance framework could allow addressing the reduction of public debt significantly exceeding the SGP criteria through the setting-up of a redemption fund subject to strict conditionality.

The initial proposal of a European Redemption Fund (ERF) as an immediate crisis tool was developed by the German Council of Economic Experts (GCEE) as part of a euro area-wide debt reduction strategy.

In order to limit moral hazard, and to ensure the stability of the structure as well as the redemption of payments, the GCEE proposed several supervisory and stabilising instruments, such as: (1) strict conditionality, similar to the rules agreed within EFSF/ESM programmes; (2) immediate penalty payments in case of non-compliance with the rules; (3) strict monitoring by a special institution (e.g. Court of Justice of the EU); (4) an immediate stop of debt transfer to the fund during the roll-in phase in case of non-compliance with the rules; (5) pledging of Member States' international reserves (foreign exchange or gold reserves) as a security against their liabilities and/or assignment of (possibly newly introduced) taxes to cover the debt service (e.g. VAT revenues) to limit the liability risk.

The Commission agrees that a strong economic and budgetary framework is a pre-requisite for a workable redemption fund. Increased surveillance and power of intervention in the design and implementation of national fiscal policies would be warranted as discussed in the previous section. The credibility of the adjustment plans would require appropriate fiscal conditions to be set when a Member State enters the system. Strict observance of the adjustment path towards the medium-term objective as proposed by the Commission would represent a minimum in this respect.

A European Redemption Fund under such strict conditionality (see also Annex 3) could thus provide an anchor for a credible reduction in public debt, bringing the level of government indebtedness back below the 60% ceiling as foreseen in the Maastricht Treaty.

The introduction of such a framework could give another signal that euro area Member States are willing, able and committed to reduce their debt levels. This could in turn lower the overall financing costs of over-indebted Member States. By assuring the funding of the reduction of the "excess debt" at sustainable cost, in combination with both incentives and continuous monitoring of its reduction, it could provide euro area Member States with the possibility to gear debt reduction in a manner that could facilitate investment in growthsupporting measures. Furthermore, such a framework could contribute to debt reduction being done on a transparent and coordinated basis across the euro area, thereby complementing the coordination of budgetary policies.

The setting up of such a debt redemption fund could only be envisaged in the context of a revision of the current Treaties. For accountability reasons, the act creating such a fund would need to be framed with great legal precision, as regards the maximum transferrable debt, the maximum time of operation and all other features of the fund, to guarantee the legal certainty required under national constitutional laws.

A possible model ensuring appropriate accountability for a debt redemption fund thus designed would be as follows: a new Treaty legal base would allow the setting up of the fund through a decision of the Council, adopted by unanimity of the euro area members with the consent of the European Parliament, and subject to ratification by Member States under their constitutional requirements. That decision would set up the maximum volume, length and conditions of participation in the fund. A European debt management entity within the Commission, accountable to the European Parliament, would then manage the fund in accordance with the rules set up by the Council decision..."


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