February 14, 2018 / 1:02 PM / in 4 months

At least 25 billion euros in next EU budget dedicated to euro zone: Commission

BRUSSELS (Reuters) - There should be line of at least 25 billion euros dedicated to euro zone countries only in the next long-term budget of the European Union, the Commission proposed on Wednesday.

The euro zone budget line would finance structural reforms at national level and help countries still outside the euro zone to bring their economies closer to the single currency area.

“The reform delivery tool and the convergence facility will need to be able to provide strong support and incentives for a broad range of reforms across Member States,” the EU executive said.

“A budget line in the order of at least 25 billion euros over a seven-year period would provide critical mass and help avoid a concentration of funding on a few member states only,” it said.

Out of the EU’s 27 countries that will remain in the bloc after Britain leaves in 2019, only one — Denmark — has a formal opt-out from ever joining the euro. All the others are legally obliged to adopt the single currency once they meet all the criteria.

Separately, the Commission proposed that there should be money available as a “stabilization function” for the euro zone to help protect its members from crises.

“The stabilization function is to be built progressively over time, relying on back-to-back loans guaranteed by the EU budget, loans from the European Monetary Fund, a voluntary insurance mechanism based on national contributions as well as a grant component from the European budget,” the Commission said.

“The amounts required from the EU budget would not necessarily need to be very high but would need to be significant enough to, for example, reduce the interest burden of the loans and provide incentives to properly implement the support scheme,” it said.

The Commission proposal is a compromise between the positions of France and Germany and builds on proposals of Klaus Regling, the head of the euro zone bailout fund ESM, which is to be transformed into the European Monetary Fund.

Regling has suggested that a stabilization function for the euro zone could total between 1 and 2 percent of euro zone GDP and work on the basis of cheap loans for countries hit by crises not of their own making.

French President Emmanuel Macron called last year a euro zone budget of several hundred billion euros financed from taxes while Germany did not want any separate budget at all.

Reporting By Jan Strupczewski; editing by Robert-Jan Bartunek

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