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European financial stabilisation mechanism

European financial stabilisation mechanism

Outline of the Community (European Union) legislation about European financial stabilisation mechanism

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

European financial stabilisation mechanism

Document or Iniciative

Regulation (EU) No 407/2010 of the Council of 11 May 2010 establishing a European financial stabilisation mechanism.

Summary

The financial crisis that hit the global economy at the end of 2008 has had several harmful consequences for Member States’ economies:

  • the downturn in economic growth;
  • the deterioration in the budget deficits and debt positions of the Member States;
  • the destabilisation of financial markets.

The financial difficulties experienced by a Member State may present a serious threat to the financial stability of the European Union (EU) as a whole. It is therefore necessary to establish a European facility providing financial assistance which is capable of supporting Member States in difficulty and thereby preserving the financial stability of the EU.

Scope

The European financial stabilisation mechanism provides assistance to Member States where:

  • a Member State is experiencing, or is seriously threatened with, a severe financial disturbance;
  • the financial disturbance or threat of financial disturbance is due to events beyond the control of the Member State concerned.

Financial assistance

The European financial stabilisation mechanism may take the form of a loan or credit line granted to Member States. A credit line is an authorisation given to a Member State to draw funds up to a specified ceiling for a given period of time.

Procedure

Before it can benefit from the European financial stabilisation mechanism, a Member State shall submit a request comprising:

  • an assessment of its financial needs;
  • an economic and financial adjustment programme describing the various measures to be taken to restore financial stability.

Thereafter, the Council shall decide whether to grant financial assistance to the Member State. It shall act by a qualified majority on a proposal from the Commission. If the Council decides to grant financial assistance to the Member State, its decision contains:

  • the procedures for the financial assistance, such as the amount, the number of payments, the availability period of the financial assistance, etc.;
  • the general economic policy conditions: these conditions are established by the Commission. They are attached to the EU financial assistance with a view to re-establishing a sound economic situation in the Member State concerned and to restoring its capacity to finance itself on the financial markets;
  • the economic and financial adjustment programme of the Member State.

Moreover, the general economic policy conditions shall be the subject of a Memorandum of Understanding between the Member State and the Commission. The Commission shall then re-examine compliance with these conditions regularly in collaboration with the European Central Bank. Any changes to these conditions may result in an adjustment of the economic and financial adjustment programme of the Member State.

Granting of financial assistance

The disbursement of loans or the opening of credit lines granted to Member States shall be managed by the Commission. The latter shall verify at regular intervals whether the economic policy of the beneficiary Member State accords with its adjustment programme.

The Commission shall also be authorised to borrow on the capital markets or from financial institutions in order to finance the loans granted to Member States.

Moreover, the Court of Auditors shall have the right to carry out financial controls and audits in order to verify the legality of financial assistance granted by the EU.

Compatibility with other mechanisms providing financial assistance

The European financial stabilisation mechanism is compatible with the facility providing medium-term financial assistance for balances of payments. This financial assistance is for Member States which have not adopted the euro and are experiencing difficulties in their balance of payments.

The European financial stabilisation mechanism also does not exclude recourse to financing outside the EU, in particular by the International Monetary Fund. In that case the Commission shall examine whether the European financial stabilisation mechanism is compatible with the outside financing.

Review of the European financial stabilisation mechanism

Six months after the entry into force of this Regulation, the Commission shall review whether the exceptional circumstances which justified the establishment of the European financial stabilisation mechanism remain. If the European mechanism is maintained, the Commission shall conduct the same review every six months.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 407/2010

12.5.2010

OJ L 118 of 12.5.2010

Development of micro-credit

Development of micro-credit

Outline of the Community (European Union) legislation about Development of micro-credit

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Business environment

Development of micro-credit

Document or Iniciative

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 13 November 2007 – A European initiative for the development of micro-credit in support of growth and employment [COM(2007) 708 final – Not published in the Official Journal].

Summary

In Europe, micro-credit – i.e. loans of less than € 25 000 – is aimed at micro-enterprises (enterprises employing fewer than 10 people) and disadvantaged persons (unemployed or inactive people, those receiving social assistance, immigrants, etc.) who wish to go into self-employment but do not have access to traditional banking services.

Micro-credit can promote the transition from unemployment to self-employment and offers access to finance for persons whose projects the banks refuse to finance because of insufficient collateral. It can thus play a key role in implementing the Lisbon Strategy for Growth and Jobs.

Nevertheless, even if micro-credit has been on the increase for a number of years in the Member States of the European Union (EU), much remains to be done to enable this instrument to develop its full potential.

Therefore, the EU is proposing an initiative aimed at developing the market for micro-credit. The initiative comprises four strands:

  • improving the legal and institutional environment in the Member States;
  • further changing the climate in favour of entrepreneurship;
  • promoting the spread of best practices, particularly in relation to training;
  • providing additional financial capital for micro-credit institutions.

First strand: improving the legal and institutional environment in the Member States

The institutional framework in the Member States does not always allow micro-credit to develop in a positive way. Indeed, the specific nature of micro-credit is not generally taken into account in national or Community legislation. The Commission therefore encourages the Member States to take the measures needed to create a legal, institutional and business environment which is more conducive to the development of micro-credit. With this in mind, the Commission proposes that the Member States:

  • create an environment allowing the development of micro-finance institutions (MFIs) and covering all segments of the clientele. Given the number and diversity of potential clients, MFIs should have easy access to financial resources allowing them to develop micro-credit. MFIs are financed through grants and donations and, where appropriate, bank loans. They are certain to benefit from the creation of a suitable environment in which they are more visible;
  • help micro-credit to become sustainable by relaxing interest caps for micro-credit operations. In the Member States where they exist, interest rates should be fixed at a fairly high level in order that lending institutions can cover their costs, while regularly evaluating the social and economic impact in order not to jeopardise the security of borrowers;
  • reduce operating costs by applying favourable tax schemes. More favourable tax schemes (tax exemptions, tax reductions, grants) are important for the development of micro-credit;
  • adapt national regulation and supervision to the specificity of micro-finance. If they receive deposits, MFIs are subject to Community prudential regulation and are supervised accordingly. In order not to put a brake on the supply of micro-credit and the growth of MFIs not receiving deposits from clients, the new regulations and supervision must take account of their costs and the risks which MFIs pose.

Second strand: further changing the climate in favour of entrepreneurship

In order to encourage Europe’s shift towards an economy based on knowledge, services and new technologies, and to create a climate more conducive to entrepreneurship, the Commission proposes that the Member States:

  • improve the institutional framework for self-employment and micro-enterprises. Equal treatment for the self-employed and wage-earners is essential. Nevertheless, a programme of publicity and awareness-raising should be set up in order that self-employment and micro-enterprises are better recognised. To this end, legal, tax and administrative barriers should be lowered (e.g. exemption from social insurance charges, simplified registration procedures, improved access to more numerous and less expensive outlets);
  • increase the chances of success of new micro-enterprises through training, mentoring and business development services. The micro-enterprise environment is a complex one and demands a supply of business development services because those starting up in business do not always have all the competencies required in order to be successful. Training and mentoring are therefore needed to improve a start-up entrepreneur’s chances of success.

Third strand: promoting the spread of best practices

Promoting the spread of best practices for MFIs is a key element in the initiative to encourage micro-credit. The Commission therefore proposes to set up a new body to provide technical assistance and support the development of non-bank MFIs in the Member States. This new body would have the task of:

  • laying down a code of conduct for MFIs. Such a code would serve to increase confidence in MFIs and spread ethical and customer-friendly best practices among them. The quality of an MFI would thus be assessed on the basis of its social and financial performances and its business practices;
  • introducing a specific “micro-credit” label to create awareness among EU citizens. This label would enable the attention of investment funds dedicated to micro-credit to be focused more on MFIs which perform well, and improve citizens’ confidence in microfinance investment vehicles and steer new resources towards MFIs with the best social and financial performance;
  • providing information on this initiative and handling the publicity;
  • publishing brochures and organising conferences;
  • providing technical manuals, guides and software designed to help MFIs adopt best practices;
  • providing easier access to finance for MFIs by mobilising financial resources.

Fourth strand: providing additional financial capital for new non-bank MFIs

The Commission proposes to set up a support structure within the JEREMIE department of the EIF for the purpose of providing technical and financial support to promising non-bank MFIs. This micro-fund would have the aim of assisting MFIs to become self-sustaining and would help to increase the use of micro-credit in Europe and further develop this sector.

Context

This initiative seeks to promote the sustainable development of micro-credit in the EU and forms part of the Lisbon Strategy for Growth and Jobs, and of the policy of encouraging entrepreneurship and economic initiative, the policy of promoting “flexicurity” and the inclusion of disadvantaged persons, and the policy of developing human capital and renewing trust-based social links.

Related Acts

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 27 June 2007 – Towards Common Principles of Flexicurity: More and better jobs through flexibility and security [COM(2007) 359 final – Not published in the Official Journal].

from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 29 June 2006 – Implementing the Community Lisbon Programme: Financing SME Growth – Adding European Value [ final – Not published in the Official Journal].

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) [Official Journal L 177 of 30.6.2006].

Directive 2006/49/ECof the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) [Official Journal L 177 of 30.6.2006].