EU readies 55-billion-euro plan to help reforms, investments

BRUSSELS (Reuters) – The European Commission proposed on Thursday to set up two new financial instruments with a total fire power of 55 billion euros ($64.4 billion) to back reforms in European Union states and help investments in members hit by financial crises.

The plan, which details proposals unveiled last month, comes as recent market turmoil triggered by political instability in Italy, the third largest economy of the euro zone, has reignited concerns about the future of the euro.

Under the plan, which needs backing from 27 EU states, 25 billion euros will be made available in the 2021-2027 period for countries that embark in structural reforms, such as on pensions or labor markets, agreed with Brussels.

This funding, which will come from the EU planned 1.1-trillion-euro budget will be accessible to all member states, but the largest share will be available only to the 19 countries who are members of the common currency area.

The second facility, called European Investment Stabilization Function, would provide up to 30 billion euros in loans to member states which experience an “asymmetric shock”, which is defined as a sudden economic crisis which causes a surge in unemployment rates.

The instrument would be used for states who have still access to market funding. Those who lost it, as it happened to Greece, Portugal or Ireland during the eurozone debt crisis, would continue benefiting from the support of a much bigger euro zone fund managed by the European Stability Mechanism.

The money for the loans would be raised by the EU on the markets, using the EU budget as a guarantee. The loans would be provided with no interest rates. The costs of borrowing money on the markets would be covered by EU states, under the proposal ($1 = 0.8538 euros)

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