The FINANCIAL — Brussels, 04 July 2011 – On Monday 4 July, the Commission adopted a proposal for a Framework Regulation for macro-financial assistance (MFA), a financing instrument under which exceptional financial assistance is granted to third countries close to the EU that are experiencing balance-of-payments difficulties.
The proposed Framework Regulation aims to make MFA faster and more effective by speeding up decision-making for individual MFA operations. The Framework Regulation would lay down the key rules governing MFA in a formal legal act. Since the launch of the instrument in 1990, a total of 55 MFA decisions benefiting 23 countries have been approved, with total commitments amounting to €7.4 billion.
"EU's macro-financial assistance has made a valuable contribution to macroeconomic stability in candidate, potential candidate and neighbourhood countries, with positive spill-over effects on the EU economy. Therefore it is important to further strengthen the MFA operations and enhance the effectiveness of this crisis instrument", said Olli Rehn, Commissioner for Economic and Monetary Affairs.
As highlighted by the global financial crisis, speed is of the essence when dealing with macroeconomic and financial crisis situations. This underlines the importance of developing instruments to respond that can be deployed quickly and efficiently. Moreover, the proposed Regulation is part of the EU’s endeavour to better adapt its tool-kit of external financial instruments to current challenges, as outlined in the recent Commission Communication on the EU’s post-2013 Multi-annual Financial Framework.
The MFA is an external instrument of the EU under which macroeconomic financial assistance is granted to third countries close to the EU to help them address acute balance-of-payments difficulties. The MFA complements financing provided by the International Monetary Fund (IMF) in the context of an adjustment and reform programme. MFA can take the form of grants, financed by the EU budget, or loans, for which the Commission borrows the necessary funds in capital markets and on-lends them to the beneficiary country.
However, some of the features in the decision-making process have tended to reduce the effectiveness and transparency of the MFA. In particular, MFA is currently subject to case-by-case legislative decisions, i.e. the launch of each individual MFA operation with a country in crisis requires a separate legislative decision. This can result in delays between the request for support by the country and the approval of new MFA operations, thus harming the effectiveness of an instrument designed to help address critical balance-of-payments needs that require an expeditious response. Moreover, following the entry into force of the Lisbon Treaty, MFA decisions are no longer taken by the Council alone, but in accordance with the ordinary legislative procedure (co-decision between the European Parliament and the Council), which risks further reducing the speed with which MFA decisions are adopted. The proposed Framework Regulation speeds up the decision-making for individual MFA operations: MFA would be granted to an eligible third country through an implementing act of the Commission under the supervision of a committee of Member State representatives, as is the case in other external financial instruments of the EU. Such a swifter decision-making process should render the instrument better able to help beneficiary countries withstand short-term external financial pressures. The ability to deploy MFA more expeditiously should also increase its complementarities with the facilities of the international financial institutions.
MFA operations have been based on a number of principles defined by the Council, the so-called “Genval criteria”, which were last stated in the conclusions of the ECOFIN Council of 8 October 2002. The proposed Framework Regulation, which requires adoption by both the European Parliament and the Council, would formalise these rules, thereby increasing their transparency, while ensuring that they are co-owned by the European Parliament.
The proposed Framework Regulation would also update and clarify some of them, notably with respect to the geographical scope of MFA. The countries eligible for MFA would be the candidate and potential candidate countries and the countries covered by the European Neighbourhood Policy, including the three South Caucasus countries. Other third countries would continue to be eligible only under exceptional and duly justified circumstances, and provided they are geographically close to the EU and entertain close political and economic links with it.