Brussels, 21 April 2009
Commission asks Council to provide a medium-term loan to Romania as part of coordinated multilateral financial assistance
The European Commission today agreed to propose to the Council to provide medium- term financial assistance to Romania of up to €5 billion. The proposed European Union loan is part of a multilateral package which will total up to €20bn. The financial assistance is conditional upon the implementation of a comprehensive economic programme to which the Romanian authorities committed to and which will, ultimately, put the Romanian economy on a sound and sustainable footing.
"EU support to Romania underlines our solidarity to our Member States. In return, the support is conditional upon the implementation by the Romanian authorities of a major programme of fiscal, financial and structural adjustment. This will ultimately put Romania in a position to return to a sound and sustainable convergence path, " said European Economic and Monetary Affairs Commissioner Joaquin Almunia.
The proposed medium-term financial assistance to Romania will consist of a European Community loan under Council Regulation 332/2002. The proposal is expected to be on the agenda of the next meeting of the EU finance ministers on 5 May.
The assistance is being provided in conjunction with the International Monetary Fund (€12.95 billion). Additional multilateral support of €2 billion will be provided by the World Bank (€1 billion), the European Investment Bank and the European Bank of Reconstruction and Development (€1 billion together) on top of their general lending activities. This brings the total to up to € 20 billion over the period to the first quarter of 2011.
The financial assistance will be disbursed in maximum five instalments during the coming 24 months, the release of which will be conditional upon the implementation of a comprehensive economic policy programme. The policy programme is designed to enable the economy to withstand short-term liquidity pressures while improving competitiveness and supporting an orderly correction of imbalances in the medium term, hence bringing the economy back on a sound and sustainable footing.
In the financial sector, the programme would seek to ensure adequate capitalisation of banks and to strengthen financial sector supervision, including banking and winding-up laws. The deposit guarantee scheme would be further bolstered. The programme will include a commitment by parent commercial banks to rollover and recapitalisation.
A sound management of the funds received is expected with a strong role for independent and well functioning auditing and anti-corruption institutions.
A key element of the economic policy package is an immediate and sustained fiscal consolidation to limit the budget deficit to 5.1% of GDP in 2009, falling further to below 3% of GDP in 2011. To support these targets, measures will be taken to improve budgetary policy credibility and predictability, as also requested by the June 2008 Commission Policy Advice to Romania.
The economic programme will also include structural reform measures, in line with the country-specific recommendations by the Council in the framework of the Lisbon strategy. Reforms will include policies towards improving public administration, enhancing the quality of public expenditure, increased absorption of EU funds, improving of the business environment and tackling undeclared work. The Commission also contributes to local capacity building via the structural funds, a specific part of which has been earmarked for technical assistance.
The policy conditions will be further detailed in a Memorandum of Understanding to be concluded shortly with the Romanian authorities. The Commission in collaboration with the Economic and Financial Committee will monitor regularly and closely that the economic policy conditions attached to the financial assistance are fully implemented and may request additional measures when and if circumstances so require.
The agreed measures and targets will also be reflected in the forthcoming Convergence Programme update and in the National Reform Programme, which will be assessed in the context of the implementation of the Excessive Deficit Procedure and Stability and Growth Pact, and of the Lisbon Strategy.
The Commission will continue monitoring progress in the area of judicial reform and fighting corruption under the Cooperation and Verification Mechanism. It will also continue monitoring the correct use of EU funds.
The medium-term financial support to Romania comes on top pre and post-accession EU funds, which are estimated at about 3% of Romania's GDP in both 2009 and 2010. Furthermore, in 2009, Romania will benefit from an increase in advance payments of structural funds by about 0.2% of its GDP, as part of the European Economic Recovery Package.
Before Romania, Hungary and Latvia have also been granted balance of payments (BoP) support of up to €6.5 billion and €3.1 billion respectively from the EU as part of wider assistance packages (see IP/08/1612 and IP/09/18). The Commission and Council Presidency on 25 March had already announced their intention to support Romania (see IP/08/475). Today's decision formalises that proposal.
On 8 April the Commission also proposed to increase the overall BoP financial assistance ceiling set in the current legislation to €50 billion from €25 billion (see IP/09/559).