September 30, 2013
According to the Daily Express on 28 September, the EU is “demanding £6billion from Britain for a new bailout”. The Express is referring to the EU’s Balance of Payments Facility – which exists to provide emergency support to non-eurozone EU Member States whose economies are threatened by major financial imbalances.
The facts are rather different. Not one penny of UK taxpayers money has been sent – even as a loan – to the countries supported so far under the facility: Latvia, Hungary and Romania.
There are no plans to support more countries.
The money for any such loans is raised by the EU in the financial markets at very favourable interest rates and the cost of that is covered by repayments from beneficiary countries. Member States merely guarantee the borrowing in the financial markets.
No such loans can be made, guarantees issued, or changes made to the facility, without the unanimous agreement of all Member States. The UK therefore has a veto.
The Commission has not proposed to increase the size of the scheme or of any UK participation in it.
The Commission has proposed to allow the scheme to be used to support banks in difficulty in non-euro area Member States, on the condition that they are appropriately restructured, in line with what has been done successfully for the Spanish banking sector, using the European Stability Mechanism, the eurozone’s financial stability fund.
The collapse of the economy of a UK trading partner or a major bank could hit GDP and jobs in the UK hard. This scheme aims to prevent that at no cost and minimal risk to the UK.
Tags:bail out, Balance of Payments, European Stability Mechanism