BALANCE OF PAYMENTS: PROPOSAL ON FUTURE OF EU'S FINANCIAL SUPPORT MECHANISM.

The mechanism exists to provide medium-term financial assistance to Member States which are experiencing, or are threatened with difficulties in their balance of current payments or capital movements. It is governed by Regulation 88/1969/EEC of June 24, 1998 and can be activated at the request of a Member State not participating in the Euro on the basis of Article 119 of the Amsterdam Treaty. The launch of the Euro renders the provisions of this Article null and void for the eleven participating countries. Even though the four countries not in the Euro zone or not selected to participate in the single currency are pursuing policies of convergence with the Euro zone, they may yet be exposed in future to difficulties regarding their balance of payments. The mechanism provides for the rapid release of substantial financial assistance and, because of the conditions attached, increases market confidence in the ability of the country concerned to return to a sounder situation.The last decision taken by the Council under the Regulation dates back to January 1993 and relates to the grant to Italy of a Euro 8 billion loan in four instalments. Only the first two instalments of Euro 2 billion each were used, as the subsequent improvement in the balance of payments situation made the disbursement of the remaining instalments unnecessary.Functioning.The facility may be implemented by the Council on the initiative either of a Member State or of the Commission. After examining the situation in the Member State concerned, the Council may decide whether to grant a loan or appropriate financing facility, its amount, average duration and the economic policy conditions attached to the...