Glossary
Annual growth survey
A survey prepared by the Commission, outlining priority actions to be taken, at the level of both member states and the EU/eurozone, for boosting economic growth and job creation.
The annual growth survey is the starting point of the European Semester six-month economic and fiscal policy monitoring exercise. It is usually published at the end of the year, setting priorities for the coming year.
Bank recovery and resolution directive
The draft directive proposed by the Commission in June 2012 would introduce EU-wide rules for the recovery and resolution of credit institutions and investment firms. It is aimed at providing national authorities with common tools and powers to tackle bank crises pre-emptively and to resolve any financial institution in an orderly manner in the event of insolvency, thereby minimising taxpayers' exposure to losses. The proposal is aimed at transposing into EU law commitments made at the G-20 Washington summit in November 2008, when leaders called for a review of resolution regimes and bankruptcy laws, and is also drawing inspiration from standards set by the Financial Stability Board.
Compact for growth and jobs
A framework established by heads of state and government in June 2012, outlining action to be taken, at the level of both member states and the EU/eurozone, with the aim of re-launching economic growth, investment and employment, and making the European economy more competitive.
Policy areas covered by the compact include: the single market, digital technology, cutting red tape, the internal energy market, industrial innovation and enterprise policy, reducing social and regional disparities, intellectual property, industrial financing, spending under the EU budget, tax policy, employment, labour mobility, overseas trade, and the stability of the financial system.
Country-specific recommendations
Recommendations that are issued by the Council once a year. Addressed to each member state individually, the recommendations provide guidance on economic and employment policies to be followed at national level. Separate opinions are issued on their fiscal policies (followed if needed by recommendations for corrective action under the excessive deficit procedure).
The Council additionally issues a recommendation for the eurozone as a whole.
The country-specific recommendations are part of the European Semester six-month economic and fiscal policy monitoring exercise. They are normally issued in July, following endorsement by the European Council.
CRD4
The so-called "CRD 4" package consists of a draft directive and a draft regulation and proposes to amend the EU's rules on capital requirements for banks and investment firms. It is aimed at transposing into EU law the Basel 3 agreement approved by the G‑20 in November 2010, which strengthens bank capital requirements, introduces a mandatory capital conservation buffer and a discretionary countercyclical buffer, and foresees a framework for new regulatory requirements on liquidity and leverage. The legislative proposal is currently being negotiated by the Council and European Parliament.
Deposit guarantee schemes directive
The Commission in July 2010 presented a legislative proposal for a revision of the existing directive on the protection of bank deposits guarantee schemes (DGSs). The draft directive introduces, in particular, harmonisation of the minimum requirements for ex ante financing of DGSs, recasts legislation currently in place, whilst modifying simplifies the scope of coverage of deposits, and tightens up the arrangements for payout to depositors in case a bank fails, whilst recasting legislation currently in place.
Its main elements include:
- Simplification and harmonisation, in particular relating to coverage and payout arrangements;
- Further reduction, to one week, of the time limit for paying out depositors, and better access for DGSs to information about their members (i.e. banks);
- Harmonisation of minimum ex ante financing requirements for DGSs, where with the introduction of ex ante financing is as a fixed percentage of deposits eligible for coverage;
- Mutual borrowing between DGSs, i.e. a borrowing facility in certain circumstances;
- Further reduction of the time limit for paying out depositors in case deposits become unavailable, and better access for DGSs to information about their members (i.e. banks);
- Simplification and harmonisation, in particular relating to coverage and payout arrangements;
- Borrowing between DGSs in certain circumstances.
EFSF
The European Financial Stability Facility is a temporary financial assistance facility, established in June 2010 as a private company owned by the member states of the euro area. It has provided financial support to Ireland, Portugal and Greece.
With the establishment of the ESM, the EFSF ceased to undertake new lending operations. Its management and the follow-up of its continuing financial support programmes has been transferred to the ESM. Support for the recapitalisation of the Spanish banking sector, which was prepared by the EFSF, will be carried out by the ESM, now that the latter is operational.
http://www.efsf.europa.eu/about/index.htm
ESM
The European Stability Mechanism is an intergovernmental institution based in Luxembourg, set up to provide financial assistance to eurozone member states experiencing, or being threatened by, severe financing problems, if this is indispensable for safeguarding financial stability in the euro area as a whole.
The maximum lending capacity of the ESM is set at €500 billion. This is achieved with subscribed capital of €700 billion (€ 80 billion paid-in capital, the rest callable).
For full text of the treaty : http://www.eurozone.europa.eu/media/migrated/596968/treaty_establishing_the_esm_2012_final.pdf
The ESM entered into force on 27 September 2012. It will take over the tasks currently fulfilled by the European Financial Stability Facility (EFSF).
EURES portal
EURES (European Employment Services) - is a cooperation network formed by public employment services. Trade unions and employers' organisations also participate as partners.
The objective of the EURES network is to facilitate the free movement of workers within the European Economic Area (EEA) (the 27 members of the European Union, plus Norway, Liechtenstein and Iceland) and Switzerland, by providing information, advice and recruitment/placement (job-matching) services.
The EURES portal offers job vacancies in 31 European countries, CVs from interested candidates, information about living and working abroad and much more. Check it out!
Eurobonds
Also called stability bonds or euro-securities.
Not to be confused with project bonds (see above).
Sovereign issuance in the euro area is currently conducted by Member States on a decentralised basis, issuing euro-denomianted bonds using various national procedures. The introduction of commonly issued eurobonds would mean a pooling of sovereign issuance among the Member States and the sharing of associated revenue flows and debt-servicing costs, as well as obligation to pay back the debt.
The Commission issued a green paper on the subject in November 2011. The consultation ended on 8 Jan. 2012.
European Banking Authority (EBA)
The EBA is a regulatory agency of the EU headquartered in London. It has a broad range of competences, including strengthening international supervisory coordination and promoting supervisory convergence, with a view to promoting a level playing field as regards both regulation and daily supervision. The EBA also provides advice to the EU institutions in the areas of banking, payments and e-money regulation as well as on issues related to corporate governance, auditing and financial reporting. In particular, the EBA prepares draft binding technical standards to be adopted by the Commission, as provided for in EU legislation.
European Investment Bank
A bank whose role is to provide long-term finance in support of investment projects. The EIB's shareholders are the 27 Member States of the EU, which have jointly subscribed its capital. Its board of governors is composed of the member states' finance ministers.
The EIB is the largest international non-sovereign lender and borrower, raising the resources it needs to finance its lending activities by borrowing on capital markets, mainly through public bond issues.
In 2011, EIB funding amounted to EUR 61 billion. Roughly 90% of this went to projects within the EU, supporting a broad range of policy objectives, including cohesion policy in disadvantaged regions and investments by SMEs. Outside the EU, the EIB is active in over 150 countries. More information @www.eib.org.
European Semester
A six-month period each year when member states' budgetary, macro-economic and structural policies are coordinated so as to allow member states to take EU considerations into account at an early stage of their national budgetary processes and in other aspects of their economic policymaking.
More information @ http://www.consilium.europa.eu/special-reports/european-semester.
Financial Transaction Tax (FTT)
A tax levied on transactions of financial instruments (e.g. shares, bonds, derivatives).
A 2011 proposal for an EU-wide FTT to cover a broad base of financial transactions received insufficient support within the Council. In January 2013, the Council authorised an "enhanced cooperation" that will enable 11 member states to introduce the tax.
Variations of an FTT covering a narrower tax base (e.g. stamp duty) already exist in a number of member states, as well as outside the EU (e.g. Singapore and Switzerland).
Loan Guarantee for Transport
Loan Guarantee Instrument for Trans-European Transport Network Projects - is an innovative financial instrument set up (in 2008) and developed jointly by the European Commission and the European Investment Bank (EIB) which aims at facilitating a larger participation of the private sector involvement in the financing of Trans-European Transport Network infrastructure ("TEN-T").
Multiannual Financial Framework (MFF)
A framework laying down the maximum annual amounts which the European Union may spend in different policy fields over a fixed period of not less than 5 years.
The purpose of the MFF is to
- translate political priorities into figures;
- impose budgetary discipline on the EU; and
- facilitate the adoption of the annual EU budget.
The future MFF will cover the 2014-2020 period and is currently under negotiation.
Project bonds
Project bonds are private debt issued by the sponsor(s) of a project, either a private company or a special purpose vehicle (SPV) created by one or more companies to finance a specific project. EU project bonds would provide credit enhancement for projects in order to make it easier for their sponsors to attract private financing.
When raising financing through a project bond, the company or SPV will issue senior and subordinated tranches of debt. By creating a subordinated tranche, which will take first losses, the credit standing of the senior debt will be enhanced because it will carry less risk. This will attract more investors. The EIB and the EU will share the risks involved. For the EU, this will take the form of an upfront capped contribution from the EU budget to cover its agreed share of the potential losses on the projects supported. The residual loss will be borne by the EIB.
Examples: projects on the core network in the field of transport, infrastructure priority corridors and areas in the field of energy, etc. Full list of the projects @ http://tiny.cc/COM2011_665 (pp 38 - 55).
The EU Project Bond Initiative [or: the EU project bond instrument] will provide credit enhancement for projects in order to make it easier for their sponsors to attract private financing. The Council and the European Parliament reached an agreement on 22 May 2012 to initiate a pilot phase on European project bonds in 2012-13 (press release @ http://tiny.cc/pilotprojectbonds).
Risk Sharing Finance Facility (RSFF)
A joint initiative (started in 2007) of the European Commission and the European Investment Bank to support higher risk and reward investment in research, development and innovation (the RDI projects).
The EUR 10bn that is available under the RSFF will be financed by EIB by leveraging up to EUR 2bn of capital of which EUR 1bn is from the Community Seventh Framework Programme and EUR 1bn from EIB's own resources that covers the risks incurred related to higher risk financing.
Single Market Act
A package of policy and legislative measures for reinvigorating and completing the internal market in view of achieving a highly competitive social market economy in the EU.
It seeks to strengthen citizens' and businesses' confidence in their internal market and to ensure that its benefits are passed on to consumers.
It includes goals such as the development of modern trans-European energy, transport and telecom infrastructure, expansion of digital content markets, creation of unitary patent protection, creation of a single market for venture capital, recognition of professional qualifications, facilitate the mobility of workers, setting up of alternative dispute resolution schemes between consumers and traders, establishing a new framework for public procurement, standardisation, etc.
Single supervisory mechanism
The Commission on 12 September 2012 submitted draft legislation proposing the establishment of a single supervisory mechanism (SSM) covering the euro area and open to all other EU member States. In the new SSM proposed by the Commission, ultimate responsibility for the supervision of all eurozone banks would lie with the European Central Bank (ECB), while national supervisors would continue to play an important role in day-to-day supervision and in preparing and implementing ECB decisions. The Commission also proposed changes to the existing regulation establishing the European Banking Authority in order to ensure that EBA decision-making remains balanced once the SSM has entered into force.
Heads of state and government of the eurozone on 29 June 2012 stated that once an effective SSM is established, the ESM could, following a regular decision, have the possibility to recapitalize banks directly.
Six-pack
A set of six legal acts adopted in 2011, strengthening procedures for the surveillance of the member states' fiscal policies (the "Stability and Growth Pact") and introducing new ones for their macroeconomic policies. The aim is to better control public deficits and national debt and to better address macroeconomic imbalances.
The member states are bound under the EU treaties and the Stability and Growth Pact by reference values for government deficits and debt set at 3% and 60% of GDP respectively, and report their budgetary plans annually. In the event of non-respect of the reference values, an excessive deficit procedure is initiated, with deadlines for corrective measures. The six-pack:
- strengthens the framework for monitoring budgetary plans and introduces a graduated and consistent process for imposing sanctions for non-compliance with corrective measures;
- creates a formal framework for monitoring macroeconomic imbalances, including an early warning system and mechanisms for correcting imbalances;
- lays down minimum requirements for national budgetary frameworks.
For details, see press release 16446/11
Structural Funds
The structural funds are key instruments in the financing of the EU's cohesion policy. The EU budget for 2012 includes payments of around EUR 43.7 bn for the European Regional Development Fund, the European Social Fund and the Cohesion Fund.
Cohesion policy is aimed at reducing disparities between the levels of development of the EU's various regions, notably as regards its least developed regions. Particular attention is paid to rural areas, areas affected by industrial transition, and regions that suffer from natural or demographic handicaps.
Management of the structural funds is shared by the member states and the Commission.
Treaty on stability, coordination and governance (fiscal compact)
The fiscal compact is an intergovernmental treaty signed by 25 EU member states in the margins of the European Council meeting on 2 March 2012. It will enter into force following ratification by at least 12 euro area member states.
The treaty requires national budgets to be in balance or in surplus. This means firstly that the annual structural government deficit must not exceed 0.5% of GDP, and secondly that budgets must respect a country-specific minimum benchmark figure for long-term sustainability set under EU rules (with more demanding targets for those who need to reduce debt or meet large age-related expenses). This balanced budget rule must be incorporated within one year into the member states' national legal systems, through permanent, binding provisions (preferably of a constitutional character).
Two-pack
The second package of proposals on economic governance was presented by the Commission in November 2011 and builds on the so-called "six-pack" of economic governance proposals. Once adopted, the two draft regulations will introduce provisions for enhanced monitoring of euro area countries' budgetary policies.
Under the Commission's proposals, euro area member states would be required to submit annually to the Commission and the Eurogroup their draft budgetary plans for the next year by 15 October. Closer monitoring would apply to member states in excessive deficit procedure in order to enable the Commission to better assess whether a risk of non-compliance with the deadline to correct the excessive deficit exists. Member states experiencing severe difficulties with regard to their financial stability or receiving financial assistance would be subject to even tighter monitoring.