Introductory text

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States’ balances of payments^f1, and in particular Article 3(2) thereof,

Having regard to the proposal from the European Commission made after consulting the Economic and Financial Committee (EFC),

Whereas:

By Decision 2011/289/EU^f2, the Council has decided to continue to grant mutual assistance to Romania.

A precautionary medium-term financial assistance for Romania under the balance of payments facility for Member States appears to be appropriate under the current circumstances of still reduced capital inflows and remaining elevated fiscal and external imbalances. While under present market conditions Romania does not intend to request the disbursement of any instalment, the precautionary assistance will facilitate a continued orderly adjustment of the fiscal and the external deficits by strengthening credibility of the government’s economic programme, including the continued fiscal adjustment, the consolidation of financial market reform, and an increased focus on product and labour market reforms and the increased absorption of Union structural funds. These measures should enhance Romania’s growth potential, underpin monetary and financial stability, as well as confidence in Romania’s currency (RON), and reduce the likelihood of negative balance sheet effects in the corporate and household sectors.

If negative risks attached to the current baseline scenario of the Government’s economic programme materialise, Romania would not be able to cover its external financing needs from available funding resources, largely due to decreased inflows of foreign direct investment and lower rollover rates for amortising debt, notably from banks. In such a stress scenario, the residual financing needs would have to be covered from activating the precautionary Union financial assistance. The stress scenario has been developed in close collaboration with International Monetery Fund (IMF) staff and underpins the additional financing needs of around EUR 5 billion to be covered from international financial assistance.

It is appropriate to provide Union support to Romania of up to EUR 1,4 billion on a precautionary basis under the facility providing Union medium-term financial assistance for Member States’ balance of payments established in by Regulation (EC) No 332/2002. This assistance should be provided in conjunction with financial support from the IMF of SDR 3,09 billion (around EUR 3,6 billion) under a precautionary stand-by arrangement approved on 25 March 2011. The World Bank will continue support of EUR 400 million committed earlier under its development loan programme (DPL3) and will provide up to EUR 750 million of results-based financing for social assistance and health reforms.

The assistance should be managed by the Commission who will agree with the authorities of Romania, after consulting the EFC, the specific economic policy conditions attached to the precautionary financial assistance. Those conditions should be laid down in a memorandum of understanding (MoU).

In view of the precautionary nature of the assistance, Romania will not request the disbursement of any instalment under the Union loan, unless Romania is in difficulty as regards its balance of current payments or capital movements. In the case that Romania makes a request for funding to the Commission, the latter will decide, after having consulted the EFC, on the activation of the programme and on the amount and timing for making available any such instalment. The detailed financial terms related to possible disbursements will be laid down in a framework loan agreement (FLA).

The precautionary financial assistance shall be provided with a view to contributing to the successful implementation of the Government’s economic policy programme, and, in this way, shall support the sustainability of Romania’s balance of payments,

HAS ADOPTED THIS DECISION: