Sovereign debt crisis — EU financial assistance to countries in difficulties

 

SUMMARY OF:

European Court of Auditors’ report on the assistance provided to countries in difficulties during the financial crisis

WHAT IS THE AIM OF THE REPORT?

• This European Court of Auditors report analyses how the European Commission managed the financial assistance the EU provided to 5 countries (Ireland, Latvia, Hungary, Portugal and Romania) to help them overcome their sovereign debt crisis.
• It offers recommendations for any future action.

KEY POINTS

• The report contains both criticism and praise for the way the Commission handled the crisis.
• The criticism notes that the Commission:
  • was unprepared for the first requests for financial help;
  • overestimated countries’ public budgets;
  • failed to pay sufficient attention to the link between large financial flows, the health of banks and, ultimately, government finances;
  • lacked the documentation to evaluate the decisions taken;
  • did not treat countries in comparable circumstances in the same way;
  • decided on reforms that were not always in proportion to the problems faced;
  • lacked sufficient quality control when reviewing the design and monitoring of programmes;
  • did not ensure systematic reporting of the way beneficiary countries complied with their deficit targets.
• The report praises the Commission for the way it:
  • took on its new programme management duties despite the initial time constraints and its limited experience;
  • obtained the information it needed and marshalled its internal expertise;
  • ensured the assistance programmes were mostly soundly based;
  • improved significantly programme documentation after the first requests had been received.
• The report concludes that beneficiary countries:
  • mostly met their revised deficit targets;
  • complied with most conditions in their programmes, albeit with some delays — reasons largely beyond the Commission’s control;
  • tended not to comply with the more important conditions until towards the end of the programming period;
  • mostly continued with their reforms after the programmes ended.
• The auditors offer 9 recommendations, which the Commission wholly or partially accepts, for improving any future financial assistance. These include introducing:
  • a proper institution-wide framework to mobilise Commission staff and expertise;
  • more systematic quality control of forecasts, better record-keeping and proper review procedures;
  • differentiation of conditions by their importance and targeting the truly important reforms;
  • formal interinstitutional cooperation with other programme partners.

BACKGROUND

The European Union (EU) faced a financial, and then sovereign debt, crisis 7 years ago. Various factors were at its root: weak banking supervision, poor fiscal policies and the problems experienced by large financial institutions. The crisis occurred in two waves. It first hit non-euro area countries in 2008-2009, before spreading to the euro area itself.

In all, 8 EU countries required macrofinancial assistance.

For more information, see:

• Press release on the European Court of Auditors’ website

MAIN DOCUMENT

European Court of Auditors — Special Report No 18/2015: Financial assistance provided to countries in difficulties, Publications Office of the European Union, 2015

last update 11.08.2016