(Adds Czech deputy finance minister)
By Jan Strupczewski
BRUSSELS, March 15 (Reuters) - Six central and eastern
European countries may block a reform of EU budget rules unless
euro zone countries agree to adopt a new capital structure for
the region's permanent bailout fund, EU sources said.
The permanent fund, the European Stability Mechanism, is to
replace the European Financial Stability Facility in mid-2013.
The EFSF's ability to borrow on the markets is backed by
euro zone government guarantees, the size of which are based on
their share in the capital of the European Central Bank.
The ESM is to have paid-in capital and callable capital as
well as guarantees to back its 500 billion euro ($700 billion)
effective lending capacity, and all EU members can take part in
its design.
Euro zone members Estonia and Slovakia as well as future
euro users Latvia, Lithuania, Bulgaria and the Czech Republic
believe that basing the capital set-up of the ESM on the ECB
funding structure, as in the case of the EFSF, is unfair.
"Unless there is a change to the ESM capital key we will
block the agreement on the governance package once it returns
from parliament and EU finance ministers have to approve it by
unanimity," a source with one of the delegations said.
The European Union agreed earlier on Tuesday on tougher
rules against excessive borrowing and macroeconomic imbalances,
backing European Commission proposals to sharpen the 27-nation's
budget rules by introducing financial sanctions for
rule-breakers more swiftly and automatically. []
A euro zone source said that euro outsider Sweden also
believed the ESM capital key was not a straight-forward matter.
The ECB key is taken 50 percent from the weighted average of
a country's GDP to EU GDP and 50 percent from the share of its
population to the whole bloc's. Officials say the result is that
countries with lower GDP per capita pay relatively more as a
proportion of their own output.
"If you have more people than GDP, relative to the EU
(average), basically you are poor, you then have to pay a higher
amount relative to your own GDP," said one official.
"A country with high GDP per capita, like Luxembourg, would
pay little compared to its GDP."
Slovak Finance Minister Ivan Miklos said on Tuesday he
preferred the key to be solely based on the strength of a
country's economy.
He said a country's financial sector's strength or level of
debt could also be a criterion.
"We support the Slovak stance, we also think the present key
is unjust for smaller (economies) with bigger numbers of
people," Czech Deputy Finance Minister Tomas Zidek said.
He added the Czech Republic would not try and block the plan
"because it is a matter of the euro zone member states".
EU sources said the issue was discussed at a meeting of EU
finance ministers on Monday, with the protesting countries
insisting that the ESM capital structure should be based on
gross national product, or gross domestic product, size of debt
or even size of financial sector, to be more fair.
In an amendment to the EU budget rule reform agreement
reached on Tuesday, which envisages that fines for breaking EU
rules would be allocated to the EFSF and then the ESM, the six
countries said:
"We can only agree to the proposed distribution of the fines
in the context of macroeconomic and budgetary surveillance, if
and only if an equitable solution to the ESM capital shares is
found for the European Council of 24-25 March, 2011."
(Reporting by Jan Strupczewski, Additional reporting by
Martin Santa in Bratislava and Jana Mlcochova in Prague, editing
by Patrick Graham, John Stonestreet, Ruth Pitchford)
