This is one of the ideas for minimizing the gap in the long-term EU budget following Brexit. The United Kingdom’s withdrawal from the EU means the loss of a significant contribution to the financing of EU programs. It means that new sources of income have to be found. The United Kingdom is the second largest net contributor to the EU budget. The ideas for minimizing the financial gap that will arise after 2019, when the United Kingdom leaves the EU—estimates are pointing to an amount of approx. EUR100bn—include the use of so-called seigniorage.
In its communication, the European Commission suggested that a part of the profits of the national central banks derived from the Eurozone and paid out to the national finance ministries could be transferred to the EU budget as a form of national contribution. According to the European Commission, the estimated revenues from seigniorage could range between EUR10.5bn and EUR56bn (over seven years, i.e. the period covered by the long-term budget of the European Union).
In the Eurozone the profits from seigniorage are obtained by the European Central Bank (ECB) and are then distributed among the participating national central banks according to the ECB’s capital key (in accordance with article 32 of the Statute of the European System of Central Banks – ESCB). These funds become a part of the profits of individual central banks, and their use is regulated at the level of each Member State. A part of these profits is usually then transferred by individual central banks of the Eurozone to the finance ministries as budget revenue, following a deduction of operating and administrative costs.
Any changes in the distribution of profits of central banks in the Eurozone would require changes in the Statute of the ESCB. There are also opinions, that the use of the ECB’s profits could threaten the political independence of the Eurozone’s central banks, which so far have made decisions with regard to the portion of profits to be transferred for domestic budgetary needs.
Furthermore, seigniorage is a volatile source of revenue. Due to the low interest rates in the Eurozone in recent years, the ECB’s revenues from seigniorage have decreased significantly. The average interest rate on the main refinancing operations in 2016 was only 0.01%, compared with 4% back in 2008. For this reason, the interest income from banknotes in circulation fell from EUR2.2bn in 2008 to only EUR0.01bn in 2016.
Although the European Commission is responsible for preparing proposals for the structure of the common EU budget, the final decisions regarding its size and composition are made by the national governments. Discussions on this matter will be carried out in the coming months.
