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Preparation of Eurogroup and Economic and Finance Ministers Council, Luxembourg, 9 and 10 October 2006

European Commission - MEMO/06/367   09/10/2006

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MEMO/06/367

Brussels, 9 October 2006

Preparation of Eurogroup and Economic and Finance Ministers Council, Luxembourg, 9 and 10 October 2006

EUROGROUP (AT)

Eurogroup Ministers will meet at 19.00 hrs. on Monday 9 October. Joaquín Almunia, Commissioner responsible for Economic and Monetary Affairs and Jean Claude Trichet, European Central Bank Governor; will attend. A press conference is planned for after the meeting.

Ministers are expected to be debriefed on the September Singapore meetings of the G7 and IMF. They will particularly take stock of the progress to improve EU coordination on international economic and financial issues, including the problem of the global imbalances and the IMF quotas. Various short-term and long-term options to improve EU/euro area coordination and representation in international financial institutions and fora (such as the IMF, G20, G7 and Financial Stability Forum) are on the table. It is important to put them into practice and continue working towards a unified EU position in the next stage of IMF reforms. The discussion will continue the following day, during lunch, at the Ecofin Council.

Amongst the other points on the agenda, ministers will discuss country-specific measures to contain price pressures in the euro area, particularly in those countries where inflation has been highest. They will also review competitiveness developments. Price stability is in the interest of the public and of economy stability. It is also vital for a smooth functioning of monetary union and all euro area Member States share responsibility for achieving this common goal. In this context, the Eurogroup will discuss the causes of inflation particularly in the services sector, labour and housing markets. The idea is to identify the policy measures that would remove those causes in order to deliver high growth in an environment of low and stable inflation.

Ministers are also expected to be updated on budgetary developments since their last meeting in September, in particular regarding the preparation of the 2007 draft national budgets.

ECOFIN COUNCIL

EU economic situation and outlook (AT)

Over breakfast, ministers will discuss the economic situation in the EU. During the first half of 2006, Europe's economic growth was markedly above expectations. Survey data indicate that growth rates in the second half of 2006 should remain at or above potential. According to our interim forecast presented last month, this would result in 2.5% for the year as a whole in the euro area and 2.7% in the EU (see IP/06/1154). This means that, the macro-economic situation and outlook in Europe is, at this juncture, more favourable than it has been for many years. This should have a positive effect on public finances and provide an ideal backdrop for making further headway in the area of structural reform.

Better Regulation: administrative burden (MG)

Ministers are expected to adopt conclusions on progress towards better regulation and the reduction of the EU administrative burden.

The regulatory framework in which businesses operate is a key factor of their competitiveness, growth and employment performance. The Commission came forward in April 2005 with a Better Regulation package, which is a centrepiece of the “Partnership for Growth and Jobs”. It is essential to set the right conditions for growth and employment in Europe and to that end to measure and reduce administrative costs in the EU. The better regulation package is designed to cut-red tape, tackle excessive regulation and help strike the right balance between the costs and benefits of legislation. To make sure that regulation is used only when necessary and that the burdens they impose are proportionate to their aim, the Commission has a number of processes and tools in place:

1. Withdrawal or modification of pending legislative proposals

2. Measures to simplify existing legislation

3. Better quality of new Commission proposals: systematic use of impact assessment and public consultation in the development of new policy proposals.

In June the European Council noted that some Member States have already set targets for reducing administrative burdens by 25 per cent. It concluded that it should be possible to set similar targets at EU level and invited the Commission to make appropriate proposals in time for the 2007 Spring European Council. Following the June European Council, the Commission launched a pilot study which is currently under way, building on baseline measurements already done in four Member States (Netherlands, UK, Denmark and the Czech Republic). By comparing the results obtained in these countries, the study aims at identifying the policy areas that are most responsible for creating administrative burdens and at determining the methodological aspects that need to be taken into account when launching the larger measurement study. This pilot project will be completed in October and its results will feed into the Communication on Administrative Costs planned for adoption before the end of the year. This pilot study prepares the ground for a large measurement project, starting next year in cooperation with Member States. The Commission intends to come forward with an action programme for reducing administrative burdens in the first quarter of 2007.

Implementation of the Stability and Growth Pact (AT)

  • Application of the ongoing excessive deficit procedure (Germany)

Following their informal discussion at the Helsinki meeting, the Ecofin Council is expected to endorse the Commission’s assessment of July that Germany is on track for correcting its budget deficit (see IP/06/1022).

The Council, in March, gave Germany notice under Article 104.9 to correct its deficit to below 3% in 2007 or, more precisely, to reduce the deficit by “at least one percentage point between 2006 and 2007 in cyclically-adjusted terms and net of one off measures”.

German Finance Minister Peer Steinbrueck has said publicly that the deficit this year was expected to be 2.6%. In 2005, Germany had a deficit of 3.3% of GDP.

Application of the ongoing excessive deficit procedure (Hungary)

Ministers will also discuss the public finance situation in Hungary. They are expected to endorse the new adjustment path set out in the adjusted convergence programme and to issue recommendations to accordingly correct the excessive deficit by 2009, one year later than originally envisaged (see IP/06/1255).

The high and widening budget deficit in Hungary in recent years has created serious concern. The authorities now are planning the correction of the excessive deficit through a substantial front-loaded effort and measures have already been taken to back this reduction. Ministers are expected to urge the Government to strictly implement its consolidation strategy as planned, and in particular to advance with the necessary structural reforms and enhancement of expenditure control.

According to the revised Convergence Programme assessed by the Commission on September 26, Hungary’s budget deficit is expected to reach 10.1% of GDP and to be reduced to 3.2% in 2009.

  • Application of the ongoing excessive deficit procedure (United Kingdom)

Finally, ministers are expected to endorse the recent conclusions of the Commission that the United Kingdom is just on track to put an end to its excessive deficit situation by the financial year 2006/07, although there are significant uncertainties attached to this outcome and the structural adjustment appears to fall short of what had been recommended. (see IP/06/1217).

Energy and innovation arrangements (AT)

Ministers are expected to agree conclusions following up to their extensive discussions at previous meetings on global competition, innovation and productivity and notably the need to strengthen the role of the European risk capital market in early stage financing.

Member States bear the heaviest burden in creating the right conditions for effective risk capital investment, but are supported by the work of the Commission on policy and best practice. The activities of the European Investment Bank and the European Investment Fund are critical in leading the way for the private sector to further develop facilities for R&D and innovation driven financing.

On energy, ministers are expected to restate the agreement reached in Manchester on co-ordination of the reactions to oil price developments, and in particular to avoid distortionary fiscal and other policy interventions that would prevent the necessary adjustments to the new oil price level.

Ministers are expected to highlight the aim to reduce the vulnerability of the European energy supply through diversification of energy supply, energy efficiency and promotion of renewable sources. A clear and stable policy framework to promote new investments, improved quality and transparency of energy market data, as well as further development of the EU emission trading system are all considered as important issues in the context of a future energy policy for Europe. Finally, the Ministers are expected to support the efforts the Commission is undertaking to remove barriers to the development of a competitive single energy market.

Role of national rules and institutions in delivering budgetary targets (AT)

Ministers are expected to reach conclusions on the key role of fiscal rules and independent institutions, when they exist, in helping governments deliver the budgetary targets that they set themselves.

The 2006 Public Finances Report, published in June, highlighted the importance that rules such as expenditure ceilings and national ‘pacts’ can play to help achieve sound public finances and avoid pro-cyclical policies (see IP/06/779).

Whilst in the short-run fiscal policy may play an important role in achieving a growth-supporting macroeconomic environment, in the medium and long run an adequate fiscal strategy is key to raise Europe’s growth potential, in line with the Lisbon Agenda, and to cope with the increasing costs of an ageing population.

European Investment Bank (EIB) external lending mandates (AT)

Ministers are expected to provide political orientation on the Commission proposal, prepared in cooperation with the EIB, for the renewal of the EIB external lending mandate for the period 2007-2013.

The majority of the EIB lending outside the EU takes place under "mandates" established by Council Decisions providing a Community guarantee. The existing mandates are due to expire on 31 January 2007. The new mandate will encompass all regions covered by the EU external policy, apart from ACP countries which are covered by the Cotonou Agreement.

Clearing and Settlement (OD)

Ministers are expected to have an exchange of views on how to make clearing and settlement operations cheaper and more efficient in the EU.

Single euro payments area (OD)

Easier, cheaper, faster payments - a Single Payment Area will benefit each and every European, and bring big-money savings to EU economy to the tune of €50-100 billion a year. In December 2005 the European Commission put forward proposals to bring down existing legal barriers and enable the creation of a "Single Payments Area" in the EU that could save the EU economy €50-100 billion per year. (IP/05/1514) The aim is to make cross-border payments – by credit card, debit card, electronic bank transfer, direct debit or any other means – as easy, cheap and secure as 'national' payments within one Member State. Currently each Member State has its own rules on payments, and the annual cost of making payments between these fragmented systems is 2-3% of GDP. Service providers are effectively blocked from competing and offering their services throughout the EU. The proposed Directive, known as the 'New Legal Framework', will guarantee fair and open access to payments markets and will increase and standardise consumer protection. A more efficient and competitive payments market will also mean that individual Europeans pay less for basic banking services, the average yearly cost of which ranges from €34 to as much as €252 across the EU. There is today a huge diversity of prices for the same service from one Member State to the other: a credit transfer can be free of charge in one country and cost more that ten euros in another.[1] The Directive applies to all Member States and all EU currencies, while providing the necessary legal platform for the Single Euro Payments Area (SEPA) proposed by the European Payments Council. The aim is to make the Single Payments Area a reality by 2010 at the latest.

While the Commission proposal will remove the legal barriers to the creation of a Single Euro Payments Area (SEPA), the work of the European Payments Council (EPC) is critical to remove the technical and commercial barriers. The Commission fully supports the work of the EPC and favours a market driven, self-regulatory approach to the maximum extent possible. The Council will have an exchange of views on SEPA and is expected to adopt draft conclusions.


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