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MEMO/06/407

Brussels, 6 November 2006

Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels 6 and 7 November

EUROGROUP

Eurogroup ministers will meet at 19:00 hrs on Monday 6 November. Joaquín Almunia, Commissioner responsible for Economic and Monetary Affairs, and European Central Bank Governor Jean-Claude Trichet will attend. A press conference is planned for after the meeting.

The Eurogroup will discuss the economic situation in the light of the publication of the Commission's autumn forecasts earlier the same day (see IP/06/1508). The forecasts point to a solid outlook in the euro area in the period 2006-2008. GDP growth accelerated in the first half of 2006 to levels not seen since the second quarter of 2000 and current indicators suggest a high level of activity also in the second half of the year. All in all, economic growth is expected to reach 2.8% in the EU this year and 2.6% in the euro area. For 2007 and 2008 growth is expected to lower somewhat but to remain around potential. On the budgetary front, the situation is expected to improve markedly this year, but further efforts are required especially from those countries under the excessive deficit procedure and to take advantage of the good economic times.

Afterwards, ministers are expected to focus on ways to improve budgetary governance and fiscal policy coordination in the euro area. Besides the examination of the Stability Programmes at the beginning of each year and the regular monitoring of countries under the excessive deficit procedure, Eurogroup ministers also currently review budgetary policies around mid year ahead (or around) the preparations of the national budgets for the following year. The so-called Mid-term review of budgetary policies is being reinforced as part of the reformed Stability and Growth Pact. The idea is to ensure that the debate and conclusions are taken into account by the Member States when preparing their draft budgets.

Ministers are also set to discuss the sequencing of structural reforms in the euro area and ways to improve their design and implementation on the basis of experience. The improved economic outlook shows that reforms are starting to bear fruit, but there is a wide consensus that more needs to be done by euro area Member States to increase potential growth and boost resilience to external shocks.

In this context and that of the ongoing multilateral consultations on global imbalances led by the International Monetary Fund (IMF), IMF Managing Director Rodrigo Rato has been invited to attend the meeting and to participate in the discussion.

ECOFIN COUNCIL

The European Union's Council of Economics and Finance Ministers will start at 10.45 hrs on Tuesday 7 November. The European Commission will be represented by Economic and Monetary Affairs Commissioner Joaquín Almunia, Administrative Affairs, audit and anti-fraud Vice-President Siim Kallas and Taxation and Customs Union Commissioner Lazlo Kovac. A press conference will take place after the meeting.

Taxation (MA)

  • Excise Duties: Minimum Rates on Alcoholic Beverages

The Ministers will express their views and discuss for the first time the Commission's proposal to revalorize the minimum rates of excise duty in line with inflation since 1992 (see IP/06/1165).

Finnish Presidency will try to make progress and is expected to put forward a compromise proposal.

The Commission’s proposal was introduced on 7 September 2006. It followed the ECOFIN Council's mandate, given unanimously on 12 April 2005. That mandate called on the Commission to come forward with a proposal to adjust the minimum rates in order to avoid a fall in their real value. This revalorisation is a matter of basic arithmetic – a 31% increase between 1993 and 2005 based on Eurostat data and the Harmonised Index of Consumer Prices.

The proposal also provides for transition periods for countries encountering problems to adjust their minimum rates from 2008.

The real economic impact of this proposal will be very minor. For beer, the increase is about one eurocent for a typical half litre for which Member States affected will have up to 2010 to reach.

  • VAT and Excise Duties: Travellers' Allowance Directive

The Finnish Presidency will try to make progress and if possible to reach an agreement on the Commission’s proposal to increase the exemption from value added tax and excise duty for goods imported by persons travelling from third countries.

The proposal was introduced by the Commission on 27 February 2006 (see
IP/06/238).

The main component of the proposal is to increase the benefit of the current monetary threshold from 175 € to 220 for land travellers and 500 € for air travellers. Not all countries agree on those amounts. The Finish presidency has put forward a compromise proposal to increase the benefit up to 300 euros for all types of travellers which has not reached agreement so far.

For the citizen, this proposal will not only provide benefits in terms of increased monetary thresholds but will also avoid inconvenience in declaring goods of relatively limited value. At the same time, it will reduce the administrative burdens for Member States in collecting relatively small amounts of duty.

Financial Management: Court of Auditors Annual Report (2005) (VR)

Mr Weber, President of the Court of Auditors, will present to the Ministers of Finance the annual report on the implementation of the EU 2005 budget. Vice President Kallas will welcome the positive statement of assurance as to the reliability of the EU accounts and will ask Member States to take and support actions necessary to follow up on the report's findings. This includes the proposal for Member states to provide annual declarations on how EU funds under shared management was spent.

Statistics : 2006 Status Report and EU Statistical Governance (AT)

Ministers are expected to reach conclusions on progress made to improve the budgetary and other statistics necessary for the monitoring of a good functioning of Economic and Monetary Union. They are also expected to discuss a Commission proposal to establish a high-level advisory board to enhance the credibility of European statistics, advice the Commission and report on implementation of the European statistics code of practice.

Significant progress has been made since December 2004 when the Commission defined a strategy to improve the quality of statistics. This includes the availability and quality of the Principal European Economic Indicators (PEEIs), enabling timely and reliable assessment of the euro area and EU economy. Further improvements are however needed in a number of areas, particularly services and labour market statistics. In order to make further progress, Eurostat and national statistical authorities are called upon to closely coordinate statistical processes for the compilation and dissemination of the PEEIs.

Sustainability of Public Finances (AT)

EU Finance Ministers will discuss the long term sustainability of public finances on the basis of the report presented by the Commission on October 12 (see IP/06/1356). The report shows that the costs of an ageing population in the European Union will significantly increase public spending in the future. In the absence of further reforms and budgetary consolidation, the average government debt in the EU will spiral from an expected 62.5% of GDP this year to nearly 200% by 2050.

To respond to this challenge, the Commission has recommended a three-pronged strategy, which consists in running down public debts at a faster pace than presently; raising employment rates and productivity; and, further reforming pension, health-care and long-term care systems. Several Member States have made progress down these three routes while others are more at risk (for details see press release mentioned above).

Ministers are expected to agree that coping with the budgetary impact of ageing is a key policy challenge in the EU. They are also expected to highlight that further fiscal consolidation can make a significant contribution towards sustainability. Assuming that all Member States achieve their medium-term budgetary objectives (MTOs) in 2010, the EU-wide debt/GDP ratio would in this case reach about 80% in 2050. This is clear evidence that medium-term action can have a long-term benefit.

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

Ministers will take stock of the technical discussions since October on the Commission proposal for a new European Investment Bank external lending mandate for the period 2007-2013 with a view to reach a final conclusion at the last meeting this year, on November 28. The existing mandate expires on 31 January 2007. The new mandate will encompass all regions covered by EU external policy, apart from ACP countries which are covered by the Cotonou Agreement.


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