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Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 27 and 28 November 2006

European Commission - MEMO/06/447   27/11/2006

Other available languages: none

MEMO/06/447

Brussels, 27 November 2006

Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 27 and 28 November 2006

EUROGROUP (AT)

Eurogroup Ministers will meet at 19.00 hrs. on Monday 27 November. 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.

Eurogroup ministers will have an exchange of views on the euro area economic situation on the basis of the views of the International Monetary Fund (IMF) which will be presented by IMF director Michael Deppler. This exchange of views with the IMF is carried out twice a year, in summer and autumn. In the autumn, the IMF conducts a so-called interim mission to the euro area.

Subsequently, Commissioner Almunia will also present the recent economic developments as well as the implications of the recent autumn forecasts for budgetary surveillance. (for one such implication see Top News issued Friday, 24 November)

Ministers will also continue their discussions concerning ways to improve the Mid-Term Review of budgetary policies so as to improve the link between this exercise and effective and functional European fiscal policy coordination. The mid-term review of budgetary policies is based on the agreement on the 2005 Stability and Growth Pact reform which says that the Eurogroup should discuss, at least once a year before the summer, national budgetary developments and their implications for the euro area as a whole.

Finally, Ministers are invited to exchange views on the findings of the EU Economy 2006 Review, which was adopted by the Commission, together with a Communication on "strengthening the euro area" on 22 November (see IP/06/1597).

The key message is that a sound macroeconomic framework is in place in the euro area that needs to be preserved and pursued. But continued improvements are required in the implementation of structural reforms and in euro-area governance.

ECOFIN COUNCIL

The European Union’s Council of Economy and Finance Ministers will start at 9.00 hrs. on Tuesday 28 November. The European Commission will be represented by Economic and Monetary Affairs Commissioner Joaquín Almunia, Internal Market and Services Charlie McCreevy and Taxation and Customs Union Lazlo Kovacs.

Implementation of the Stability and Growth Pact (AT)

  • Application of the ongoing excessive deficit procedure (Poland)

The Ecofin Council will discuss the fiscal situation in Poland, which is under the excessive deficit procedure (EDP) since 2004. It is expected to endorse the Commission’s assessment that Poland is not on track for correcting its excessive budget deficit as recommended by the Council (see IP/06/1553). In July 2004, the Council decided that Poland had an excessive deficit and recommended its correction by 2007. According to the draft 2007 budget approved by the government at the end of September, the general government deficit target is forecast at 3.7% of GDP in 2007. The Commission autumn forecast puts it at 4.0%. The figures reflect an improvement on previous years, but which is not sufficient especially in view of the vigorous Polish economy. GDP growth is estimated at 5.2% of GDP this year and 4.7% for 2007, according to the Commission’s autumn forecasts.

Economic Reform (AT)

  • Lisbon Multilateral Surveillance

Ministers are expected to adopt conclusions on the multilateral surveillance thematic review conducted by the Economic Policy Committee (EPC). This year's surveillance focussed on four horizontal topics: R&D and innovation, financial incentives to take up work, especially for older workers, energy policy and better regulation. The topics correspond to the priority action areas identified in the Commission's Annual Progress Report 2006 and that were endorsed by the Spring European Council.

The EPC report and the ECOFIN draft conclusions say that important progress has been made in the field of structural reforms and some positive results can already be seen. The relatively favourable economic conditions, partly due to the success of such reforms, offer now a window of opportunity for further progress to be made in implementing crucial reforms.

The Commission will adopt its assessment of the National Lisbon Implementation Reports and of the implementation of the Community Lisbon Programme in its second Annual Progress Report on 12 December.

  • Globalisation : Global Factor Flows

In continuation of Ecofin discussions on globalisation, Ministers will exchange views on the international flow of labour and foreign investment capital. Based on a report prepared by the Economic Policy Committee, ECOFIN ministers are expected to adopt conclusions with a view to strengthen Europe's capacity to benefit from increased global factor flows in the context of globalisation

The mobility of workers, in particular skilled workers, and foreign direct investments (FDI), are clearly key factors in spurring increased productivity and potential growth in Europe. It is therefore essential to improve or maintain Europe's inward and outward position on further FDI and skilled human capital. The completion of the Internal Market, especially in financial services, and the confirmed commitment to enforce the Internal Market with respect to reducing remaining barriers within the EU to inward investment will be key steps to this.

Reducing Statistical Burden (AT)

Ministers are expected to endorse conclusions to support the Commission's strategy to reduce and simplify administrative burden in producing key Community statistics (e.g. intrastat, business statistics and agricultural statistics) as one first contribution, from the statistical domain, to the European Union’s wider strategy for better regulation.

European Investment Bank (EIB) (AT)

  • Facility for Euro-Mediterranean Investment and Partnership (FEMIP)

Ministers are expected to provide political orientations on the future options for the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) on the basis of a communication of the Commission prepared in cooperation with the EIB.

FEMIP was created in October 2002 within the European Investment Bank, following the Barcelona European Union Council, to stimulate economic growth and private sector development in the Mediterranean region (Morocco, Algeria, Tunisia, Egypt, Gaza-West Bank, Israel, Lebanon, Syria and Jordan). Activities in the Mediterranean have grown substantially since the creation of FEMIP, which until the end of 2005 provided €7.2 billion in loans.

Loans to private companies and SMEs (mostly through local intermediaries) have tripled in the last three years, but their share within FEMIP is still less than 50% and the facility could do more to foster private sector development and especially SMEs. The Commission proposal contemplates the strengthening of FEMIP within its present institutional framework to (i) better match private sector and SME needs by further developing the range of FEMIP instruments, (ii) increase ownership by introducing a permanent advisory committee with Mediterranean partner countries and EU-member states to discuss operational priorities and results, and strengthen FEMIP's presence at local level and (III) improve the linkages of FEMIP with the European Neighbourhood Policy, including better integration of EIB's activities in EU Country strategies and better combining EIB loans and EU budgetary resources (see IP/06/1496).

  • Loans and guarantees for projects outside the Community (EIB external mandate)

The ECOFIN Council is expected to reach an agreement on a new Community budget guarantee to support the financing activities of the European Investment Bank outside the EU for the period 2007-2013. The overall lending ceiling for the period 2000-2007, which expires on 31 January 2007, was €20.7 billion.

The EIB traditionally undertakes operations outside the EU in support of EU external relations policies. The countries concerned by the new mandate are the so-called pre-accession countries (such as Albania, Bosnia and Herzegovina, Croatia and Turkey) as well as the Neighbourhood and Partnership Countries (countries of the south Mediterranean rim, but also Russia, Ukraine and other Eastern neighbours) and, to a lesser degree, Asia, Latin America and South Africa. The EIB activities in the Africa, Caribbean and Pacific (ACP) countries are carried out under the so-called Cotonou Agreement with European Development Fund resources.

The EIB lending operations outside the EU represent around 10% of its total activities.

Financial Services (OD)

  • Payment Services in the Internal Market

The Council is expected to discuss a progress report on the Directive on Payment Services in the Internal Market which is currently being negotiated in the Council and the European Parliament.

  • Code of Conduct on Clearing and Settlement

Commissioner McCreevy will present the recently signed industry Code of Conduct to the Council. In this Code, the clearing and settlement industry committed itself to the objectives and ambitions set out by the Commission earlier this year, namely price transparency, unbundling, accounting separation, access and interoperability modalities.

Taxation (MA)

  • Excise Duties: Minimum Rates on Alcoholic Beverages

The ministers will try to agree on a general approach taking into account the discussions of the 7 November ECOFIN and a new Presidency compromise text. Since the last meeting the Commission has presented some ideas for a possible compromise whereby the revalorisation of the excise duties on alcohol would only date from 2004 in line with the accession of the EU10 (4.5% increase for all products). It has also suggested the possibility of an automatic revalorisation mechanism. The Finnish Presidency in its new compromise proposal differentiates the revalorisation between the duties for beer (by 4.5%) and other alcoholic products (by 31%).

  • Excise Duties: Travellers' Allowance Directive

The ministers will try to reach a political agreement taking into account the discussions of the 7 November ECOFIN and a new compromise which foresees differentiation of the duty free value ceiling according to the means of transport :

  • 300 euro, for travellers other than air travellers and
  • 430 euro for air travellers.
  • VAT Package

Despite its efforts to make progress on this very important file the Finnish Presidency it seems that the Council is not going to reach a political agreement on the whole package. The Presidency will push for Council conclusions suggesting that the Council agrees on the prolongation of the e-commerce Directive ( until the end of 2008 ) and continues to work on the VAT package, as a matter of priority, with a view to reach a solution during the ECOFIN Council of June 2007.

The VAT package is composed of interlocking elements intended to establish clear cut rules for determining the place of taxation for services and minimizing regulatory burdens on business engaged in cross border trade.

  • the "E-Commerce" Directive which ensures that B2C supplies of digital downloads are taxed in the EU when supplied from outside the EU using a rudimentary electronic portal. The current rules expire on 31 December 2006;
  • two elements of the "VAT simplification proposal", namely the one stop shop (which aims to provide a simplified system for registration and declaration of VAT in Member States where a business is not established) and the simplified rules for the refund of value added tax to taxable persons not established in the territory of the country but established in another Member State;
  • the proposals concerning the place of supply of B2B (Business to Business) and B2C (Business to Consumers) services.
  • Proposal for a Council Decision authorising the United Kingdom to introduce a special measure derogating from Article 21(1)(a) of Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes

Following the request by the UK delegation, the Council has included on its agenda decision authorising the UK to apply a reverse charge mechanism on certain supplies. The Commission has already given its authorisation on this request but the Council has not yet reached a unanimous agreement.

  • Combating Tax Fraud

The item is on the agenda as a follow up from the June ECOFIN Council. The Presidency has prepared Council conclusions where they identify the priority items on which the Council wants the Commission to concentrate its efforts in the preparation of an EU fiscal anti-fraud strategy.

The objective of the Commission’s communication (IP/06/697), presented to the Council in June, is to launch a debate with all stakeholders on the different elements for an anti- fraud strategy at EU level. The Commission has set out a whole range of pragmatic and realistic ideas that would contribute to the improvement of the current situation.

  • Code of Conduct on Harmful Tax Competition

The President of the Code of Conduct Group, Ms. Primarolo will report on the work undertaken under the Finnish Presidency.

  • Common Consolidated Corporate Tax Base

Commissioner Kovacs will give an oral progress report to the ministers on the technical work carried out by the Commission’s Working Group on the subject.

  • VAT: Recast of the Sixth VAT Directive (A point)

The Ministers are expected to adopt the Commission's proposal for a recast of the Sixth VAT Directive (see COM (2004) 245). This is the culmination of a long and intensive exercise which delivers better regulation and transparency of EU legislation. In the framework of VAT, this is a major achievement in terms of better lawmaking.

The Sixth VAT Directive dates from 1977. Despite numerous changes, the Directive has never been codified. As its provisions are scattered, they are difficult for tax payers and citizens to use and understand.

The recast brings together various provisions in a single piece of legislation. It will provide a clearer overview of the VAT legislation currently in force. With the improvements to the drafting, the text will also become more user-friendly.

The recast Directive is a good example of the objectives the Commission is seeking to achieve bits policy of pursuing simpler and better legislation.


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