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Preparation of Eurogroup and Informal Economic and Finance Ministers Council, Berlin 20 and 21 April

European Commission - MEMO/07/140   19/04/2007

Other available languages: none

MEMO/07/140

Brussels, 19 April 2007

Preparation of Eurogroup and Informal Economic and Finance Ministers Council, Berlin 20 and 21 April

EUROGROUP (AT)

Eurogroup ministers will meet at 10:00 hrs on Friday 20 April. Joaquín Almunia, Commissioner responsible for Economic and Monetary Affairs will attend as will European Central Bank Governor Jean-Claude Trichet. A press conference is scheduled to take place after the meeting.

Eurogroup ministers will discuss the economic situation and outlook since they last met and will also be informed about the Spring Meetings of the International Monetary Fund (IMF) and the World Bank as well as the meeting of the G7 Finance Ministers and Central Bank Governors last week-end, in Washington. The statements issued after those meetings can be found at: http://www.ustreas.gov/press/releases/hp350.htm.

The Commission in February forecast economic growth would stay above euro area potential this year at 2.4% against 2.7% in 2006. Inflation was seen at 1.8% this year versus 2.2% in 2006. Business and consumer survey indicators remain at very high levels. Inflation in March was 1.9% in the euro area, according to the Eurostat release of 16 April. For details on February Interim Forecasts see: http://ec.europa.eu/economy_finance/about/activities/activities_keyindicatorsforecasts_en.htm.
The next Commission economic forecasts, the fully-fledged spring forecasts, will be published on 7 May.

The main subject on the Eurogroup agenda will be a discussion on budgetary policies ahead of the preparation of the national budgets for 2008. It will be the first time the exercise takes place before any euro area countries have drafted their national budgets. The exercise is key towards strengthening the coordination of fiscal policies in the euro area and towards ensuring the appropriate policy mix for the zone as well speedy progress towards sustainable public finances.

Commissioner Almunia is expected to reinforce his call to take advantage of the current robust economic growth to put public finances on a sounder footing, i.e. to progress rapidly towards the medium-term budgetary objective (MTO) set in the Stability Programmes (usually a balanced budget) and to avoid pro-cyclical policies in those countries where the MTO has already been reached. This is key to avoid breaching the 3% deficit ceiling set in the Treaty, to find the necessary margin for growth-enhancing expenditure but also to address the challenge of ageing before the budgetary effects of the retirement of the baby-boon generation set in. The 'corrective arm' of the revised Stability and Growth Pact is proving its worth with the nominal deficit for the euro area estimated to have decreased significantly in 2006 from 2.5% the year before.

But Commissioner Almunia has warned Member States on several occasions not to make the same mistake as at the turn of the millennium when they failed to take advantage of the economic growth then to consolidate their public finances, resulting in the opening of several excessive deficit procedures when growth slowed down. "While the situation regarding excessive deficits has progressed overall quite successfully, the focus must now shift to the preventive arm of the Pact. Here there is still clear room for improvement," he said in a speech, in Berlin, at the end of March, adding that "evidence suggests that once again, many Member States are not fully taking advantage of the favourable macroeconomic situation to consolidate their public finances".

Eurostat will publish on Monday the provisional debt and deficit figures for all member states in 2006 as well as the euro area and EU averages.

The agreement on the 2005 SGP reform states that the Eurogroup should have, at least once a year, a horizontal assessment of national budgetary developments and their implications for the euro area. This is known as the Mid-Term Budgetary Review exercise.

ECOFIN COUNCIL

The Informal Council of Economics and Finance Ministers will start around 13:00 hrs with a working lunch on Friday 20 April (end scheduled around 15.00 hrs.). The European Commission will be represented by Economic and Monetary Affairs Commissioner Joaquín Almunia, , Internal Market Commissioner Charlie McCreevy and Taxation and Customs Union Commissioner Lazlo Kovacs. A press conference is expected to take place at the end of the meeting.

Building 'social bridges', investing in human capital (AT)

Over lunch, ministers will examine the extent to which fiscal and economic policy can build "social bridges" to better employment prospects and social inclusion, particularly by contributing to an improved formation of human capital.

The concept of Social Bridges was first developed by a paper published in April 2006 by the British and Swedish finance ministries. The document can be found at
www.hm-treasury.gov.uk/media/69A/92/social_bridges.pdf

Making better use of human resources is a top priority in the revised Lisbon Strategy for Growth and Jobs and even more with population ageing and with changes in the international division of labour. There is a need to create suitable framework conditions so that all citizens have the incentive and capacity to seize the opportunities offered by globalisation and structural changes. To this end, there is a need to improve employability, mobility and social inclusion, thereby ensuring more equal opportunities in our societies. Education is the widest and most enduring tool to reach these objectives. A flexible and educated (i.e. adaptable) workforce can better adapt to rapid changes. Learning does not end with the traditional cycle primary-secondary-tertiary education. Continuous training of workers over the life cycle is becoming increasingly important in order to keep professional skills up to date in the changing work environment. According to Eurostat data, in 2005, just over three quarters of the EU-25's population aged 20 to 24 had completed at least an upper secondary level of education. However, 16% of those aged 18 to 24 were early school leavers, with at most a lower secondary education. In 2003 participation in learning activities of persons aged 25 to 64 averaged 42 %.

The proportion of the population who had participated in lifelong learning activities varies between age groups (from a high of 50% for those aged 25 to 34 to 30% for those aged 55 to 64) and also reflected the impact of educational attainment (23 % of those with a low level of educational attainment had participated in any learning activities compared with 69 % of those who were highly educated). [1]

Financing the future: improving the quality of public finances (AT)

Immediately after lunch, EU Ministers will discuss how greater effectiveness and efficiency of public spending can help achieve sustainable finances that also contribute to growth and jobs. Government expenditure represents a large share of GDP (47.5% on average in the euro area in 2005, according to Eurostat release 139/2000 of 23 October 2006) and therefore has a major impact on the productivity of the whole economy.

Good value for money is essential because of the increased pressure on public expenditures stemming from globalisation and population ageing. Improved efficiency and effectiveness of public spending can help sustain the fiscal discipline required by the Stability and Growth Pact, while allowing more room for manoeuvre for growth-enhancing expenditures encouraged by the Lisbon Agenda. Greater efficiency allows to achieve the same results at lower levels of spending or to realise better outcomes without increasing the expenditure.

An exchange of experiences could help to reach a common understanding and to identify the efficiency drivers.

The informal ECOFIN will also discuss recent developments in tax revenues and exchange views on national experiences in reforming and modernising tax systems.

After a long period of increasing tax pressure, with a peak in the late 1990s, there is now a certain stabilisation in the overall tax burden. Recently, many Member States have carried out major reforms of their tax systems. These reforms have been driven by several interrelated factors, but one of the most relevant is certainly the objective to shift taxes away from labour so as to boost employment. Pursuing further reductions in labour taxes raises difficult political and practical issues, given the pressing need to complete consolidation of public finances.

VAT fraud: reverse charge system (MA)

The German Presidency will seek discussion on the optional general reverse charge system as an effective means to combat VAT fraud. The Ministers are expected to give a clear indication whether they want the Commission to work towards presenting a proposal for an optional reverse charge system or not. The Commission has been open to examine the reverse charge mechanism but it needs a clear orientation from the Member States to further undertake extensive work in this area.

During the November 2006 ECOFIN Council agreed to combat tax fraud and that amongst other measures, the Council committed itself to continue to examine possible legal changes to the VAT system, including an optional general reverse charge system as one of the three possible options to fight Missing Trader intra-community (MTIC) fraud. The two others, increased co-operation between Member States and taxation of intra-Community supplies, will be addressed at the June ECOFIN.

Financial markets (OD-AT)

Ministers will have an exchange of views on the key issues and risks for macro-economic and financial stability in the EU as well as on how to enhance transparency in the hedge fund industry in the light of ongoing discussions at the level of the G7.


[1] Further information can be found in Europe in Figure – Eurostat yearbook 2006-2007


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