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MEMO/07/220

Brussels, 4 June 2007

Preparation of Eurogroup and Economic and Finance Ministers Council, Luxembourg, 4 and 5 June 2007

EUROGROUP (AT)

Eurogroup ministers will meet at 17:00 hrs on Monday 4 June. Joaquín Almunia, Commissioner responsible for Economic and Monetary Affairs will attend as will European Central Bank Governor Jean-Claude Trichet. A press conference is expected to take place after the meeting.

Eurogroup ministers will continue their discussion, started in their April meeting in Berlin (see MEMO/07/140) on budgetary policies ahead of the preparation of the national budgets for 2008. This exercise, known as the Mid-Term Budgetary Review, 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 as speedy progress towards sustainable public finances. The April discussion led to the adoption by Eurogroup ministers of general fiscal policy orientations for 2007 and 2008, including a commitment to take advantage of the favourable cyclical conditions and aim at achieving the medium-term budgetary objectives (MTOs) set in the Stability Programmes (see table below) by 2010 at the latest, while Member states at MTO are expected to maintain their strong structural budgetary position so as to avoid fiscal loosening in good times. For the Eurogroup fiscal policy orientations go to:

www.gouvernement.lu/salle_presse/actualite/2007/04/20pm_krecke_berlin/MTBR_EG_conclusions-finalCLEAN.rtf ).

The June discussion will be conducted against the background of the Commission spring 2007 economic forecast, published on 7 May (see IP/07/615).

Ministers will also discuss the Commission’s recent recommendations to end the excessive deficit procedure for Germany and Greece, since in 2006 their budget deficit fell below the 3% of GDP ceiling on the back of a significantly improved structural budget balance (see IP/07/672). These recommendations, together with a similar recommendation for Malta, will also be discussed in the meeting of the Ecofin Council.
International Monetary Fund (IMF) Director for Europe Michael Deppler will present to the Eurogroup the Fund's views on the economic outlook for, and the economic policies of, the euro area. These views are then discussed within the Eurogroup. Main aspects of discussion include progress on fiscal consolidation, in good economic times, the impact of structural reform, and financial market stability. Twice a year, the Eurogroup exchanges views with the IMF on euro-area policies. In the summer, this is done in the context of the so-called Article IV consultation with the euro area. In the autumn, the IMF conducts an interim mission.

ECOFIN COUNCIL

The Council of Economics and Finance Ministers will start at 10.00 hrs on Tuesday 5 June). The European Commission will be represented by Economic and Monetary Affairs Commissioner Joaquín Almunia and Taxation and customs union Laszlo Kovacz. A press conference is expected to take place after the meeting.

Implementation of the Stability and Growth Pact (AT)

  • Abrogation of the excessive deficit procedure for Germany, Greece and Malta

The Council is expected to close the excessive deficit procedure for Germany, Greece and Malta following the Member States' durable reduction in 2006 of their deficit to below 3% of gross domestic product (GDP), the maximum threshold set by the EU's stability and growth pact. The Commission recommended on 16 May 2007 (see IP/07/672) that the Ecofin Council closes the excessive deficit procedure for the three countries, considering that the deficit has been corrected in a durable way and the debt put on a downward path. Germany had a budget deficit of 1.7% of GDP in 2006 which is expected to decrease further to 0.6% this year and 0.3% in 2008. Its debt was at 67.9% of GDP in 2006, but is expected to decrease to 63.6% in 2008. Greece's deficit was 2.6% of GDP in 2006 and is expected to remain below 3% this year and next. The debt is expected to fall below 100% of GDP in 2008 (97.6%)[1]. In the case of Malta, the deficit was reduced to 2.6% of GDP in 2006 and is expected to decline further to 1.6% in 2008. The public debt was 66.5% of GDP in 2006 and is seen falling to 64.3% in 2008. Looking ahead, in view of their still high level of debt and the projected increase in age-related expenditure, it remains a key objective for Germany, Malta and especially Greece to improve the long-term sustainability of their public finances by achieving rapidly their medium-term objective (MTO) of balanced budgets.

Convergence Reports (AT)

The Council will discuss the Commission recommendation to introduce the euro in Cyprus and Malta on 1 January 2008. The proposal was based on reports published by the Commission and the ECB on 16 May 2007 in which the two institutions assess the progress with convergence towards the requirements of EMU in Cyprus and Malta. Both the Commission (see press releases IP/07/674 and IP/07/673) and the ECB concluded that Cyprus and Malta have achieved a high level of sustainable convergence and therefore fulfil all conditions necessary for adopting the euro. The reports examined whether these two Member States met the convergence criteria on price stability, the government budgetary position, exchange rates and interest rates and whether their legislation is compatible with euro membership.

The final decision on the introduction of the euro in Cyprus and Malta should be taken in July, after consultation of the European Parliament and a discussion by the Heads of State or Government at their meeting in Brussels on 21-22 June 2007.

Quality of Public Finances (AT)

Ageing and globalisation put upward pressures on public budgets. At the same time, citizens expect increased value for money in return for their tax contributions. Increasing the efficiency of public spending and improving the quality of revenue structures are also important elements of the Lisbon strategy for growth and jobs and will lead to sound and sustainable finances, according to the objectives of the Stability and Growth Pact.
As a follow up to the fruitful discussions at the informal ECOFIN meeting in Berlin, the ECOFIN will discuss the way forward on the issue of the quality of public finances. There is need to optimise public sector activities and to achieve better outcomes given limited public funds. Therefore, it is necessary to further develop the analysis and measurement of the efficiency and effectiveness of public finances. Member States will be asked to put more effort in the provision of detailed data in order to allow better analysis of the composition and efficiency of public expenditures.

EU Emissions Trading Scheme (BH-AT)

During lunch, Ministers will have a discussion on the current Commission review of the EU Emissions Trading Scheme for the period beyond 2012, after the end of the first commitment period of the Kyoto Protocol. The EU Emissions Trading scheme limits the overall carbon dioxide emissions of some 11,500 enterprises in power generation and a number of energy-intensive sectors that collectively produce close to half of the EU’s carbon dioxide emissions. In particular, the discussion is expected to focus on the advantages and disadvantages of increasing the share of emissions allowances that are auctioned to firms taking part in the scheme. Currently, Member States may auction or sell at most 10% of the allowances, with the rest being given for free to the companies that fall under the scope of the Emissions Trading Scheme.

Taxation (MA)

  • Combating tax fraud

The Council is expected to adopt conclusions on measures to combat VAT fraud.

The Council then will identify issues that need to be further analysed by the Commission on the three possible solutions mentioned in the Commission's Communication towards a European strategy against tax fraud (IP/06/697) through: better administrative cooperation between Member States, taxation of intra-Community transactions or introduction of a general reverse charge system.

  • VAT package

The German Presidency will seek a political agreement on the VAT package.

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

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 trades, but 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.
  • Common Consolidated Corporate Tax Base

The Council will hold an orientation debate on the issue of the Common Consolidated Corporate Tax Base, based on the second Commission's Communication presented on 2 May 2007 (see IP/07/593). The Commission in this Communication drew the attention of the other EU institutions to the technical work that has been done so far and the work that has to be done before making a formal proposal in 2008.

The discussions are aimed to feed the debate and guide the Commission towards the legislative proposal. No formal conclusions are expected.

  • Code of Conduct on Business Taxation

The Council is expected to adopt conclusions on the work carried out by the Code of Conduct group during the German Presidency and on a "work package" for the future work undertaken by the Group.

  • Transfer Pricing: guidelines for advance pricing agreement

The Council is expected to adopt conclusions on the work achieved by the Joint Transfer Pricing Forum (JTPF) in the field of dispute avoidance and resolution procedures, in particular on the guidelines for Advance Pricing Agreements (APAs) (see IP/07/236).

These guidelines are expected to be adopted without discussions (Point A). They will make it easier for companies to avoid some of the problems caused by different transfer pricing rules in Member States as APAs are an appropriate tool to increase legal certainty and to lessen transfer pricing burdens on taxpayers.

Transfer pricing rules aim at ensuring that in cross-border situations related companies allocate the correct tax base to the countries where they trade.

[ Figures and graphics available in PDF and WORD PROCESSED ]


[1] Eurostat is currently examining a big revision of Greece's GDP. All deficit and debt figures underlying the recommendation are based on the unrevised GDP figures.


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