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MEMO/07/36

Brussels, 29 January 2007

Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels 29 and 30 January

EUROGROUP

Eurogroup ministers will meet at 17:00 hrs on Monday 29 January. 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 and outlook at the turn of the year after the good results of 2006 and in view of the G7 meeting in Essen, on February 9-10. Euro area inflation has remained subdued at 1.9% year-on-year in December 2006. The annual average rate was 2.2% for last year, in line with the Commission's forecasts. Employment growth accelerated in 2006 to 1.5%, helping reduce unemployment to 7.6% in November 2006, the lowest figure since records begun in 1993. The euro area trade balance also continued to show a surplus in November 2006 (€3.1 billion, seasonally adjusted). Productivity has also increased but one key question is whether this reflects a recent structural improvement in the euro area economy that could lead to higher potential growth or whether this is of a more cyclical nature. On the international front, the US growth in the third quarter was revised upwards to annualised 2.2% as opposed 1.6% initially announced. GDP growth also increased in Japan to 2% (q-o-q annualised), from 1.5% in the second quarter. After reaching a record high of $80 in August, oil prices dropped substantially to reach their lowest level of the year ($55) in October and they remain much lower than expected.

Ministers will have an orientation debate on the conclusions of the euro area fiche, which is part of the Commission's Annual Progress Report on the Lisbon Strategy for Growth and Jobs (see IP/06/1758 of 12 December 2006). The euro area fiche assesses the progress made to implement the reforms necessary to improve the economy It s recommends further budgetary consolidation, more competition in services including to promote financial market integration and increased flexibility as well as security in the labour markets). These recommendations, which aim at improving the capacity of euro area Member States to adjust faster and more smoothly to economic changes, have also been identified in the EU Economy 2006 Review on adjustment dynamics in the euro area.

Other items on the agenda include the Commission's proposal to close the excessive deficit procedure for France and the December Convergence Reports of the Commission and the European Central Bank on progress towards the euro by the new Member States. Both subjects will be on the agenda of the ECOFIN meeting the following day (see below).

ECOFIN COUNCIL

The European Union's Council of Economy and Finance Ministers will start at 9h30 on Tuesday 30 January. The European Commission will be represented by Economic and Monetary Affairs Commissioner Joaquin Almunia and by Andris Piebalgs, Commissioner for Energy.

EU economic situation and outlook (AT)

Over breakfast, Ministers will briefly discuss the economic situation and outlook (for background see above).

Implementation of the Stability and Growth Pact (AT)

  • Application of the ongoing excessive deficitprocedure (France)

The Commission recommended on 29 November 2006 (see IP/06/1646,) that the Ecofin Council close the excessive deficit procedure concerning France, considering that the deficit has been corrected in a durable way and the debt put on a downward path. The procedure was started in 2003 on the basis of a deficit of 3.1% in 2002. In January 2005, the Council concurred with the Commission's view that 2005 was to be considered the relevant deadline for the correction of the excessive deficit. The deficit fell to 2.9% of GDP in 2005 and is projected to decrease further in 2006 and 2007 with a progressive phasing out of the recourse to temporary measures. This indicates that the correction of the deficit is credible and reflects the positive impact of the better expenditure control over the last few years. The debt ratio, which had been increasing since 2002 and had reached nearly 67% of GDP in 2005, started to decline and is estimated at 64.6% of GDP in 2006. Looking ahead, achieving a balanced budget by the end of the decade remains a key objective to be met by France in order to secure the long-term sustainability of public finances.

Preparation of the European Council (8-9 March 2007)

  • Key Issues Paper

Ministers will have an orientation debate on the Key Issues Paper (KIP) prepared by the German Presidency. Taking into account comments made by the Member States and the Commission, a new version will be produced in February and adopted by the ECOFIN Council at its meeting of 26 February. The KIP is a main contribution to the Spring European Council that focuses on the topics where the ECOFIN Council is chef de file, in particular: i) safeguarding the long-term success of EMU; ii) improving the future prospects of public budgets – sustainability and quality of public finance; iii) tax policy in Europe – further development in the field of direct taxation; iv) integrating financial markets to raise efficiency and international competitiveness; v) better regulation.

  • Country Specific Recommendations

Ministers will discuss the Recommendation on the 2007 update of the Integrated Guidelines that has been prepared on the basis of the country conclusions in the Commission's latest Annual Progress Report (see IP/06/1758 of 12.12.2006). The Recommendation identifies the broad strengths of and challenges facing Member States' reform efforts. Above all, it identifies where Member States clearly need to step up action. The assessment behind the Recommendation takes a coordinated Community view of structural reform, both in view of the way forward and in assessing the relative merits of Member States' reform programmes.

Following the discussion by the ECOFIN Council, a new version will be produced in February taking into account comments made by the Member States and the Commission. The ECOFIN Council will adopt the final version of the updated guidelines update at its February 26 meeting.

  • Reducing administrative burden (TvL)

On 24 January the Commission presented an Action Programme which demonstrates in concrete terms the way in which the Commission intends to work with Member States to cut administrative burdens on businesses by a quarter by 2012. The Programme focuses on information obligations in thirteen selected priority areas including company law, employment relations, taxation/VAT, statistics, agriculture and transport. It's aims are to measure the cost of the administrative burden in these key sectors and identify information obligations for which proposals will subsequently be adopted to remove unnecessary burdens. In addition, the Commission has already identified ten concrete reduction measures, for unprecedented fast track action which could be decided upon at the March Spring Council. These measures alone could in one fell swoop, reduce the burdens on businesses by 1.3 billion euro on an annual basis. Commissioner Almunia will present the action plan to Ministers.

Convergence reports (AT)

ECOFIN ministers will also discuss the Convergence Reports published by the Commission and the ECB in December 2006 (see IP/06/1681 of 5.12.2006) assessing progress towards the adoption of the euro in the Czech Republic, Estonia, Cyprus, Latvia, Hungary, Malta, Poland, Slovakia and Sweden. Overall, the report shows that most of the nine countries are making good progress, though at different paces. But they also conclude that none of the countries fulfilled all conditions for adopting the euro, and therefore there should be no change in their status of Member State 'with a derogation' at that stage. The reports examined whether the Member States met the convergence criteria on price stability, the government budgetary position, exchange rates and interest rates and whether their legislation was compatible with euro membership.

Enlargement of the euro area (AT)

At the beginning of the year Slovenia joined the euro area, less than three years after becoming a member of the European Union. Ministers will assess the Slovenian changeover operation and discuss possible lessons for the other countries that will adopt the euro in the future.

Slovenia's introduction of the euro was very smooth and successful (see IP/06/1875, IP/06/1901, IP/06/1903, IP/07/6 and IP/07/38). Slovenia's membership of the euro area is the result of the country's longstanding efforts and preparations to fulfil the convergence criteria over the recent years. The euro constitutes a major opportunity and a powerful instrument in support of Slovenia's future growth and development. The country should use the euro's full potential. However, this successful introduction of the new currency should not lead to complacency. It does indeed not solve all problems by itself and Slovenia should continue to pursue the necessary economic reforms with determination.

Energy and Climate Change (FT)

Over lunch, Ministers will have an exchange of views on economic and financial aspects related to energy and climate change. Against the background of the energy package recently adopted by the Commission, Commissioners Almunia and Piebalgs are expected to stress the following points:

Despite the negative impact of price volatility, the recent fall in oil prices by a third to about €40 ($50) per barrel is good news for the European and the world economy. However, this fall in prices should not mask that the global energy system remains on an unsustainable path and that the climate challenge requires very ambitious and demanding changes in emission pathways around the globe.

Therefore, it continues to be important to design and implement cost-effective policies and measures by strengthening market forces. Eventually, accelerated technical progress will be needed to boost energy efficiency and achieve a sustainable fuel mix in the energy system.

Exploiting the full potential of the European Emission Trading Scheme by broadening its scope and coverage will be as important in this context as will be the completion of the internal markets for electricity and gas and allowing more effective competition on these markets.

At the end of the day, policy makers will not be assessed against their ambitions but against their achievements. Going for cost-effective policy designs will without doubt help us to better arrive at the required matching of ambitions and achievements.


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