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Brussels, 8 June 2009
Eurogroup ministers will meet at 17.00 hrs on Monday 8 June in Luxembourg. 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.
As is usual at this time of the year, Eurogroup ministers will discuss common budgetary orientations ahead of the preparation of the national budgets for 2010, the so-called Mid-term Budgetary Review. The discussions will take a particular significance this year in view of the necessity to balance the needs for stabilisation of the economy and sustainability of public finances. According to the Commission's spring forecasts, the euro area is expected to record an average deficit of 5.3% this year and, under unchanged policies, -6.5% in 2010 from near balance (-0.6%) in 2007. EU heads of government have stated their strong commitment, including at the last European Council, to sound public finances and to the Stability and Growth Pact framework. They agreed national budgets should return to positions consistent with sustainable public finances as soon as the economy recovers. The G20 London Summit also stated leaders' resolve to ensure long-term fiscal sustainability and price stability and to put in place credible exit strategies from the measures needed to support the financial sector and global demand. The fall in euro area (and EU) GDP is set to level off towards the end of the year, according to the Commission forecasts, to be followed by a gradual economic during the course of 2010.
For the latest key indicators for the euro area go to:
Ministers will also have their regular, twice a year exchange of views with the International Monetary Fund on euro-area policies. In the summer, this is done in the context of the so-called Article IV consultation. Marek Belka, Director of the IMF European Department, will present to the Eurogroup the Fund's views on the economic outlook for, and the economic policies of, the euro area. These views will be discussed by the Eurogroup.
The Eurogroup agenda also includes a discussion on the impact of structural measures taken within the framework of the European Economic Recovery Plan on the competitiveness positions of the euro area Member States. The economic crisis is having the effect of nominally reducing, to a certain extent, current account imbalances in countries with big current account deficits as well as in countries with big current account surpluses. But durable imbalances may re-emerge and even widen once the economic recovery takes hold unless governments develop coordinated policy responses in the context of the recovery measures that address the underlying structural causes of these imbalances.
E COFIN COUNCIL
The Council of Economics and Finance Ministers will start at 10.30 hrs on Tuesday 9 June. The ministers will meet before, at 09:00, for their annual meeting as governors of the European Investment Bank . The ECOFIN meeting will be attended by Commissioner Joaquín Almunia, Internal Market and Services Commissioner Charlie McCreevy, Taxation and Customs Union Commissioner Laszlo Kovacs and Competition Commissioner Neelie Kroes. A press conference is expected to take place after the session.
Economic and Financial development (AT)
Ministers will discuss the latest developments in the European economies and in financial markets in particular. The European economy is in the midst of a recession, with real GDP projected in the Commission spring forecast to contract by 4% this year before stabilising in 2010. Growth proved somewhat weaker than expected in the first quarter. However, some positive signs have recently emerged: the financial markets are improving, the global economy is no longer in free-fall and economic sentiment is also improving. These positive signs support the Commission's view that a recovery, albeit subdued, can be expected for the EU economy in the course of 2010. The situation in the financial markets has been further improving as financial market participants are willing to take more risk, which is reflected, among others, in narrowing corporate and government bond spreads. However, th e counterbalance of the declined risk aversion is a recent rise in government bond yields at the longer end of the yield curve. It is however clear that the recent recovery of financial markets remains fragile. The Commission is closely monitoring these developments.
The chairman of the IASB, Sir David Tweedie, will attend the meeting in order to inform of the IASB's progress regarding potential competitive distortions generated by recent changes in US accounting regulation. The recent adoption of amendments to US accounting standards, which refer to fair value accounting and recognition of impairment losses on financial assets has raised concerns about possible distortions to the level playing field for European entities. The rapid response of the US Financial Accounting Standards Board (FASB) who was able to enact those modifications in a matter of weeks, contrasts with the position of the IASB who has postponed any such action until the total revision of the regulation on financial instruments (IAS 39) is implemented. There is an urgent need to ensure that amendments to the IFRS accounting treatment for impairments on debt securities are implemented to guarantee a level playing field in the trans-Atlantic capital market in time for the preparation of 2009 year-end accounts.
Preparation of the European Council (18-19 June)
- European Supervisory framework ( AT-OD)
The Commission will present to the Ecofin its recent Communication on improving supervision in the financial services sector in the European Union both on the macro- and micro-prudential levels. The Commission proposed to create a European Systemic Risk Council to identify and prevent risks that could put at risk the stability of the financial system. Similarly, it proposed a new European System of Financial Supervisors for individual institutions. The proposals, which will have to be formalised in the autumn after their expected endorsement by EU heads of government, arise from the lessons learnt from the present crisis as also outlined in the report by a group led by Jacques de Larosière.(see , and Communication itself).
Finance ministers will discuss the implementation of the Economic recovery plan set in place since the end of last year at the Commission's initiative. According to the Commission's assessment, Member States have made an unprecedented budgetary effort to support demand totaling 1.8% of the European Union's GDP, or around €200 billion. Add to this the working of the automatic stabilizers – the increases in welfare payments which also help to support demand -, the public sector investments that are particularly important in Europe and EU level actions and the figure rises to more than 5% of EU GDP over 2009-2010, or €650 billion. The discretionary measures undertaken by Member States are broadly in line with the principles laid down in the EERP being for the most part timely, targeted, and temporary and consistent with the EU's long-term structural reform agenda. Actions taken so far by Member States represent a strong and focused response to the crisis, helping to put a floor under the downturn. Gross policy errors made in previous crises also seem to have been avoided so far.
The ECOFIN Council is expected to take stock of the degree of implementation and effectiveness of the EU public interventions in the banking sector. There is a broad agreement on the effectiveness of government interventions in the banking sector (mainly recapitalisation and guarantees) with central banks actions, which have been instrumental in preserving financial stability, and are contributing to the ongoing trend towards a more normal functioning of financial markets, as reflected by market indicators. However, while there are encouraging signs of improvement, the operating environment for banks is likely to remain challenging, in particular in respect of credit losses linked to their loan portfolios. Where appropriate, measures to further reduce uncertainty by dealing with impaired assets and cleaning banks' balance sheets should be urgently considered.
The Ecofin Council is expected to adopt conclusions on the international financing of climate change, building on Ministers’ discussions at their January and March meetings. Ecofin should confirm the EU’s readiness to contribute its fair share of international support to a global and comprehensive agreement to tackle climate change. Negotiations to deliver such an agreement are set to be finalised at the UN climate change conference, which will take place in Copenhagen from December 7 to 18. Ecofin is expected to stress that international financing to developing countries should be linked to each country’s efforts to reduce its greenhouse gas emissions and its level of development, while recognising that support would also be needed ahead of the international agreement. This support would help developing countries put in place “low carbon development strategies” that would identify both the scale of the intended effort and the need for external financing to achieve it.
The Presidency will try to reach Council conclusions on the Commission's Communication on good governance in the tax area and identify the next steps.
The Commission adopted on 28 April 2009 a Communication on promoting good governance in tax matters ( ). The Communication identifies how good governance could be improved within the EU and outside the EU, stressing the importance of implementing the good governance tax principles of transparency, exchange of information and fair tax competition as a means of ensuring a level plain field and combating cross border tax fraud and evasion.
The ECOFIN will reach political agreement on a Directive amending the VAT Directive as regards tax evasion linked to import and other cross-border transactions.
Importation of goods is exempt from VAT if followed by a supply or transfer of those goods to a trader in another Member State. Inadequate implementation of this exemption in national law has lead to difficulty in following-up the physical movement of the imported goods. Experience shows the increasing use of this particular exemption in missing trader fraud schemes.
The amending Directive would tighten the conditions under which the importer can benefit from the exemption.
These services are generally exempt from VAT but the exemption dates from 1977 and the legislation has not kept abreast of developments since then. As a result, the exemption is not applied uniformly by the Member States and thus frequently the European Court of Justice has been asked to fill the legislative gap and clarify the correct interpretation.
Moreover, the Commission proposal seeks to address the VAT problems of the financial sector by allowing financial institutions to opt for taxation and by introducing of a sector-specific cost-sharing exemption scheme.
Since 2005, the Savings Directive ensures that paying agents either report interest income received by taxpayers resident in other EU Member States or levy a withholding tax on the interest income received.
In November 2008, the Commission proposed to improve the Directive, so as to better ensure the taxation of interest payments which are channelled through intermediate tax-exempted structures (trusts, foundations…). The Commission also proposed to extend the scope of the Directive to income equivalent to interest obtained through investments in some innovative financial products as well as in certain life insurances products.
Preparation of the next G-20 summit
Over lunch, Ministers will discuss preparations of the next G20 summit that will take place in Pittsburgh, in the United States, on 24-25 September, including topics which the EU would like to discuss at this Summit The latter include the follow up to the London summit on financial regulation and on commitments for reform of the international financial institutions, and discussions on global macroeconomic imbalances. In the context of this discussion, Ministers might take the opportunity to exchange views on the reinforcement and reform on the International Monetary Fund.