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Brussels, 7 June 2010
Preparation of Eurogroup and Economic and Finance Ministers Council, Luxembourg 7 and 8 June 2010
Eurogroup ministers will meet at 15.00 hrs on Monday 7 June in Luxembourg. Olli Rehn, 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. It will be followed at 19h30 by a meeting of the Task Force on economic governance.
IMF Art. IV consultations with the euro area
Twice a year, the Eurogroup exchanges views with the International Monetary Fund on euro-area policies. In the summer, this is done in the context of the formal Article IV consultation with the euro area. In the autumn, the IMF conducts a so-called interim mission.
As part of the latest Article IV consultation, a representative of the office of the 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 are then discussed within the Eurogroup.
European Financial stabilization mechanism
On 10 May, the Ecofin decided to adopt a Council Regulation establishing a European financial stabilization mechanism (ESFM). Euro area Member States committed to add to it under an intergovernmental framework a SPV, guaranteed on a prorata basis by participating Member States.
Mid-term review of budgetary policies, including fiscal exit
On 7 June Eurogroup Ministers have agreed to gear national fiscal strategies to achieve the announced budgetary targets for 2010 and 2011 which have recently been strengthened significantly in a number of countries and to implement, where necessary, additional measures taking into account differences in fiscal and macro-financial positions. Fiscal consolidation should be supportive of the economic recovery and restore confidence by adopting permanent focusing on expenditure adjustment to the extent possible. Fiscal consolidation should be pursued beyond 2011 to correct excessive deficits in line with commitments under a comprehensive medium-term adjustment strategy.
Eurogroup Ministers have committed to underpin fiscal efforts by strengthening national budgetary framework to reinforce credibility of the budgetary targets and to better reflect the obligations of budgetary discipline undertaken under the Stability and Growth Pact while pursuing the structural reforms agenda, notably in the area of pensions, the labour market and the services sector. Ministers are also committed to fully and strictly implement the surveillance framework defined by the Stability and Growth Pact and to contribute actively to the Task Force set up by the President of the European Council, which will consider ways to strengthen the fiscal surveillance framework as well as the surveillance of competitiveness developments in the euro area.
Assessment of additional fiscal consolidation measures taken by Spain and Portugal
The ECOFIN Council agreement of 9 May agreed that immediate and frontloaded fiscal consolidation was necessary to ensure fiscal sustainability and enhanced economic growth and that structural reforms would have to be accelerated. In addition, steps should be taken also to regain market confidence that the necessary action can and will be taken and set out a path in which the debt increase is convincingly stopped and reversed.
In this context, both Spain and Portugal agreed to frontload consolidation, which reflected in more ambitious fiscal targets for 2010 and 2011, and announced new fiscal measures on 12 and 13 May, respectively. Consequently, Portugal now aims at recording budget deficits of 7.3% pp GDP in 2010 and 4.6% of GDP in 2011, whereas Spain targets budget deficits of 9.3% of GDP in 2010, 6.0% of GDP in 2011 and 4.4% in 2012.
Intra-euro area imbalances and competitiveness divergences: peer review of Spain and Finland
The aim of this peer review is to carry forward the surveillance of and drive to resolve macroeconomic imbalances and competitiveness divergences within the euro area. ECFIN short issues notes on Spain and Finland were used as the basis for the peer reviews by Germany and Ireland, respectively, at the EPC in EG composition on 26 April and the EWG alternates on 28 April.
The objective is to encourage an open, frank and focussed discussion to refine and operationalise the horizontal Terms of References and country-specific orientations already agreed in March and to keep up the momentum for such discussions in view of the proposal for broader surveillance of intra-euro-area macroeconomic and competitiveness developments contained in the Communication on reinforcing economic policy coordination. In this context, these ad hoc country peer reviews should be seen as an intermediate, informal step to enhance the surveillance of intra-euro-area imbalances and competitiveness divergences – before the procedure for assessing and correcting excessive macroeconomic imbalances is formally established.
Enlargement of the euro area
The Eurogroup will discuss the possible euro adoption by Estonia on the basis of the assessments provided by the Commission and the ECB in their convergence reports which were both adopted on 12 May. In particular the Eurogroup will discuss the content of the formal recommendation that euro area Member States must address to the Council, a new procedure that has been introduced by the Lisbon Treaty.
Eurogroup work programme for II/2010
The Eurogroup will discuss on the best way to cooperate with the Task Force on economic governance set up by the President of the European Council, in particular with respect to the euro area matters.
The Council of Economic and Finance Ministers will start at 10.30 hrs on Tuesday 8 June. It will be preceded by a working breakfast at 9.30 hrs. The ECOFIN meeting will be attended by Commissioner for Economic and Monetary Affairs Olli Rehn, Internal Market Commissioner Michel Barnier and Commissioner for Taxation and Customs Unions, Audit and Anti-Fraud, Algirdas Semeta. A press conference is expected to take place after the meeting.
Broad Economic Policy Guidelines
ECOFIN will adopt a report on the BEPGs for the June European Council. As part of the Europe 2020 Integrated Guidelines, BEPGs will provide the framework for developing economic policies to implement Europe 2020, the EU's agreed strategy to exit from the crisis and return to vigorous, green growth whilst tackling the future looming challenges.
The report on the BEPGs is based on the Commission's proposal adopted on 27 April and subsequently discussed in the Committees. Following the adoption of report by ECOFIN, the European Council in June is expected to endorse proposals for both the BEPGs and the Employment Guidelines Full, final adoption of the Guidelines only occurs later in the year after the guidelines on labour markets are endorsed by the European Parliament.
The ECOFIN Conclusions cover all main work streams under Europe 2020 followed by the ECOFIN filière including: i) the Broad Economic Policy Guidelines; ii) country-specific macro-structural bottlenecks; iii) targets; and iv) Commission's proposals for enhanced surveillance. The Conclusions were prepared by the EPC and in the EFC on 21 and 27 May, respectively.
Fiscal Exit Strategies
Ministers discussed the Report on fiscal exit strategy. They agreed that a delicate balance must be struck between averting destabilising adverse market dynamics through frontloading of consolidation and securing the conditions most conducive to successful fiscal consolidation giving due consideration to countries' specific conditions. Taking into account the exit strategy agreed in October 2009 and the agreement reached by the Council on 9 May 2010, Member States should continue to adopt a differentiated speed in fiscal consolidation based on country-specific assessment of fiscal and non-fiscal risks. Ministers agreed that in order to safeguard the credibility of the exit strategy, it is of utmost importance that the recommendations under the EDP are fully implemented. In particular, the announced budgetary targets for 2010 and 2011, which have recently been strengthened in a number of countries, should be achieved even if growth proves more subdued than in plans.
The Council is invited to agree to communicate the terms of reference of the EU position in view of the meeting of G20 Finance Ministers in Busan (4-5 June), to the President of the European Council for the G20 Summit in Toronto (26-27 June).
Enlargement of the Euro area
The ECOFIN will discuss the state of convergence of the EU Member States with derogation on the basis of the assessments provided by the Commission and the ECB in their convergence reports which were both adopted on 12 May. In its Convergence report, the Commission concluded that Estonia fulfilled all the necessary conditions for euro adoption and therefore also adopted the necessary legislative proposals to the Council for euro adoption by Estonia. The ECOFIN will report on its deliberations to the European Council, which will discuss the proposal for Estonia's euro adoption at its next meeting.
Administrative cooperation in VAT (E. Traynor)
The Council is expected to reach political agreement on the proposal to recast the Regulation on administrative cooperation in VAT. This proposal was adopted by the Commission in August 2009, as part of its strategy to better combat tax evasion and fraud. It aims to extend and reinforce the legal framework for the exchange of information and cooperation between tax authorities. One of its key elements is the establishment of Eurofisc: a common operational structure allowing taking rapid action to fight against cross border VAT fraud. According to a study carried out for the Commission the VAT Gap was € 106 Billion in 2006 in the EU-25.
Code of Conduct on Business Taxation (E. Traynor)
The Council is expected to adopt Conclusions on the Report of the Code of Conduct Group on their work under the Spanish Presidency. During the Spanish Presidency of the EU, the Code of Conduct Group examined, amongst other things, anti-abuse rules, administrative practices and possibly working with third countries within the framework of the Code. The Group also continued monitoring Member States' efforts to stop and roll-back harmful business tax practices in their territories. The Code of Conduct Group reports on its work at the end of each Presidency.
Coordination of tax policies – anti-abuse (E. Traynor)
The Council is expected to adopt a Resolution on coordination of the controlled foreign corporation (CFC) and thin capitalisation rules within the European Union. The European Commission welcomes the initiative as a good example of how a coordinated approach of EU Member States can bring tangible results on very complex and sensitive tax issues. The draft Resolution will provide a better understanding of the concept of "wholly artificial arrangements" in the direct tax field. It will also provide information to stakeholders as to how EU Member States wish to ensure that their CFC and thin capitalisation rules comply with the Treaty obligations and protect their tax bases from undue erosion due to aggressive tax planning.
Commission Communication: Regulating Financial Services for Sustainable Growth (C. Hughes)
The recent market turbulence has confirmed the need for the Commission to move swiftly in completing the necessary reforms to ensure a safe and sound European financial system.
In its Communication of 2 June, the Commission committed itself to table the remaining financial reform proposals that are needed to fully implement Europe's G20 commitments in the next six to nine months from now (see IP/10/656). Key items would include proposals to improve the functioning of Derivatives markets, measures on short selling and credit default swaps, amendments to the Capital Requirements Directive (CRD IV) and measures to protect investors and depositors.
The Commission will now seek for the Council's political support to carry out its proposed legislative work. The Commission will also encourage the Council to make progress on important matters that are still pending, such as the financial supervision package (IP/09/1347).
The G20 is to meet at the level of Heads of state and Government on 26 and 27 June in Toronto, Canada. The Council of the EU will now discuss the adoption of the terms of reference on a common EU position on financial market reforms. This will feed into the European Council Summit which will convene on 17 and 18 June in Brussels.