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Brussels, 6 September 2010
Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels 6 and 7 September 2010
ECOFIN COUNCIL (AAT/CH)
The Council of Economic and Finance Ministers will start at 9H on Tuesday 7 September. It will be attended by Commissioner for Economic and Monetary Affairs, Olli Rehn and Commissioner for Internal Market and Services, Michel Barnier, and Commissioner for Taxation and Customs Union, Algirdas Semeta. A press conference is expected to take place after the meeting.
IMF reform (AAT)
Ministers will discus the progress made by G20 Deputies on advancing the reform of the IMF aiming at reaching an agreement at the latest by the G20 Leaders Summit to be held in Seoul (Korea) in November.
Ministers are expected to underline that IMF quota and voice reform need to be accompanied by appropriate reforms of the IMF's governance. They will express their commitment to work constructively with other IMF members on a solution that would also lead to an increase in the visibility of emerging economies at the IMF.
Hungary Balance of Payments (AAT)
The Finance ministers will discuss over lunch the state-of-play of the Balance of Payments (BoP) assistance to Hungary. The fifth review mission, carried out jointly with the IMF on 6 to 17 July, was not conclusive. Reasons include that there is still a 0.3% of GDP gap to the deficit target of 3.8% of GDP in 2010 and further structural measures should be taken to close it. Moreover, the corrective measures taken so far (notably the high financial sector levy) were mainly of a temporary nature and more clarity is expected on how the deficit next year will be brought below 3% of GDP.
Follow-up to implementation of the European Financial Stability Facility (EFSF) (AAT)
Since the decision of the Euro Area Member States (EA MS) on 10 May, good progress has been made on EFSF becoming fully operational. 13 out of 16 EA MS are by now shareholders of the EFSF. Slovakia and Slovenia are expected to join in September and Belgium in October, depending on the completion of all national procedures.
The guarantee commitments (commitment confirmations) of the EA MS to the EFSF represent in aggregate more than 90% of the total amount. This implies that the obligation of the EA MS to issue guarantees under the Framework Agreement entered into force on 4 August and became immediately binding. EFSF is now authorised to issue bonds in the market.
As the EFSF is a new Facility, it will still take some time for the Rating Agencies to assign a rating to the EFSF and its bonds.
European Semester (AAT)
Agreement is expected to be reached on a revised Code of Conduct ("Specifications on the implementation of the Stability and Growth Pact and Guidelines on the format and content of Stability and Convergence Programmes") that should make the "European Semester" for economic policies coordination in the EU fully operational already in 2011. This will contribute, together with other ongoing reforms, to stronger fiscal policy coordination and surveillance in the EU and the euro area. The core objective of the "European Semester" is to ensure that EU surveillance provides ex ante guidance for the preparation of policies at national level.
The "European Semester" cycle will start early in the year with a horizontal review where the Eurogroup, the Council and the European Council will identify the common economic challenges and give strategic guidance on policies. Member States will take these broad policy orientations into account when preparing their Stability and Convergence Programmes (SCPs) and National Reform Programmes (NRPs), to be submitted in April. The Council, based on the Commission's assessment, will subsequently provide its assessment and guidance to Member States in June and July, i.e. at a time when important budgetary decisions are still in a preparatory phase in most member states.
Levy on banks (CH)
At its meeting in June, the European Council agreed that Member States should introduce levies on financial institutions that should be part of credible resolution framework. The European Commission plans to adopt a legislative proposal for an EU crisis management framework in spring 2011, which will include a proposal for national resolution funds funded by levies on the banking sector. The basis of those levies would be harmonised. The Commission will set out further details about the proposed crisis management framework and resolution funds in a Communication scheduled for this October.
The Commission believes that it is in the interests of the single market for national approaches to be coordinated. Fragmented and divergent national approaches could lead to double charging for some institutions, and give rise to competitive distortions. The Commission also supports the use of the proceeds of a levy to establish resolution funds, to support the orderly resolution of banks that fail in the future.
Some Member States have already introduced or are in the process of introducing bank levies. However the scope of these measures, the basis for calculating the levy, and the amounts levied differ significantly. The Commission is seeking urgent agreement on a number of basic principles on how levies should be applied.
Supervision package (CH)
On Thursday 2 September the European Parliament, the Council and the European Commission reached a political consensus on the creation of new financial supervisory framework for Europe.
Europe will now have three new European Supervisory Authorities (ESAs) for: (i) banking, (ii) insurance and occupational pensions and (iii) securities. These Authorities will work in tandem with the existing national supervisory authorities to safeguard financial soundness at the level of individual financial firms and protect consumers of financial services ("micro-prudential supervision").
The new European authorities will combine nationally based supervision of firms with strong coordination at the European level so as to foster harmonised rules as well as coherent supervisory practice and enforcement.
In addition, a European Systemic Risk Board (ESRB) will be established which will monitor and assess potential threats to financial stability that arise from macro-economic developments and from developments within the financial system as a whole ("macro-prudential supervision"). To this end, the ESRB would provide an early warning of system-wide risks that may be building up and, where necessary, issue recommendations for action to deal with these risks.
This new financial supervisory framework will greatly contribute to a safer, sounder, more transparent and more responsible financial system, working for the economy and society as a whole.
Financial Sector Taxation: Exchange of views (ET)
The European Commission will present a paper on the taxation of the financial sector. This document will serve as a basis for a discussion between EU Economic and Finance Ministers, in line with the conclusions of the European Council of 17 June 2010. This document, which analyses potential instruments to raise additional revenues from the financial sector focuses mainly on the Financial Transaction Tax and Financial Activities Tax. It also outlines the pros and cons and the various possible impacts of these taxes on public revenue, on financial sector stability and on the competitiveness of the EU economy. The Commission will come up with policy orientations on the topic in its October report.
Eurogroup ministers will meet at 14.30 hrs on Tuesday 7 September in Brussels. Olli Rehn, Commissioner responsible for Economic and Monetary Affairs, will attend, as well as European Central Bank Governor Jean-Claude Trichet. A press conference is expected to take place after the meeting.
Implementation of the Greek adjustment programme: preparing the disbursement of the second instalment
The EUROGROUP will exchange views on the progress of implementation of the Greek economic reform programme and prepare for the disbursement of the second instalment. According to the results of the first quarterly review of the Greek government’s economic program, the program has made a strong start. The end-June quantitative performance criteria have all been met, led by a vigorous implementation of the fiscal program, and important reforms are ahead of schedule.
A joint EC/IMF/ECB mission visited Athens between 26 July and 5 August 2010 to assess Greece's compliance with the terms and conditions for the first review of the economic adjustment programme, as required for the quarterly disbursements of bilateral financial assistance from euro area Member States. The mission also discussed policy challenges ahead, including update and specification of the conditionality requirements for the next reviews.
The second quarterly review mission will take place in autumn [October 2010]. It will assess progress in relation to the Memorandum of Understanding requirements and will prepare decisions by the Eurogroup and the IMF board on the third instalment of financing assistance to Greece (see IP/10/1059).