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MEMO/10/651

Brussels, 6 December 2010

Preparation of Eurogroup and Economic and Finance Ministers Council, 6 and 7 December 2010

EUROGROUP

The Eurogroup meeting will start on Monday 6 December at 17h00 with a discussion focused on economic governance. It will be attended by Commissioner for Economic and Monetary Affairs, Olli Rehn. A press conference is expected to take place after the meeting, on Monday evening.

1. IMF Article IV interim mission to the euro area (AAT)

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 consultation, Mr. Strauss-Kahn, the IMF Managing Director, will present to the Eurogroup the Fund's views on the economic outlook for, and the economic policies of, the euro area.

2. Economic governance: euro area issues (AAT)

Ministers will discuss euro-area specific issues related to the reform of the EU economic governance.

3. Economic situation and financial stability developments in the euro area (AAT)

The European Commission's most recently published forecast (IP/10/1614) foresees a continuation of the economic recovery currently underway in the EU. GDP is projected to grow by around 1¾% in 2010-11 and by around 2% in 2012. A better than expected performance so far this year underpins the significant upward revision to annual growth in 2010 compared to the spring forecast. However, amid a softening global environment and the onset of fiscal consolidation, activity is expected to moderate towards the end of the year and in 2011, but to pick up again in 2012 on the back of strengthening private demand. With the economic recovery taking hold in the EU, labour-market conditions are expected to slowly improve over the forecast horizon, as is the budgetary situation. The unemployment rate is projected to fall to around 9% in 2012, with the public deficit declining to about 4¼% of GDP. Developments across Member States are nevertheless set to remain uneven.

Ministers will take stock of the latest developments regarding the financial stability of the euro area.

4. Policy priorities of the French presidency of the G20 (ATT)

Ministers will discuss the policy priorities under the French Presidency of the G20. They are expected to agree that a top priority should be to implement the commitments achieved in previous G20 meetings. Other key priorities under the French Presidency will be the set up of a mechanism to assess excessive external imbalances in G20 countries, the reform of the international monetary system, financial regulatory reform, development, improving the functioning of commodity markets and global governance issues.

ECOFIN 7 December

The Council of Economic and Finance Ministers will start at 1h000 on Tuesday 7 December. It will be attended by Commissioner for Economic and Monetary Affairs, Olli Rehn, 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.

1. Administrative cooperation in tax matters: Proposal for a Council directive (ET)

The Council is expected to reach a political agreement on the Commission's Proposal for a Directive on administrative cooperation in the field of taxation. Given the strain the public budgets are currently under, the Commission underlines the importance of progress in this area so that Member States can effectively collect their taxes in cross-border situations.

In February 2009, the Commission proposed a Directive on administrative cooperation in the field of taxation to provide clearer and more precise rules for cooperation between Member States (see IP/09/201). This Directive aims at replacing the existing EU legislation on mutual assistance, which dates back to 1977, with new rules to reinforce all types of administrative cooperation, especially the automatic exchange of information between tax authorities. Crucially, the Directive will tackle bank secrecy within the Single Market, as it would no longer be allowed to be used as an excuse for refusing to share information with another Member State trying to assess the tax situation of one of its residents.

2. Indirect Taxation: Prolongation of the Minimum Standard Value Added Tax (VAT) rate (ET)

The Council is expected to agree to the application of a minimum EU VAT rate of 15% for another 5 years. In June 2010 the Commission proposed prolonging the application of this minimum standard rate throughout the EU by 5 years, while awaiting a more permanent decision to be taken on minimum standard VAT rates. This decision will only be taken after the public consultation on the future VAT system ends in May 2011 (see IP/10/1633, MEMO/10/633).

3. VAT treatment of postal services – Progress report A point (ET)

The Council will discuss the Commission's proposal on the VAT treatment of postal services, which aimed at removing the current VAT exemption of postal services and introducing instead the option of a reduced rate for a wide range of postal services up to 2 kg in weight (see IP/03/633). Such proposal would help to set up a fairer VAT system, eliminate distortions of competition between public and private suppliers, and remove barriers to investments in this economic sector.

4. Enhancing economic cooperation: Follow-up to the European Council on 28-29 October (ATT)

The financial and economic crisis, along with the recent euro-area debt crisis has exposed gaps in the current EU economic governance system and showed that its existing instruments need to be used more fully. As a follow-up to the its Communications on economic governance of 12 May and 30 June, the Commission in September put forward a comprehensive and coherent package of reforms to strengthen existing tools and extend them for coordinating economic and fiscal policy in the EU.

The legislative package contains the most comprehensive reinforcement of economic governance in the EU and the euro area since the launch of the Economic and Monetary Union. Broader and enhanced surveillance of fiscal policies, but also macroeconomic policies and structural reforms are sought in the light of the shortcomings of the existing legislation. New enforcement mechanisms are foreseen for non-compliant Member States. The recently agreed "European semester" will integrate all revised and new surveillance processes into a comprehensive and effective economic policy framework.

Ministers will consider a report prepared by the economic and financial committee (EFC) on the Commission's legislative proposals on economic governance.

5. Financial assistance to Ireland: Adoption of legislative acts (AAT)

The Commission has been working day and night to help Ireland to redress its fiscal situation and safeguard financial stability in Europe. Together with the IMF and the ECB and the Irish authorities, we have agreed on a comprehensive programme to maintain the viability of the Irish economy, its banking sector and safeguard the euro area. This is a determined and coordinated action to support Ireland and the Irish people.

The joint EU-IMF programme addresses both the fiscal challenges of the Irish economy and the potential capital needs of the banking sector in a decisive manner. We are doing what is necessary to get the banking sector and the wider economy back on track.

The agreement rests on three pillars: an immediate overhaul of the banking sector, an ambitious fiscal adjustment and growth enhancing reforms in the labour market.

The main elements of the fiscal adjustment and structural reforms are a 6 billion fiscal consolidation for 2011; 15 billion over 2011-2014 and bringing the deficit below 3% of GDP in 2015.

The financial assistance amounts to 85 billion euros (17.5 billion from the Irish Republic, 45 billion from the EU and bilateral loans from the UK, Sweden and Denmark and 22.5 billion from the IMF). 35 billion will be put at the disposal of the banking sector (10 billion for immediate recapitalisation and 25 billion in a contingency fund).

Following the agreement by Ministers on Sunday 28 November they will now formally adopt the legislative acts.

6. Preparation of the European Council on 16-17 December 2010

(a) Impact of pension reforms on the implementation of the Stability and Growth Pact (ATT)

With a view to report to the European Council of 16 and 17 December, Ministers will discuss what should be the appropriate treatment of systemic pension reforms in the Stability and Growth Pact.

7. Joint report of the Commission and the economic Policy committee on the public service in the field of healthcare (ATT)

The Council will discuss the Joint EPC/EC Report on health systems prepared by the Economic Policy Committee (notably through its Ageing Working Group) and the European Commission and adopted conclusions on it.

Health spending absorbs a significant and growing share of public resources and all EU Member States face strong and growing pressures on their health systems due to ageing population, technological development and growing patient expectations. Moreover, the financial and economic crisis has led to a strong deterioration in fiscal positions in most EU countries, calling for swift budgetary consolidation to put public finances on a sustainable path. Therefore, the Council is expected to stress the urgency of strengthening measures aimed at improving value for money in the health system and constraining excessive growth in health care spending to enhance the long-term sustainability of public finances. Greater value for money in the health system (cost-effectiveness) will be crucial to continuing to ensure universal access to quality health services and equity in health.

8. Crisis management: Follow-up to the Commission Communication and bank levies (ATT, CH)

In the wake of the financial crisis, bank failures demonstrated the need for both more robust national crisis management and procedures to cope with cross-border banking failures. Without procedures to organise the orderly winding up of banks, many countries felt obliged to bail out their banking sector. State aid for banks now represents 13% of Europe’s GDP.

As a follow-on to its Communication on 26 May (see IP/10/610), the Commission outlined plans for a new EU framework for crisis management in the financial sector in October. Commissioner Barnier noted the plans would, "establish a clear framework so that authorities across Europe can intervene at the earliest possible moment when banks are in trouble and react in an orderly manner to potential bank failures" (see also IP/10/1353). The plans will form the basis of a legislative proposal intended for spring 2011. The Commission maintains that in the event of future banking crises the costs ought to be borne by shareholders, creditors and the banking sector alike through bank levies. In June, the European Council signalled its agreement that bank levies should be part of a credible resolution framework.

The Commission believes that national coordination on bank levies is required in order to uphold the interests of the Single Market. Fragmented and uncoordinated approaches could lead to double charging for some institutions, and give rise to competitive distortions. In view of the December European Council, where bank levies will be further discussed, the Commission hopes that finance ministers can make important progress on this item at ECOFIN.

9. Code of conduct on business taxation (ET)

The Council is expected to adopt conclusions endorsing the Code of Conduct Group's report. This report presents the work carried out by the group during the Belgian Presidency to tackle harmful tax practices in business. It addresses issues such as anti abuse rules, administrative practices and links with third countries. The Council is expected to encourage the Commission to continue discussions with Switzerland and Liechtenstein on the application of the principles of the Code.


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