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Preparation of Eurogroup and Economic and Finance Ministers Council, 17 and 18 January 2011

Commission Européenne - MEMO/11/22   17/01/2011

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MEMO/11/22

Brussels, 17 January 2011

Preparation of Eurogroup and Economic and Finance Ministers Council, 17 and 18 January 2011

EUROGROUP

The Eurogroup meeting will start on Monday 17 January 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. Introduction of the euro in Estonia (AAT)

Ministers will officially welcome Estonia as a full member of the Eurogroup. A review of the progress with the euro cash changeover will be done. This was smooth and successful and ran according to plan. Banks, post offices and retailers coped well with the changeover process and parallel handling of two currencies. This successful and smooth changeover is the result of careful preparations, in close contacts with the Commission and the ECB.

2. Financial stability developments in the euro area (AAT)

Financial stability developments in the EU and the euro area are dominated by tensions in sovereign debt markets.

The 2nd programme review in Greece was positively concluded. Looking ahead, the 3rd review mission will take place on 27 January.

On the structural front, priority should be given to reforms that speed up adjustment and produce an early supply response. These include reforms of the wage bargaining system, the liberalisation of restricted professions, and addressing structural losses in state-owned enterprises. In the financial sector, successful restructuring of the state-owned banks remains crucial.

In Ireland, since the agreement on the EU-IMF programme on 28 Nov. 2010, implementation has begun well: the Parliament approved both the 2011 budget and the Memorandum of Understanding. Meanwhile, the EFSM has successfully raised EUR 5 billion for the programme and disbursement of the first instalment starting in January 2011 is on track. The bonds have a maturity of five years, with an average yield of slightly less than 2.5%. This reflects the strong and diversified investors' interest.

Going forward, an interim mission in mid-January 2011 and the first review mission in February 2011 will allow the Commission, ECB and IMF to formally assess progress in implementing the programme.

3. Policy priorities of the French Presidency of the G20 (AAT)

Ministers will discuss the policy priorities under the French Presidency of the G20. They are expected to agree that 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.

4. Implementation of the SGP: assessment of action taken by Malta (AAT)

Based on the 2010 autumn forecast and information made available thereafter, the Commission concluded on 6 January that Malta has taken effective action to correct its excessive deficit by 2011, in line with the Council's recommendation.

5. Discussion of the selection of a new member of the ECB Executive Board (AAT)

Gertrude Tumpel-Gugerell's term on the ECB Executive Board will end on 31 May 2011. The deadline for applications will expire on 14 January, and the Eurogroup is expected to take stock of the applications received and discuss the selection procedure. The appointment of Executive Board Members is explained in Art 11.2 of the Statute of the ESCB and the ECB.

6a. A common commemorative coin issuance for 10 years of euro cash (AAT)

Since some years it is standard practice that euro-area Member States together issue a commemorative euro coin with a common design to celebrate particularly important events.

On 1 January 2012 it will be 10 years since the introduction of euro banknotes and coins, which is a natural and obvious occasion for all euro-area countries to issue a common coin. Council will be asked to endorse the issuance in 2012, by all euro-area Member States, of a commemorative 2-euro circulation coin with a common design to mark 10 years of euro cash.

6b. Draft work programme for the first half of 2011 (AAT)

The immediate challenge is to put in place a comprehensive response to the current sovereign debt crisis and to agree on the establishment of the European Stability Mechanism, which should enter into force in 2013.

In parallel, the Eurogroup continues to closely monitor developments in the euro area and especially the implementation of the programmes for Greece and Ireland.

Another element of this comprehensive response is the strengthening of the economic governance. The Council and the European Parliament are committed to reach agreement on the six legislative proposals presented by the Commission on 29 November 2010 by next summer.

Finally, the enhanced economic surveillance framework under the European Semester umbrella is being made operational. The Eurogroup should discuss and agree on effective ex-ante economic policy guidance based on the Commission's Annual Growth Survey adopted last week. Throughout the semester, the Eurogroup will also discuss ex-ante country-specific policy guidance and recommendations based on the assessment of the Stability Programmes and of the National Reform Programmes to be submitted in April.

ECOFIN 18 January

The Council of Economic and Finance Ministers will start with a working breakfast at 09h00 on Tuesday 18 January and actual meeting starts at 10h00. 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. Economic situation and outlook

The Commission's autumn 2010 forecast indicated that the EU recovery is taking hold and becoming increasingly self-sustaining. Labour-market and budgetary situations are also starting to improve. The data released since the publication of our forecast seem to confirm this picture. Nevertheless, growth continues to be very uneven in the Union.

The current situation requires a comprehensive policy response. The vicious circle of unsustainable debt, financial turmoil and weak growth has to be broken and this requires bold policies that address the problems in sovereign bond markets. Each Member State must put its own fiscal house in order. Structural reforms should permanently boost our capacity to create jobs, raise productivity and ensure sustainable public debt. Repair of the banking sector must be completed to ensure the real economy gets credits. And finally, the foundations of economic governance must be strengthened to pre-empt crises.

These measures need to be part of a comprehensive and concerted strategy for growth within the European Semester, to be implemented timely.

The Eurogroup will have a first exchange of views on the future European stability mechanism (ESM). It will try to reach a political consensus by March.

2. EU-wide stress tests (CH / AAT)

At breakfast, the Council will discuss the new round of stress tests for 2011. The methodology for the new stress tests is currently under discussion and will be agreed shortly. The breakfast discussion will be an opportunity to take stock of these discussions.

The European Commission has made clear that lessons need to be learnt from previous stress tests exercises of 2009 and 2010, and the new tests should be rigorous and credible.

More information on the 2010 round of stress tests and how they work can be found at:

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/355

Regarding the new round of stress tests, please consult the press release published by the European Banking Authority on 13 January 2011:

http://www.eba.europa.eu/News--Communications/Latest-news/The-European-Banking-Authority-up-and-running-and-.aspx.

3. VAT Implementing Regulation (A point)

The Council is expected to reach a political agreement on the recast of the Regulation setting out implementing measures for the VAT Directive 2006/112/EC. This Regulation includes a number of measures related to the VAT Package which came into force on 1st January 2010, in particular to prevent situations of double taxation that could arise as a result of diverging interpretations of the new rules. For example, there is guidance for suppliers on establishing the location and tax status of their customers, which is essential to determine the place of taxation and the rate of VAT to be applied. In addition, the Regulation also provides guidance on the provisions of the VAT Package which complement or provide exceptions to these new general rules.

4. Presentation of the Presidency work programme (AAT)

Hungary is taking over the rotating presidency at a difficult point in time but presents an adequately ambitious work programme. The immediate challenge will be to put in place a sound and comprehensive response to the current crisis.

In the next half year, the ECOFIN Council will focus on ensuring macro-economic stability and fiscal consolidation and on finalising agreement on the six legislative proposals for enhanced economic governance. It will also launch the European Semester of ex ante economic policy coordination based on the Commission's Annual Growth Survey adopted on 12 January. ECOFIN will work on measures to reduce risk and enhance transparency in the financial markets, and to improve economic governance at global level under the French Presidency of G20/G8. Finally, ECOFIN will contribute to work on taxation and to preparation of the next EU budget.

A key contribution to the comprehensive response is the just adopted Commission Annual Growth Survey that launches the European Semester. Another challenge will be to strengthen the economic governance based on the six Commission's legislative proposals, respecting the tight timeline agreed by the European Council (by the Summer 2011).

5. Communication from the Commission: Towards a Single Market Act – for a highly competitive social market economy (CH)

Boosting job creation and stimulating growth are fundamental goals of the EU 2020 Strategy. They are also the principles underpinning the Single Market Act, a comprehensive package of proposals announced at the end of October and currently being debated throughout Europe. While the Single Market has helped Europe to weather the worst effect of the crisis, it has also laid bare many of its weaknesses. Europe has suffered many setbacks including low growth, high unemployment and declining productivity, which - if left unabated - could pose serious risks to Europe's long-term competitiveness.

At the Council meeting, the Commission will present the state of play of the Single Market Act and the ongoing European debate. Based on the outcome of the debate the Commission will then finalise the priority proposals for adoption by 2012.

6. Annual Growth Survey (AAT)

The adoption by the European Commission of the Annual Growth Survey (AGS) marked last week the beginning of the first cycle of coordination of the Member States' macro-economic, budgetary and structural reform policies, known as the "European semester". This is a real step forward for European economic governance. From now on, every year the Commission will present its "Growth Survey" – an evaluation of the economic situation and of the main challenges the EU must address, and its recommendations to the Member States.

The crisis could have a lasting effect on potential growth. Medium term potential growth for Europe is projected to remain low and estimated at around 1.5% up to 2020 if no structural action is taken namely to resolve the labour productivity gap with our main competitors. Given its cyclical nature, recovery alone cannot provide the impetus for leading Europe back to the pre-crisis economic situation and absorb the deficit accumulated. To avoid stagnation, unsustainable debt trends and accumulated imbalances, and to ensure its competitiveness, Europe needs to accelerate the consolidation of its public finances, the reform of its financial sector and to frontload structural reforms now.

The Commission has chosen to present 10 priority actions in the AGS, as part of an integrated approach to recovery. The recommendations encompass three main areas:

  • The need for rigorous fiscal consolidation for enhancing macroeconomic stability

  • Labour market reforms for higher employment

  • Growth enhancing measures.

A more detailed analysis underpinning the Commission's assessment is set out in 3 reports that accompany the AGS Communication.

According to the European Semester, the various Council formations including the European Council have to discuss the AGS and take the reform agenda forward. Its input is essential for the European Council to give strong political guidance for the Member States when they finalise their NRPs and SCPs.

7. Revue of draft National Reform Programmes (AAT)

The review of the draft NRPs confirmed the endorsement by almost all Member States of the main economic challenges already identified. The draft NRPs seem to have prioritised fiscal consolidation measures. This is understandable and right given the turmoil on the sovereign debt markets. Recent events nevertheless show that consolidation measures are by themselves insufficient to stabilise markets. The Commission strongly encourages Member States to ensure that their national growth agenda fully acts as the necessary complement to the fiscal consolidation strategy. Ambitious and credible reform strategies should be seen as key instruments to prevent crises, rather than ways to exit them.

The Commission looks forward to the submission of ambitious and comprehensive fully-fledged NRPs.

Finally, in view of the tight timetable imposed by the European Semester, Commission is committed to produce consistent analyses for the ECOFIN only if the Member States submit their NRPs and SCPs by the end of April 2011 at the latest.

8. Implementation of the SGP (AAT)

Currently all Member States except Estonia, Luxembourg and Sweden are in the Excessive Deficit Procedure (EDP).

With regard to Malta, the Commission concluded on 6 January, based on the 2010 autumn forecast and information made available thereafter, that Malta has taken effective action to correct its excessive deficit by 2011, in line with the Council's recommendation. The Commission services' forecast shows a deficit of 4.2% of GDP in 2010, and estimate a deficit of 3% of GDP in 2011.

9. Introduction of the euro in Estonia: Practical experience (AAT)

The changeover to the euro in Estonia was smooth and successful and ran according to plan. ATMs (cash dispensers) were dispensing Euros in the first hour after midnight and point-of-sales terminals were converted to euro in time for the opening of shops on 1 January.

Banks, post offices and retailers coped well with the changeover process and parallel handling of two currencies. Not many complaints from the public on businesses taking advantage of the changeover to raise prices. We can therefore be reasonably optimistic that the euro introduction will not lead to widespread misperceptions about price increases.

This successful and smooth changeover is the result of careful preparations, in close contacts with the Commission and the ECB.


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