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MEMO/11/416

Brussels, 17 June 2011

Preparation of Eurogroup and Economic and Finance Ministers Council, 19 and 20 June 2011

EUROGROUP 19-20 June

The Eurogroup meeting will start on Sunday 19 June at 19h00. The European Commission will be represented by Economic and Monetary Affairs Commissioner Olli Rehn. The meeting will resume on Monday 20 June at 8.30.

1. International Monetary Fund (IMF) consultation with the euro area (AAT)

Twice a year, the Eurogroup exchanges views with the International Monetary Fund on euro-area policies. As part of the latest Article IV consultation, IMF staff will present to the Eurogroup the Fund's views on the economic outlook for, and the economic policies of, the euro area. Theis will then be discussed by the Ministers.

2. Greece – review of the adjustment programme and financial assistance (AAT)

Ministers will discuss recent economic and financial developments in Greece on the basis of the fourth review of the economic adjustment programme of Greece.

3. Ireland and Portugal - state of play (AAT)

The first review of the EU/IMF financial assistance programme for Ireland has been completed. The Irish authorities have demonstrated strong ownership of the programme's implementation and are on track to meet Q2 2011 conditionality. Reflecting this, the second quarter disbursements from the European Financial Stabilisation Mechanism (EFSM) have been made.

Looking ahead, continued steadfast implementation of the programme is essential to further lay the foundations of a return to sustained growth and to reduce remaining uncertainties. The next review mission will take place in early July.

The implementation phase of the Economic Adjustment Programme for Portugal has started.

Portugal has taken the prior actions necessary for the first disbursements by the European Financial Stabilisation Mechanism/European Financial Stability Facility (EFSM/EFSF) and the IMF Stand-By Agreement. The EFSM has disbursed so far €6.5 billion and the IMF € 6.1 billion. The EFSF placed on 15 June €5 bn of 10-year bonds for financing Portugal's programme. These funds will serve to disburse €3.6 billion to Portugal on 22 June. A further issue is scheduled before mid-July.

The success of the programme depends on its swift implementation. Following the elections on 5 June, the Commission looks forward to work closely also with the incoming government.

Technical missions to Portugal by the EC/IMF and ECB are foreseen during the summer months. The first review mission will take place during the first weeks of August.

4. European semester – euro area dimension (AAT)

The Eurogroup will discuss the euro area dimension of the European semester. This discussion will be based on the Commission's assessment and recommendations for the euro area (see IP/11/685 and MEMO/11/382) and the Member States' Stability Programmes and National Reform Programmes which were presented in April. This provides an additional perspective on whether euro area Member States' Programmes add up to an adequate policy stance for the euro area as a whole in addressing its key challenges. Shortcomings in Member States' individual actions that could have negative spillover effects on the euro area as a whole were taken up in recommendations to euro area Member States.

5. Miscellaneous

(a) European Financial Stability Facility (EFSF) – endorsement of the amended framework agreement

On 24-25 March 2011, the European Council welcomed the decisions taken by the euro area Heads of State or Government on 11 March to amend the EFSF Framework Agreement (FA) to ensure a €440 billion effective lending capacity.

Eurogroup will be asked to confirm its approval of the amended Agreement which will subsequently be put to the signature of Heads of State or Government, at the same time as the European Stability Mechanism (ESM) Treaty (see MEMO/10/636), in the margins of the European Council on 24 June.

After completion of relevant national procedures in the euro area Member States it is expected that the amended agreement will enter into force by the end of 2011

EUROGROUP in ESM format 20 June

The Eurogroup will meet in European Stability Mechanism (ESM) format (i.e. Finance Ministers of the euro area, plus other interested Member States) at 12.00 on Monday 20 June. The European Commission will be represented by Economic and Monetary Affairs Commissioner Olli Rehn.

The European Council of 4 February called for the euro area Finance Ministers and the Commission to finalise work on the intergovernmental arrangement setting up the European Stability Mechanism (ESM - see MEMO/10/636)) by March 2011. The Eurogroup Working Group has decided to re-launch the Task Force that worked in 2010 on the support to Greece and on the establishment of the EFSF. The European Council also agreed that non-euro area Member States would be involved in the discussion on the establishment of the ESM if they so wished. All non-euro area Member States have asked to participate in the work of the Task Force.

Council of Economic and Finance Ministers 20 June

The EU's Council of Economic and Finance Ministers will start on Monday 20 June at 15.00. The European Commission will be represented 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 Governance (AAT)

The Commission is fully convinced that the proposals it put forward provide a balanced approach between ambition and realism, between keeping what worked and making changes where necessary, between introducing automaticity where possible and keeping discretion where necessary. It is the delivery instrument for sustainable public finances and for stronger competitiveness in Europe. It is an effective framework for country surveillance and enforcement of the rules.

Ministers are due to continue their discussions of the proposals.

Background: On 29 September 2010, the European Commission brought forward a legislative package which represents the most comprehensive reinforcement of economic governance in the EU and the euro area since the launch of the Economic and Monetary Union (see IP/10/1199 and MEMO/10/454, MEMO/10/455 and MEMO/10/456). The Commission proposed broader and enhanced surveillance of fiscal policies, but also of macroeconomic policies and structural reforms, together with new enforcement mechanisms for Member States that deviate from their commitments.

The legislative package - currently on the table of the Council and the European Parliament - is made up of six proposals for legislation. Four proposals deal with fiscal issues, including a wide-ranging reform of the Stability and Growth Pact (SGP), while two proposals for new regulations would aim at detecting and addressing effectively emerging macroeconomic imbalances, competitiveness gaps, within the EU and the euro area. For Member States of the euro area, the changes would imply giving more teeth to the Pact through an effective enforcement mechanism. The proposed rules would limit discretion in the application of sanctions: the SGP would become more "rules based" and sanctions would be the normal consequence to expect for countries in breach of their commitments.

2. EIB external mandate (AAT)

The proposed Decision would ensure the continuation of the EU guarantee for EIB financing outside the EU for the remainder of the current financial perspectives 2007-2013. In addition, it would allow the EIB to increase or to maintain a substantial level of activity in regions where the Bank has frontloaded its activity in response to the crisis or where enhanced the EU financial support has been strongly and clearly requested by the European Council, such as in the Southern Mediterranean.

3. Deposit Guarantee Schemes (CH)

On 12 July 2010, the Commission proposed changes to existing EU rules to further improve protection for bank account holders (see IP/10/918). The changes would expedite money return (within 7 days) in case of a bank failure, increase coverage of deposits to up to €100 000, and provide consumers with better information about how and when they are protected.

At the Council, the Commission hopes that agreement will be reached on a general approach to start negotiations with the European Parliament in the framework of . an inter-institutional trilogue. The Commission hopes to settle on a final text of the agreement as rapidly as possible.

Most improvements could come into effect by 2012.

The importance of these changes was underscored by the recent financial crises, which particularly highlighted the risk of 'bank runs', that is when bank account holders believe their savings are at risk and thus withdraw them en masse. Since 1994, a Directive (94/19/EC) has ensured that all Member States have in place Deposit Guarantee Schemes for bank account holders, which reimburses account holders to a certain level in the event of a bank failure. The current proposal would strengthen these guarantees.

More information:

http://ec.europa.eu/internal_market/bank/guarantee/index_en.htm

4. 1). Regulation on OTC derivatives, central counterparties and trade repositories

On 15 September 2010, the Commission proposed a Regulation on OTC derivatives, central counterparties and trade repositories (see IP/10/1125). This proposal aims at meeting the target set by the G-20 at the 26 September 2009 summit in Pittsburgh, where it was agreed that all standardised OTC derivatives contracts should be cleared though central counterparties by the end of 2012 and that OTC derivatives contracts should be reported to trade repositories and be accessible to supervisory authorities.

At the Council, the Commission hopes that agreement will be reached on a general approach to start negotiations with the European Parliament in the framework of. an inter-institutional trialogue. The Commission hopes to settle on a final text of the agreement as rapidly as possible.

Once adopted, the Regulation would apply from the end of 2012.

More information:

http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm

5. European Banking Authority stress testing (AAT)

The 2011 stress test exercise coordinated by EBA is in an advanced stage of the peer review, which should ensure that the final results are consistent and rigorous, increasing the overall confidence in the outcome of the exercise.

In parallel with the efforts of banks and supervisors, the Heads of State and Governments have committed on 11 March 2011 to ensure that 'concrete plans, compliant with EU State aid rules, are in place to deal with any bank that demonstrates vulnerabilities in the stress tests'. Notwithstanding wide agreement on the primacy of private sector solutions, Member States have equally agreed that a public framework is needed as a net of last resort for vulnerable institutions.

6. Economic governance: proposal for Council Directive on requirements for budgetary frameworks of Member States (AAT)

See 1 above

7.European Semester Council Recommendations (on the Integrated Guidelines for the economic policies of the Member States and of the Union) (AAT)

The financial and economic crisis called for new approaches to economic policy implementation and coordination in the EU. On 7 June the Commission adopted 27 sets of country-specific recommendations – plus one for the euro area as a whole – to help Member States gear up their economic and social policies to deliver on growth, jobs and public finances (see IP/11/685 and MEMO/11/382).

With the introduction of the European semester, the EU has taken a major step forward in integrated economic policy surveillance and ex ante policy coordination. The EU-wide economic policy priorities as identified in the Annual Growth Survey have been well reflected in national policy plans. For the first time, fiscal policies were presented and assessed jointly with the macro-structural policy reforms

Macro-economic stability in the EU remains the most urgent priority. All Member States are urged to strengthen their public finances. For several Member States, the Commission's analysis concluded the urgency of stepping up efforts to safeguard the stability of the financial sector or the housing market. In many cases, the suggested recommendations point to the need to enhance labour market reforms, or to strengthen competition in the services sector.

In the new integrated approach, the Commission has proposed one single set of recommendations for each Member State in the following areas:

  • strict adherence to – or reinforcement of - budgetary targets

  • fiscal rules supported by a legal framework

  • reforms of social security systems to ensure fiscal sustainability

  • functioning and stability of the financial system

  • fiscal consolidation which makes work pay and preserves growth-friendly expenditure items, and adjustment of wage setting mechanisms where necessary

  • reforms in service sectors, notably professional services, retailing and network industries

  • full implementation of Euro Plus Pact commitments

The Council is expected to adopt recommendations.

8. Quality management for European statistics - Draft Council conclusions (AAT)

The Council is expected to support the approach set-out in the Commission's communication "Towards robust quality management for European statistics" presented in April (see IP/11/482). This Communication aims to ensure the reliability of fiscal statistics by moving from a corrective to a more preventive approach in regard to the quality management of European fiscal data. It also aims to strengthen the independence of the European Statistical System and to improve its governance and efficiency, through the revision of the framework Regulation on European Statistics and the European Statistics Code of Practice.

9. Code of Conduct on Business Taxation Report (DB)

The Council is expected to adopt Conclusions on the Code of Conduct Group's report. This report presents the work carried out by the Group during the Hungarian Presidency to tackle harmful tax practices in business.

During the Hungarian Presidency the Code of Conduct Group pursued its work on monitoring existing tax measures that are considered as harmful tax competition ("standstill measures") and examining any new harmful measures that could be introduced ("rollback measures"). It also discussed some other elements of the Work Package agreed by the Council of Economics and Finance Ministers in December 2008, in particular the anti-abuse rules, administrative practices and how to promote the Code's principles towards third countries.


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