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Preparation of Eurogroup and Economic and Finance Ministers Council, 14 and 15 February 2011

European Commission - MEMO/11/82   11/02/2011

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MEMO/11/82

Brussels, 11 February 2011

Preparation of Eurogroup and Economic and Finance Ministers Council, 14 and 15 February 2011

EUROGROUP

The Eurogroup meeting will start on Monday 14 February at 17h00. 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.

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

Commissioner Rehn will present Commission's views on the current economic and financial situation in the euro area, including inflation developments, for which Eurostat's HICP data for January (2.4%) indicate an upward trend. Fiscal and macro-financial challenges remain present and financial market developments highlight the need to press ahead with fiscal consolidation and structural reforms.

Ministers will discuss the state of the play and the way forward regarding the comprehensive response to the sovereign debt crisis, taking stoke of the discussions at the European Council of 4 February. They should focus, in particular, on the strengthening of the European Financial Stability Facility (EFSF). As President Barroso and Commissioner Rehn stated at several occasions, the Commission considers it is appropriate to enhance the effective capacity of the EFSF and to widen the scope of its activities. As decided by Heads of State and Government, this topic will be discussed at the Spring European Council (24/25 March).

How to develop further the coordination of economic policy in the euro area, following-up on the exchanges at previous European Councils, will be another topic for this Eurogroup. In this respect, Commission thinks that it is essential to boost economic reforms that can enhance the competitiveness of European economy and generate more sustainable growth and jobs. This is reflected, most notably, in the Annual Growth Survey (AGS), which identifies 10 priorities fur urgent action. In addition to fiscal consolidation, we need to complete financial repair, as well as implement reforms to boost job creation and enhance growth. Key policy reforms should be reflected in the National Reform Programmes and the Stability and Convergence Programmes to be finalised in April.

Implementation of the Stability and Growth Pact: Excessive Deficit Procedure – assessment of action taken by Cyprus and Finland (AAT)

Currently all Member States except Estonia, Luxembourg and Sweden are in the Excessive Deficit Procedure (EDP). Eurogroup Ministers will discuss the Commission's positive assessment of effective action by Cyprus and Finland in the context of the (EDP).

Economic governance: legislative package, euro-area issues (AAT)

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 (IP/10/1199 and MEMO/10/454, MEMO/10/455 and MEMO/10/456). Broader and enhanced surveillance of fiscal policies, but also macroeconomic policies and structural reforms are proposed 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 pieces of legislation: four proposals deal with fiscal issues, including a wide-ranging reform of the Stability and Growth Pact (SGP), while two new regulations 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, changes imply giving more teeth to the Pact through an effective enforcement mechanism. The proposed rules limit discretion in the application of sanctions: the SGP will become more "rules based" and sanctions will be the normal consequence to expect for countries in breach of their commitments.

Ministers will take stock of the progress achieved so far in the Council Working Group discussions on the legislative package, in particular on those aspects relating to the euro area. The goal remains to reach agreement within the Council in March, before concluding the legislative process with Parliament by this summer, so that the new set of rules would enter into force shortly after.

Selection of a new ECB Executive Board Member (AAT)

Mrs. Gertrude Tumpel-Gugerell's term in the ECB Executive Board will end on 31 May 2011. The Eurogroup is expected to discuss the applications received and decide to propose one candidate. The European Parliament and the ECB will be consulted. And the European Council should appoint the successor of Mrs Tumpel-Gugerell at its meeting of 24-25 March. The appointment of Executive Board Members is explained in Art 11.2 of the Statute of the ESCB and the ECB.

Eurogroup in ESM format

The European Council of 4 Februeary called for the euro area Finance Ministers and the Commission to finalise work on the intergovernmental arrangement setting up the European Stability Mechanism (ESM) by March 2011. The Eurogroup Working Group has decided to re-launch the Task force that worked last year on the support to Greece and on the establishment of the EFSF. The objective of this Task Force is to help in settling technical aspects of the ESM, so that the Eurogroup can present its report to the Spring European Council of 24 and 25 March. The European Council also agreed that non-euro area MS would be involved in the discussion on the establishment of the ESM if they so wish. All non-euro area MS have asked to participate in the work of the Task Force.

ECOFIN Council

The Council of Economic and Finance Ministers will start with a working breakfast at 09h00 on Tuesday 15 February and the formal meeting will start at 10h00. It will be attended by Commissioner for Economic and Monetary Affairs, Olli Rehn and Commissioner for Taxation and Customs Union, Algirdas Šemeta. A press conference is expected to take place after the meeting.

Legislative proposals on economic governance (AAT)

Minister will take stock of the progress achieved so far in the Council Working Group discussions on the legislative package on economic governance, as explained in the previous section of this MEMO.

Savings taxation Directive (ET)

The Presidency will hold an orientation debate on the Commission's proposal to amend the Savings Tax Directive which is aimed at better preventing tax evasion and closing loopholes of the current legislation (IP/08/1697, MEMO/08/704). Since 2005, the Savings Directive has ensured that interest on savings income in other EU Member States is either reported to the relevant tax administration or subject to a transitional withholding tax.

However, it became clear that a number of loopholes were making it less effective than it could be in ensuring that interest on savings could be properly and fairly taxed. Therefore, the Commission proposed to improve the Directive and close the loopholes e.g. ensuring that payments channeled through tax-exempt structures such as trusts and foundations could be properly taxed. The Commission proposal also foresees extending the scope to certain innovative financial products, pensions and life insurance products.

Given the importance of the Savings Directive in ensuring that Member States can effectively collect the tax revenues that they are due, the Commission would like to see this issue move forward quickly in the Council with a view to agreement before the end of the Hungarian Presidency.

Taxation Anti –fraud agreements with third countries (ET)

The Presidency will discuss the draft anti-fraud and tax cooperation agreement with Liechtenstein, as well as the proposal to give the Commission the mandate to negotiate similar agreements with Switzerland, Andorra, Monaco and San Marino. The aim of such agreements is to strengthen administrative cooperation between both sides in order to combat tax fraud and other illegal activity which detrimentally affects national budgets. They also seek to strengthen the exchange of information and transparency in tax matters, in line with the OECD's international standards.

Europe 2020: Guidance on the macro-economic and structural challenges (AAT)

The Annual Growth Survey contains the Commission's input to the Council Conclusions on Europe 2020 and marks the start of the first European Semester (MEMO/11/14).

The main idea behind the European Semester is very straightforward: it is the method to ensure an effective process of ex-ante economic policy coordination, integrating fiscal and macroeconomic as well as growth policy aspects, and the EU dimension.

The Annual Growth Survey (AGS) proposes 10 reform priorities in the year ahead and is intended to inform the policy debate leading to the conclusions of the March European Council. The AGS spells out the Commission's view of what is needed for a comprehensive response to the current crisis.

The Council policy conclusions on EU 2020 should be as concrete as possible, following the Annual Growth Surveys). Policy recommendations should be operational for the time period 2011-2012.

The Commission believes it is essential that the Member States aim at a high level of ambition and ensure coherence between their Stability or Convergence Programmes and their National Reform Programmes. Indeed fiscal consolidation and structural reform must go hand in hand.

In the second half of February, the Commission will have bilateral meetings with Member States on the way forward regarding Europe 2020. The meetings will focus on the practical aspects of the finalisation process and the possible content of the National Reform Programmes in the light of the Annual Growth Survey.

Appointment of a new ECB Executive Board Member (AAT)

Council should formalize the agreement reached the day before by the Eurogroup ministers.

Implementation of the Stability and Growth Pact (AAT)

Based on the Commission services’ autumn 2010 economic forecast, the Commission concluded that most Member States that are subject to the excessive deficit procedure are overall on a good path to reduce their deficit, in line with the Council’s recommendations. The Commission calls on those Member States where the adjustment effort so far has been below the recommended average annual effort, to step up their consolidation efforts and underpin their consolidation strategy through the announcement of decisive, concrete and structural measures.

For Hungary and Poland, additional significant consolidation efforts would be needed to ensure a sustainable correction of the excessive deficit by the time limit set by the Council. Commissioner Rehn recently asked Hungary and Poland to substantiate their commitment to fully respect the recommendations by the Council and to soon detail permanent, concrete and specific measures necessary to underpin this commitment.

The Commission has also made an assessment of the actions taken by Cyprus, Finland, Bulgaria and Denmark in response to the Council recommendation of 13 July 2010, following the expiry of the usual 6-month period. The Commission concluded that, Cyprus, Finland, Bulgaria and Denmark have taken action representing adequate progress towards the correction of the excessive deficit. No further steps in the excessive deficit procedure are needed at present. The Commission will continue to closely monitor budgetary developments in accordance with the Treaty and the provisions of the Stability and Growth Pact.

Preparation of the G20 Finance Ministers and Governors meeting in Paris, on 18-19 February (AAT)

Ministers will discuss the preparation of the G20 Finance Ministers and Central Bank Governors meeting and will focus on three priorities.

  • First, the mechanism to assess external imbalances in G20 countries and to devise appropriate policies needed to address them. Ministers will discuss the methodological approach and the indicators to use.

  • Second, the reform of the International Monetary System (IMS). Ministers are expected to endorse the mandate of the working group on IMS and outline the work areas that should be addressed by the group. This should also include proposals to improve global economic policy cooperation.

  • Third, commodity price volatility, on which Ministers will discuss the need for a shared diagnosis in the G20 based on sound analysis.

Discharge procedure in respect of the implementation of the budget for 2009 (PF)

The ECOFIN Council is expected to adopt a recommendation to the European Parliament to grant discharge to the Commission for the implementation of the EU budget for the financial year 2009. The Council recommendation is an essential part of the budgetary discharge procedure as laid down in article 319 of the Treaty on the functioning of the European Union.

This recommendation, which requires qualified majority in Council, is based on the Court of Auditors' report of 9 November 2010 (see IP/10/1480). Following its adoption, the recommendation will be presented to the European Parliament's budgetary control committee at the end of February 2011. The vote and adoption of the discharge resolution is scheduled in plenary session of the European Parliament in May 2011.

Budget guidelines for 2012 (PF)

The Council is expected to discuss the frame of the 2012 EU budget, with expectations from different delegations that the draft budget should reflect the economic and fiscal situation in Member States. Most probably Commissioner Lewandowski's letter to all EU bodies asking for self-restraint in their estimates for 2012 will feature.

The Commission is expected to present the draft budget for 2012 end of April. This will be a complex exercise, with concrete constraints already, since many projects across Europe are now in full motion, higher cohesion policy bills and direct payments to farmers to pay are expected.

The Council will probably also address the issue of the next financial framework. Several Member States have already called for the next EU budgets to be in line or under the inflation rate. Also linked to this issue is the Commission's intention to present a proposal for a new EU own resource at the same time with the view of reducing Member States' contributions to the EU budget.

Administrative Co-operation Directive (A point) (ET)

The Council is expected to formally adopt the Commission's proposal for a Directive on Administrative Cooperation in the field of taxation, which was politically agreed in December (see MEMO/10/651, IP/09/201). This agreement marks a major breakthrough in the battle against tax evasion. It will significantly improve Member States’ ability to assess and collect the taxes that they are due, by setting the basis for stronger cooperation and greater information exchange between tax authorities in the EU. One of the key aspects of the Directive is that bank secrecy will no longer be allowed to be used as a reason for one Member State refusing cross-border cooperation with another Member State in the assessment of taxes.


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