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Brussels, 29 November 2011

Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 29-30 November 2011

EUROGROUP, 29 November

The Eurogroup meeting will start on Tuesday 29 November at 17.00. The European Commission will be represented by Vice President for Economic and Monetary Affairs and the Euro Olli Rehn. A press conference is expected to take place after the meeting.

1. Selection of new ECB Board Member

The ECB announced on 10 November 2011 that its Executive Board member Lorenzo Bini Smaghi will resign from his position prior to the end of his term of office on 31 May 2013.

The appointment of an ECB Executive Board Member is set out in Art 11.2 of the Statute of the ESCB and the ECB: The Council makes a recommendation (with euro area Member States only voting) to the European Council after consulting the European Parliament and the ECB Governing Council. The European Council then takes the appointment decision (by qualified majority, euro area only voting).

Before consulting the European Parliament and the ECB Governing Council, the Eurogroup solicits and reviews applications.

The selection of a new member of the Executive Board of the ECB is a Council prerogative.

2. Greece – 6th disbursement and new programme (AAT)

Ministers will review the state of play of the current programme and discuss the approval of the 6th disbursement to Greece under the Greek Loan facility (GLF).

The Eurogroup had already reached a political agreement on the conclusions of the fifth review. However, following political developments in Athens after the euro area summit of 26-27 October, the Eurogroup requested a clear and unequivocal endorsement by the main political parties, in writing, of the Summit agreement on a second programme for Greece. Ministers will assess the contents of the letters received from the three main political parties that support the Government of national unity. Based on that discussion, they will decide if all the conditions are in place to proceed with the disbursement of the 6th instalment of the loans, accounting for €8 billion (€5.8 bn from the euro area and €2.2 bn from the IMF).

3. Ireland: 4th disbursement (AAT).

The recently completed mission for the 4th review of the Irish adjustment programme found that programme implementation remains strong in all areas. The Commission's report provides a detailed analysis of progress made to date in fiscal consolidation, banking sector reform as well as institutional and structural reforms. In particular, the report points out that this year's deficit is expected to stand at 10.3% of GDP, remaining thus well below the programme ceiling of 10.6% of GDP; the recapitalisation of domestically-owned banks has been substantively completed; the authorities have taken steps to further strengthen institutional framework and established an independent Fiscal Advisory Council while work is under way on new Fiscal Responsibility Bill which will contain binding multi-annual expenditure ceilings to enhance credibility and work is also under way to open up hitherto sheltered sectors, notably the legal and medical professions, to greater competition.

The programme remains well-financed. The reduced budgetary costs of the recapitalisation (now estimated at around €16.5 billion versus €35 billion earmarked in the programme) and the decision by the European Council to lower the interest rates of the financial assistance imply that Ireland does not need to tap the bond markets until the second half of 2013.

Ministers will discuss the approval of the conclusion of this 4th review, which will allow disbursements of €4.2 billion from EFSF/EFSM, €3.8 billion from the IMF, and €0.5 billion from the UK, expected in January 2012.


The second review mission of the Portuguese programme took place during 7-16 November. Vice President Rehn will present the main findings to Ministers. A determined implementation of the ambitious reform agenda will be decisive for the success of the Programme.

Growth in 2011 is likely to be somewhat better than foreseen in the program, but the recession in 2012 is now projected to be more pronounced, with GDP expected to contract by 3% and risks to the outlook tilted to the downside. The 2012 budget includes bold and welcome measures to bring the fiscal program back on track. It is consistent with meeting the ambitious fiscal target of 4.5% of GDP in 2012. Moreover, key measures, particularly nominal cuts in public wages and pensions and increases in indirect taxes, are also appropriate in view of the need to switch from a consumption-based to a more export-led growth model. But implementation of the 2012 budget will need to be accompanied by flanking measures to address still rising spending arrears and to reduce other fiscal risks, particularly at the level of local and regional governments and the state-owned enterprises.

Given that the programme is also testing the administrative capacity, technical assistance may be needed. The Commission stands ready to extend current technical assistance in the fiscal domain to other areas, particularly in the domain of structural policies and the use of EU structural funds. A Support Group with this specific mandate has already been set up. First consultations with the Portuguese authorities have already taken place.

4. Selected euro area Member States (AAT)


The new Italian government has set itself, as first and urgent mission, to restore confidence in its capacity to ensure the sustainability of its debt, through a clear change of gear on policies. Prime Minister and Finance Minister Mario Monti has emphasised the need to deliver on fiscal consolidation, adopt bold measures to re-launch growth in the medium but also the short term, while ensuring social fairness. On his visit to Rome on 25 November, Vice President Rehn welcomed the economic programme of the new Government and its broad based support in the Parliament. He emphasized that "the priorities set by Prime Minister Monti are the right ones and I fully endorse them: step-up fiscal consolidation, adopt bold measures to re-launch growth, and ensure social fairness." And he added: "Italy needs a comprehensive and wide-ranging package of reforms to kick-start growth again and offer its young people the perspective of more but also better jobs. I underline – and this is particularly relevant in this country - this is not only about fiscal consolidation but also, and I even say first and foremost, about economic reforms that can lift the potential for growth and jobs. The strong mandate for reform and the shared sense of urgency will certainly help in this regard."

Olli Rehn commented that the package adopted on 12 November, in particular the measures for liberalisation of professional services, to speed up the working of civil justice and to promote mobility of public employees, is a positive step in the right direction. And more should follow.

Prime Minister Monti has underlined that his Government will take the necessary decisions to reach a balanced budget position in 2013, as agreed with its European partners. This is a key to ensure financial stability, reinforce confidence among market participants and reverse the negative trend in public debt, which at the end must be serviced with taxpayers' money.

The reform strategy of the new government will build on the commitments set out in the letter of intent to the euro area summit of 26 October, some of which have already been substantiated with the three-year budget law for the period 2012-2014 adopted by the Parliament on 12 November.

The euro area summit invited the Commission to assess and monitor the implementation of this package. Vice President Rehn will give Ministers an assessment of progress achieved so far. This assessment is just the first step in an enhanced surveillance of Italy. In line with the mandate from the euro summit, the European Commission will continue monitoring progress with the implementation of the reform agenda.


Spain has taken determined steps since mid-2010 to reduce its budget deficit, to strengthen its fiscal framework, to restructure its banking sector and to reform product and labour markets. Nevertheless, Spain is still facing major challenges and has come under renewed considerable market pressure recently.

The new government is expected to take office by mid-December and begin work on an ambitious reform agenda to underpin market confidence.

In its recent Autumn Economic Forecast, the Commission projected the general government deficit to be 6.6% of GDP in 2011. The higher-than-targeted deficit in 2011 is due mainly to the realisation of a less favourable macroeconomic scenario than expected by the government, which together with the expected slippages at regional level, largely explain the deviation of 0.6 p.p. of GDP from the 2011 official deficit target of 6% of GDP. The deficit outcome is expected to be uneven across the different levels of government in relation to their targets. Whereas the central government is broadly on track to meet its 2011 target, slippages are expected for regional governments and the social security system.

Based on the no-policy-change assumption, the budget deficit is forecast to reach 5.9% and 5.3% of GDP in 2012 and 2013, respectively. This implies considerable adjustment gaps for both years to reach the deficit targets. However, the forecast for 2012 has to be interpreted with considerable caution. Taking into account the necessary consolidation measures which will eventually have to be included in the 2012 budget would considerably change the picture for 2012.

5. Euro area governance – Commission Proposals and preparation of December Euro summit (AAT)

The Annual Growth Survey was published by the Commission on 23 November. It sets out the EU’s priorities for the next 12 months in terms of budgetary policies and structural reforms. (IP/11/1381) The key message of the 2012 Annual Growth Survey is that, faced with a deteriorating economic and social situation [see IP/11/1331], more efforts are needed to put Europe back on track and sustain growth and jobs. The AGS includes a list of pending or future proposals aimed at boosting growth, which the Commission wants to be fast-tracked through the EU legislative process.

The AGS sets out the following five priorities for 2012:

First, continue with fiscal consolidation. The consolidation has to be differentiated across countries, as we agreed in October. We also have to pay more attention to the impact of consolidation on growth. In this respect, we have to analyse carefully which expenditure we reduce and how we raise revenue.

Second, normal lending to the economy has to be restored. It is necessary to strengthen the banking sector via appropriate regulation and recapitalisation and set up credible financial backstops for banks and sovereigns in order to break the negative feedback loop between the two sectors.

Third, structural policies are the key to revive growth at the current juncture, when macroeconomic policies are heavily constrained. Structural reforms have to be stepped up, in particular in services, network industries, the public sector and the digital economy.

Fourth, unemployment and other social consequences of the crisis have to be tackled. Reforms are necessary to make labour markets more flexible and conducive to job creation.

The final priority is to modernise public administration at all levels. Modern, efficient and effective public administration is necessary to implement the difficult reform measures in the current challenging economic conditions.

Commission also made two legislative proposals based on article 136 of the Treaty to reinforce fiscal and economic surveillance in euro area.

The proposed Regulation strengthening surveillance of budgetary policies in euro area Member States would require these countries to present their draft budgets at the same time each year and give the Commission the right to assess and, if necessary, issue an opinion on them. The Commission could request these drafts to be revised, should it consider them to be seriously non-compliant with the policy obligations laid down in the Stability and Growth Pact. All of this would be done publically to ensure full transparency. The Regulation also proposes closer monitoring and reporting requirements for euro area countries in Excessive Deficit Procedure, to apply on an ongoing basis throughout the budgetary cycle. And euro area Member States would be required to have in place independent fiscal councils and to base their budgets on independent forecasts.

The proposed Regulation strengthening economic and fiscal surveillance of euro area countries facing or threatened with serious financial instability would ensure that the surveillance of these Member States under a financial assistance programme, or facing a serious threat of financial instability, is robust, follows clear procedures and is embedded in EU law. The Commission would be able to decide whether a Member State experiencing severe difficulties with regard to its financial stability should be subject to enhanced surveillance. The Council would be able to issue a recommendation to such Member States to request financial assistance.

Finally, Commission presented a green paper on the feasibility of the introduction of Stability Bonds. This paper opens the political debate in the EU on the rationale, pre-conditions and possible options of financing public debt through Stability Bonds. Such common issuance of bonds by the euro-area Member States would imply a significant deepening of Economic and Monetary Union by creating new means through which governments finance their debt, by offering new safe and liquid investment opportunities for savers and financial institutions and by setting up a euro-area wide integrated bond market.

Stability Bonds would need to be accompanied by closer and stricter fiscal surveillance to ensure budgetary discipline of Member States' governments. Some of the options for the design of Stability Bonds considered in the Green Paper might require a Treaty change. Regardless of any necessary time for implementation, agreement on common issuance could have an immediate impact on market expectations and thereby lower average and marginal funding costs for those Member States currently facing funding pressures.

The three broad approaches examined in the Green Paper are:

  • The full substitution of Stability Bond issuance for national issuance, with joint and several guarantees. It's the most ambitious option of all, as it would replace the entire national issuance by Stability Bonds and as each Member States would be fully liable for the entire issuance. This option would accordingly have strong potential positive effects on stability and integration. But it would also pose a relatively high risk of moral hazard and it might need significant Treaty changes.

  • The partial substitution of Stability Bond issuance for national issuance, with joint and several guarantees. This approach would essentially be the same as the option mentioned above, but Stability Bonds under this option would only cover parts of national financing needs. Member States would continue issuing their own bonds, although at an accordingly lower volume due to the parallel issuance of Stability Bonds. The risk of moral hazard would also exist under this option but in a more reduced form.

  • The partial substitution of Stability Bond issuance for national issuance, with several but not joint guarantees: This approach would seem to be the most limited one of the three options, as it would only partially cover Member States' financing needs and as it would only be covered by several guarantees. This option would therefore probably have only smaller effects on stability and integration, and the risk of moral hazard for the conduct of economic and fiscal policies in Member States would seem very limited.


The EU's Council of Economic and Finance Ministers will start on Wednesday 30 November at 10H. The European Commission will be represented by Olli Rehn, Vice President and Commissioner for Economic and Monetary Affairs and the Euro, Michel Barnier, Commissioner for Internal Market and Services, Commissioner for Taxation and Customs Union Algirdas Semeta., Commissioner for Financial Programming and Budget Janusz Lewandowski. A press conference is expected to take place after the meeting.

1. Annual Growth Survey (AAT)

See above

2. Second economic governance package (AAT)

On 23 November, together with the Annual Growth Survey, the Commission published proposals to strengthen surveillance for the euro area. The proposed regulations build on what has already been agreed in the ‘Six Pack’ set of legislative measures which will enter into force in mid-December.

3. Economic and financial impact of EU legislation (AAT)

Ministers will continue their discussion on a proposal made by the Polish Presidency on "Economic and financial impact of EU legislation - a role for the Presidency in the EU Council". The proposal was made during the informal Council on 16 September 2011 and discussed at ministerial level in the ECOFIN working lunch of the 4 October Council session.

4. Annual Report of the Court of Auditors on the implementation of the budget for the financial year 2010 (ET)

Commissioner Šemeta will present the Annual Report of the Court of Auditors for 2010, which was published on 10 November (see IP/11/1332). The Commission welcomes the findings that once again, errors in EU spending were below 4% and that there is a continuous decline in error rate for many policy areas. The Commission will continue to work with Member States to further reduce errors in spending related to the EU budget, particularly in the area of Cohesion Policy.

5. EU statistics (ET)

Ministers will discuss issues related to statistical governance, increasing the efficiency of the statistical production process and the annual EFC Status Report on Statistics, and are expected to adopt conclusions.

6. Code of Conduct (business taxation) (ET)

The ECOFIN is expected to adopt Conclusions on the Report of the Code of Conduct Group concerning the Group's work under the Polish Presidency. The Code of Conduct Group reports to the ECOFIN on progress achieved by the end of each Presidency.

During the Polish Presidency the Code of Conduct Group pursued its work on monitoring standstill and rollback of harmful tax practices. Under standstill, the Group decided to start the assessment of Gibraltar's new Income Tax Act. The rollback of two regimes of UK Crown Dependencies, Jersey's zero/ten regime and the Isle of Man's new tax legislation, were agreed. In the context of anti-abuse rules, the Group further discussed prevention of double non-taxation of profit participating loans. Concerning links to third countries, discussions with Liechtenstein are ongoing with a view to the principles of the Code being applied there. Ministers are expected to discuss the conditions under which the Commission will start a dialogue with Switzerland on the application of the Code principles. Finally, the Group agreed a new Work Package 2012 which will allow the Group to continue and extend its work, for example, in the area of double non-taxation and mismatches.

7. Amendment to the Capital Requirement Directives (CRD4) – (CH)

There will be a breakfast discussion on CRD IV. In July, as part of its work for a safer and sounder financial system, the Commission put forward proposals to make banks stronger and more responsible (see IP/11/915). With these proposals, the existing Capital Requirements Directive would be amended in such a way that banks will be required to hold more and better capital in order to better resist future shocks. Another important element is that the proposals are to put in place a new governance framework, giving supervisors new powers to monitor banks more closely and can resort to sanctions when risks are spotted. It also proposes a "single rule book" (a set of harmonised prudential rules which banks throughout the EU must respect) to close regulatory loopholes and to ensure uniform application of Basel III in all Member States. A progress report will be adopted. The Commission hopes to have an agreement between the legislators - the Council and the European Parliament – during the first half of next year so that the new legislation can enter into force on 1 January 2013. The full implementation should take place on 1 January 2019.

More information:

8. Bank recapitalisation

As outlined at the 26 October European Council, Heads of State and Government agreed on a comprehensive set of measures to raise confidence in the banking sector. In this context, facilitating access to term-funding is essential. The Commission has argued for the need for a coordinated approach at EU regarding this issue. Secondly, the European Council agreed that the capital position of banks is to be increased to 9% of Core Tier 1 by the end of June 2012. The national financial supervisors, in coordination with the European Banking Authority, are to ensure that banks' recapitalisation plans do not lead to excess deleveraging. Ministers will discuss the further steps to be taken in this area.

More information:

9. Investor Compensation Schemes – (CH)

In June 2010, the Commission tabled proposals to boost investor protection in Europe (see IP/10/195). By proposing to revise the 1997 Investor Compensation Scheme Directive, the Commission wanted to ensure better coverage (from €20 000 to €50 000), wider protection, faster payouts, better information provision and an adequate funding mechanism for compensation funds. The proposal has been deliberated at length in both the Council and the European Parliament. Ministers are due to adopt a general approach on the proposal. The Commission hopes for a final agreement between the legislators as rapidly as possible.

More information:

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