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European Commission

MEMO

Brussels, 9 December 2013

Preparation of Economic and Finance Ministers Council, Brussels, 10 December

The EU's Council of Economic and Finance (ECOFIN) Ministers will take place in Brussels on 10 December at 10.00. The European Commission will be represented by Olli Rehn, Vice President and Commissioner for Economic and Monetary Affairs and the Euro and Michel Barnier, Commissioner for Internal Market and Services, and Algirdas Šemeta, Commissioner for Taxation and Customs Union, Audit and Anti-fraud. A press conference is expected to take place after the meeting.

Banking union ranks high on the agenda of this meeting. There are 3 legislative proposals, which will be discussed by the Economic and Finance Ministers. They are all interconnected.

For more general information on the banking union and the reinforced regulatory framework for all EU banks, see MEMO/13/679

Single Resolution Mechanism: first reading (CH)

In October this year, the Council gave the final green light to the Single Supervisory Mechanism (IP/12/953), the first leg of the Banking Union, which fully entrusts the European Central Bank (ECB) with the direct supervision of banks in the euro area.

Supervision alone though is not enough. A banking union also requires action to restructure non-viable banks when necessary. The supervisory system needs to be complemented by an integrated European resolution system for all countries participating in the Banking union.

That is why the European Commission proposed a Single Resolution Mechanism (SRM) for the Banking Union on 10 July 2013 (IP/13/674), which includes a single resolution board and a single resolution fund so we can tackle future bank crises efficiently with minimal costs to taxpayers and the economy.

The SRM will basically apply the substantive rules of the draft Bank Recovery and Resolution Directive (see IP/12/570 and MEMO/12/416) in a coherent and centralised way ensuring consistent decisions for the resolution of banks.

We hope to reach a general approach next Tuesday.

Commissioner Barnier welcomes the efforts and commitment of the Lithuanian Presidency to achieve rapid agreement on the SRM proposal and supports the latest compromise put forward as a good basis for discussions. He also welcomes Member States' overall support for an effective resolution mechanism for the Banking Union and looks forward to constructive and detailed discussions on Tuesday. There is no time to lose. It is essential to reach political agreement before the end of the year to ensure a final agreement during this legislature.

More information:

http://ec.europa.eu/internal_market/finances/banking-union/index_en.htm

Deposit guarantee schemes (second reading)(CH)

As part of its work creating a safer and sounder financial system and restoring consumer confidence, the European Commission has proposed back in 2010 changes to existing European rules in order to further improve protection for bank account holders (IP/10/918).

While the €100 000 deposit guarantee remains appropriate, the reform will ensure faster pay-outs (within 7 calendar days), strengthened financing, notably through ex-ante funding of deposit guarantee schemes and better information on how and when deposits are protected.

The proposal is fully in line with the EU's commitments in the G20.

During the upcoming ECOFIN Council meeting, the Lithuanian Presidency will inform the Member States about the latest state of play regarding the proposal and will assess the pending issues that need to be further discussed in order to reach an agreement with the European Parliament in trilogue before the end of 2013, in line with the conclusions of the European Council.

The Commission welcomes the efforts and commitment of the Lithuanian Presidency to reach agreement with the European Parliament on the proposal. This timetable is critical to allow finalising the legislative procedure before the end of the current term and to allow the Directive to enter into force across the EU in 2015 and underpin the functioning of the Single Resolution Mechanism for the Banking Union as of the same date.

More information:

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

Bank Recovery and Resolution (CH)

The financial crisis highlighted that public authorities are ill-equipped to deal with ailing banks operating in today's global markets. In order to maintain essential financial services for citizens and businesses, governments have had to inject public money into banks and issue guarantees on an unprecedented scale: Between 2008 and 1 October 2012, the European Commission approved €5085.95 billion (equivalent to 40,3% of EU GDP) of state aid measures (including guarantees) to financial institutions.

This averted massive banking failure and economic disruption, but has burdened taxpayers with deteriorating public finances and failed to settle the question of how to deal with large cross-border banks in trouble.

The proposals adopted on 6th of June 2012 by the European Commission for EU-wide rules for bank recovery and resolution aim to change this (IP/12/570). They ensure that in the future authorities will have the means to intervene decisively both before problems occur and early on in the process if they do. Furthermore, if the financial situation of a bank deteriorates beyond repair, the proposal ensures that a bank's critical functions can be rescued while the costs of restructuring and resolving failing banks fall upon the bank's owners and creditors and not on taxpayers.

The crisis clearly demonstrated that when problems hit one bank, they can spread to the whole financial sector and well beyond the borders of any one country. It also showed that systems were not in place to manage financial institutions facing difficulties. Very few rules exist which determine what actions should be taken by authorities in the case of a banking crisis. That is why the G20 agreed that crisis prevention and crisis management frameworks had to be set up.

At the ECOFIN Council of 27 June 2013, finance ministers of the Member States agreed on a General Approach on the draft directive establishing a framework for the recovery and resolution of failing banks (MEMO/13/601).

Commissioner Barnier expects that Member States will now signal their agreement with the work and compromises developed together with the European Parliament on the majority of the provisions of the text and to identify any outstanding issues which still need to be addressed in order to reach final agreement in trilogue before the end of the year.

The Commission welcomes the efforts and commitment of the Lithuanian Presidency to reach agreement with the European Parliament on the proposal. This timetable is critical to allow the Directive to enter into force across the EU in 2015 and underpin the functioning of the Single Resolution Mechanism for the Banking Union as of the same date.

More information:

http://ec.europa.eu/internal_market/bank/crisis_management/

Taxation of savings income (ET)

Responding to the call of the May European Council, the proposal to amend the Savings Tax Directive will be tabled at the ECOFIN Council for political agreement. The proposal aims to close loopholes and improve the functioning of the current legislation (MEMO/12/353). This proposal is one of the key actions of the Commission's plan to fight against tax fraud and evasion (IP/12/1325), as it will extend the scope of automatic exchange of information within the EU. An EU-wide framework for automatic information exchange will also give banks more legal certainty and clarity about reporting obligations.

Macroeconomic Imbalance Procedure – Alert Mechanism Report (SOC)

Ministers will exchange views on the Alert Mechanism Report (AMR) which the Commission published on 13 November in the context of the Macroeconomic Imbalance Procedure (MIP). The AMR identifies the Member States for which further analysis (in the form of an in-depth review) is deemed necessary in order to decide whether an imbalance in need of policy action exists. The current AMR shows that it is warranted to analyse in further detail the accumulation and unwinding of imbalances, and the related risks, in 16 EU Member States[1]. For 13 countries (Belgium, Bulgaria, Denmark, Spain, France, Italy, Hungary, Malta, the Netherlands, Slovenia, Finland, Sweden, UK) the in-depth reviews will elaborate on the findings of the previous cycle of the MIP, while for three Member States (Germany, Luxembourg, Croatia), it is the first time that the Commission prepares an in-depth review (MEMO/13/970).

Finance ministers are expected to adopt conclusions on the AMR at their meeting in February. Taking these conclusions into account as well as the reactions of the European Council and the European Parliament the Commission will prepare country-specific in-depth reviews. This will also involve a dialogue with the Member States concerned.

Vice-President Olli Rehn said at the presentation of the AMR: "Only when these in-depth reviews are published next spring will we conclude whether imbalances exist at all, and if so, how serious they are. In the meantime, our recommendations, which are in fact Council recommendation from last July, are still valid for all Member States of the EU."

Annual Growth Survey 2014 (SOC)

Ministers will exchange views on the Annual Growth Survey 2014, which the Commission adopted on 13 November. It kicks off the fourth European Semester of economic policy coordination in an environment where growth is beginning to return and Member States are making progress on correcting the imbalances that developed before the crisis.

The Commission maintains its focus on five main priorities over the coming year:

  • Pursuing differentiated, growth-friendly fiscal consolidation

  • Restoring bank lending to the economy

  • Promoting growth and competitiveness for today and tomorrow

  • Tackling unemployment and the social consequences of the crisis

  • Modernising public administration

So the same priorities that have been followed in 2013 are proposed for 2014, although with different areas highlighted for attention to reflect the changing EU and international economic environment (for more information please see IP/13/1064).

Vice-President Olli Rehn said at the presentation of the Annual Growth Survey: "Our Autumn Forecast confirmed that Europe is seeing an economic turnaround. Confidence is increasing and a recovery is getting underway. Our economic strategy has helped to overcome the worst turbulence and stabilised the situation. Now we need to strengthen the recovery. This requires us to stay the course of economic reform for sustainable growth – which means also green growth and greater resource efficiency – and job creation."

Implementation of the Stability and Growth Pact (SOC)

Ministers will discuss steps under the Excessive Deficit Procedure for Poland as recommended by the Commission on 15 November (MEMO/13/995).

As Olli Rehn said: "Concerning Poland, after careful consideration, we have come to the conclusion that effective action has not been taken in response to the Council recommendation of last June. If I were to sum up our opinion, I would say that under the updated statistical regime, called ESA2010, which will be introduced across Europe next autumn, Poland's nominal deficit is estimated to rise significantly above 3%."

Firstly, ministers are expected to adopt a Decision under article 126(8) establishing that Poland has not taken effective action and therefore not complied with the Recommendation addressed to the country in June. Secondly, they are expected to adopt a new Council Recommendation - under Article 126(7) - for Poland with a smoother path for the correction of its excessive deficit by 2015 at the latest.

More information on the Commission's opinion on Poland:

http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/30_edps/126-8_council/2013-11-15_pl_126-8_council_en.pdf

http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/30_edps/other_documents/2013-11-15_pl_communication_swd_en.pdf

Assessment of Economic Partnership Programmes (SOC)

Ministers are expected to adopt Council opinions on the Economic Partnership Programmes that had been submitted by Spain, France, Malta, the Netherlands and Slovenia. The Commission assessed the Economic Partnership Programmes and adopted proposals for Council opinions on 15 November.

Economic Partnership Programmes are a tool for enhanced surveillance of euro area Member States in Excessive Deficit Procedure (EDP). They were introduced by the Two-Pack in May 2013. Countries entering the EDP or receiving a new EDP deadline since then were required to submit an Economic Partnership Programme. This should contain plans for detailed fiscal-structural reforms (for example, on pension systems, taxation or public healthcare) that will correct the countries' deficits in a lasting way (MEMO/13/995).

Annual Report of the Court of Auditors on the implementation of the budget for the financial year 2012 (ET)

The Council will look at the Annual Report of the European Court of Auditors on the implementation of the EU budget in 2012. The European Court of Auditors is the independent external auditor of the European Union. Each year, the Court publishes an Annual Report on the implementation of the EU budget (see IP/13/1028). The Commission welcomes the report which shows a stable situation for the EU budget as a whole. In 2012, the Commission corrected or recovered €4.4 billion, to protect the EU budget when errors or misspending occurred. Such corrective measures are vital given that, according to the Court, Member States are still not doing enough to protect the 80% of EU funds that they manage. Following the Council's adoption, the recommendation will be presented to the European Parliament's budgetary control committee, as part of the budget discharge procedure.

Proposal for a Council Regulation establishing a facility for providing financial assistance for Member States whose currency is not the euro (SOC)

The Balance of Payments (BoP) Mechanism is an EU financial backstop for non-euro area Member States with a ceiling of €50bn, of which around €11bn have been used so far. Funds are raised on the markets and guaranteed by the EU budget. The BoP has provided conditional assistance to Latvia, Hungary and Romania.

The Commission proposed in June 2012 to recast the Balance-of-Payments Regulation.

The Presidency will report on the Commission proposal, which put in place a facility for providing financial assistance for non-euro area Member States with a view to ensuring a more level playing field between euro area and non-euro area Member States. The proposal brings 5 benefits:

1. It clarifies the functioning of the credit lines and the rules applicable to macro-economic adjustment programmes. It also ensures procedural consistency with the recent legislative developments, including the two-pack.

2. It reinforces the accountability framework by enhancing the role of the European Parliament and mandating a systematic consultation by the Commission of the Economic and Financial Committee for all the important steps.

3. It reinforces the protection of the EU budget, by introducing enhanced surveillance for credit lines and a thorough post-programme surveillance, which will ensure that the country concerned remains on the right track as long as 75% of the financial assistance is not repaid. If needed, this duration can even be extended further.

4. It strengthens the financial management of the assistance. The EU will have slightly more flexibility to decide on the best moment to go on the market to finance the assistance, which is useful when markets are troubled. The Regulation will also introduce an early warning system, with an obligation on the recipient Member State to place the repayment amount in an ECB account 14 days before the due date. This provides better warning in case of problems than what currently exists and would facilitate addressing these problems before they affect the EU as an issuer.

5. It simplifies the surveillance of non-euro area Member States, by suspending the monitoring under the Stability and Growth Pact, the Excessive Imbalance Procedure and the European Semester for programme countries. This drastic simplification already exists for euro area countries since the entry into force of the two-pack. Without it, non-euro area countries under financial assistance would keep on facing a high number of overlapping reporting requirements.

More information on the current Balance of Payments Programme

http://ec.europa.eu/economy_finance/eu_borrower/balance_of_payments/index_en.htm

Other issues

Coordination of tax policies, fighting tax evasion and aggressive tax planning (ET)

The ECOFIN Council is due to adopt a number of reports updating the Council on the state of play of key tax files without discussion. The first is a report to the European Council on tax issues – focussing particularly on the progress made in the fight against tax evasion (see MEMO/13/1096).

The second is a report from the Code of Conduct Group, which they produce at the end of every Presidency to update Member States on the developments in their work. During the Lithuanian Presidency, the Code Group has discussed issues such as the patent box regimes in the UK and Cyprus, and the question of how to deal with hybrid entities.

As requested by the Council, the Commission also continued discussions with Switzerland on fair corporate tax competition, with the aim of getting the Swiss to agree to apply the principles of the Code of Conduct. The Commission believes that the dialogue should continue, particularly in the light of the on-going reform of Switzerland's corporate tax system.

[ :

1] The Macroeconomic Imbalance Procedure does not cover Member States that are benefiting from official financial assistance in the context of an economic adjustment programme, since the surveillance of these countries’ imbalances and the monitoring of corrective measures will continue in the context of their programmes. This concerns Greece, Cyprus, Portugal and Romania. Ireland's situation will be assessed at the end of its financial assistance programme, which will happen shortly.


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