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European Commission

MEMO

Brussels, 1 March 2013

Preparation of Economic and Finance Ministers Council, Brussels, 5 March

The EU's Council of Economic and Finance Ministers will take place on Tuesday, 5 March at 10.30. 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 and Algirdas Šemeta, Commissioner for Taxation and Customs Union. A press conference is expected to take place after the meeting.

Revised Capital Requirements rules (CRD IV) (SDR)

On 28 February, an informal trilogue reached a compromise on the elements of a legislative package to strengthen the regulation of the banking sector. The compromise has now to be submitted to the ECOFIN and the European Parliament for final approval. One more political trilogue may be necessary to endorse a final text which should be prepared in light of further work by a technical group. The proposed package would replace the current Capital Requirements Directives (2006/48 and 2006/49) with a Directive and a Regulation that would constitute another major step towards creating a sounder and safer financial system. The Directive governs the access to deposit-taking activities while the Regulation establishes the prudential requirements that banks need to respect (see IP/11/915)

The compromise that was reached in the informal trilogue required an effort from all sides in order to reach agreement. It includes provisions on capital and liquidity, with specific measures for systemically important financial institutions; the disclosure by banks on profits and taxes paid by country; and it regulates bonuses with a cap in relation to fixed salaries (1:1). Shareholders can increase this cap to 2:1. The regulation of bonuses is according to Commissioner Barnier key "to avoid unjustifiable and unjustified remuneration which has encouraged excessive risk-taking".

Commissioner Barnier will call upon ECOFIN to approve the elements of the political agreement that was reached.

More information:

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

VAT Fraud: Quick Reaction Mechanism – Reverse Charge Mechanism (ET)

The Council will have a state of play discussion on anti VAT fraud measures including the Commission's proposal for a Quick Reaction Mechanism (QRM) (see IP/12/868).The QRM is one of the key actions of the Commission's plan to fight against tax fraud and evasion of 6 December 2012 (see IP/12/1325). The proposed QRM would significantly improve the chances of Member States to effectively tackling complex fraud schemes, such as carrousel fraud, and to reducing otherwise irreparable financial losses.

Economic Governance – "Two Pack" (SOC)

On 20 February the European Parliament and the Council reached an agreement during the "trilogue" on two new Regulations to further strengthen surveillance and coordination of economic and budgetary policy in the euro area (the so-called "Two-Pack"). Ministers are expected to endorse this agreement.

The Two-Pack builds on the Six-Pack set of EU laws which entered into force at the end of 2011 and which strengthens EU economic governance. The first Regulation aims to enhance budgetary coordination and ex-ante budgetary surveillance for all euro area Member States. To ensure budgetary deficits are corrected in a timely way, it also reinforces the monitoring of Member States under the Excessive Deficit Procedure. It is also a concrete way to enshrine some of the commitments of the Treaty on Stability, Coordination and Governance into EU law.

The second Regulation sets out explicit and simplified rules for enhanced surveillance for euro area Member States facing severe difficulties with regard to their financial stability, for those receiving financial assistance, as well as for Member States in the process of exiting such assistance.

Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro recently said: "The trilogue agreement on the Two-Pack should pave the way for a completion of the legislative process in the next few weeks so that these two key Regulations can swiftly enter into force. This will mean that the euro area can already benefit from a more integrated and effective policy-setting framework for the 2014 budgetary cycle. The rebuilding and reinforcement of our Economic and Monetary Union is underway."

European Semester – discussion of thematic issues - Report on quality of public finances (SOC)

As underlined in the Annual Growth Survey 2013, Member States should pursue differentiated and growth-friendly fiscal consolidation. Hence, cuts in more growth-friendly spending (such as education or research and development) should be avoided or minimised, savings should come from efficiency gains as much as possible and essential social safety nets should be safeguarded. This is the overarching objective behind the conclusions on the Commission's staff report on the quality of public expenditure which is to be endorsed by the ECOFIN Council.

The report underlines the role of peer reviews and exchange of best practice among Member States. These should, in particular, cover measures to increase the efficiency of healthcare and budgetary processes and practices, bringing more 'value for money' in the public sector (for instance through spending reviews and performance-based budgeting). These peer reviews will not imply more red tape for Member States, as they would just build on existing EU processes to encompass efficiency alongside fiscal discipline.

Economic and Monetary Union European Semester – Response to President of European Council (SOC)

While a lot has already been done to improve and strengthen economic governance in the EU, weaknesses still exist. This is why it is necessary to re-design the architecture of the Economic and Monetary Union (EMU).

The potentially significant spill-over effects within the euro area that are associated with structural reforms at national level justify the introduction of further, ex ante, coordination in this area. In its Blueprint (IP/12/1272, MEMO/12/909), the Commission proposed contractual arrangements through targeted financial support. These arrangements are the missing link between the European Semester and the national semester. They will enhance national ownership of recommendations issued at EU level and contribute to the timely adoption and implementation of these key reforms.

As the Commission announced in its declaration on the Two-Pack, it will put forward proposals on ex ante coordination and the Convergence and Competitiveness Instrument before the end of this year.

Follow-up to G20 Meeting of Finance Ministers and Governors (Moscow, Russia) (SOC)

The Ecofin Council will be briefed on the main outcome of the G20 Finance Ministerial and Central Bank Governors' meeting held in Moscow 15 - 16 February. This was the first meeting of Finance Ministers under the Russian G20 Presidency. Discussions in Moscow focused on the global economic situation and the actions needed to strengthen the global recovery. Ministers agreed that credible medium-term fiscal consolidation plans will have to be put in place, taking into account near-term economic conditions and fiscal space. Work will continue on developing credible medium-term fiscal plans in line with the commitments made by G20 Leaders in Los Cabos in June 2012. There was also confirmation of a cooperative approach on exchange rates in Moscow. There was general recognition of Europe's anti-crisis actions which helped reduce tail risks to the global economy. G20 Ministers and Central Bank Governors also discussed issues related mainly to the international financial architecture and financial regulation.

Other items

The Irish Presidency will update the Finance Ministers on progress made in respect of some current legislative including:

Single Supervisory Mechanism

On 12-13 December 2012 the Council agreed a position on two proposals for a single supervisory mechanism (SSM) for banks. Trilogues have started in December 2012 and are continuing intensively in view of reaching a final agreement in MarchThe proposed new supervisory system with the ECB at its centre aims to strengthen the Economic and Monetary Union. The SSM is a key element of a fully-fledged banking union as it was laid out in the Commission's Communication of 12 September 2012 and in the "Blueprint for a deep and genuine economic and monetary union" of 28 November 2012 (see IP/12/953 and IP/12/1272). In this context, Commissioner Barnier will welcome the Irish Presidency's plan to reach agreement on this file as soon as possible in March and encourage all sides to work together constructively to make this possible.

More information:

http://ec.europa.eu/internal_market/finances/committees/index_en.htm

Revised rules for markets in financial instruments

In October 2011, the Commission adopted proposals for a review of the Markets in Financial Instruments Directive (MiFID) aimed at establishing safer, sounder, more transparent and more responsible financial markets that work for the economy and society as a whole. It will notably complement the on-going reform of EU derivatives markets by mandating the trading of standardised derivatives onto organised trading venues and by enhancing the transparency and oversight of derivatives markets including commodity markets in line with our G20 commitments. Commissioner Barnier will welcome the progress reached under the Cypriot Presidency on this review and support the Irish Presidency's work to reach a general approach in the Council with the aim to start informal trilogue as soon as possible.

More information:

http://ec.europa.eu/internal_market/securities/isd/mifid_en.htm

Bank recovery and Resolution

The Presidency will debrief on the latest progress on the Bank Recovery and Resolution Directive.

Commissioner Barnier will reiterate that the Commission fully supports the efforts of the Presidency in reaching an agreement on this important proposal in line with timetable adopted by December European Council.

More information:

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


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