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Brussels, 19 June 2013
Preparation of Economic and Finance Ministers Council, Luxembourg, 21 June
The EU's Council of Economic and Finance Ministers will take place in Luxembourg on Friday, 21 June at 11.00. 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 first press conference is expected to take place before the working lunch and a second one after the meeting.
European Semester 2013 – Recommendations on economic and fiscal policies (SOC)
Recommendations on economic and fiscal policies
Economic and Finance Ministers are expected to approve the country-specific recommendations (CSRs) which the Commission proposed on 29 May under the European Semester 2013 (together with proposals under the Excessive Deficit Procedure, see also IP/13/463; MEMO/13/458). The recommendations cover a wide range of public finance and structural reform issues, including in areas such as taxation, pensions, public administration, services, and the labour market. Tailored to address the specific challenges of each country, the CSRs are intended to underpin the return to sustainable growth and jobs, and include measures to combat youth unemployment. The programme countries (Greece, Portugal, Ireland and Cyprus) did not receive CSRs as they are already benefitting from intense surveillance in the scope of their macroeconomic adjustment programmes. The recommendations include those given under the Macroeconomic Imbalance Procedure (MIP).
The Commission adopted 24 sets of recommendations, one set for each Member State - excluding the programme countries - and a separate set for the euro area as a whole. EU Heads of State or Government are expected to endorse the recommendations at the European Council on 27-28 June. The recommendations will be formally adopted by the Council of Ministers in July. It will then be up to Member States to implement the recommendations when drafting their national budgets and other relevant policies. The Commission will thoroughly monitor the implementation.
Economic programme of Croatia
Economic and Finance Ministers are expected to adopt the Council conclusions on the economic programme of Croatia. In view of its accession to the EU on 1 July, Croatia submitted its economic programme in April in the context of the 2013 European Semester, in which it voluntarily and informally participates. The economic programme was assessed by the European Commission in a staff working document. Given Croatia's status as an acceding country, the Council will not be issuing country-specific recommendations.
The draft Conclusions highlight that to reap the benefits of EU membership Croatia will need to address urgent and important challenges in terms of reviving growth, strengthening public finances, promoting competitiveness and safeguarding financial stability. Committing to a clear and sustainable consolidation strategy, while undertaking structural reforms, is key to bolstering confidence and supporting a stable economic and financial environment.
Implementation of the Stability and Growth Pact (SOC)
Economic and Finance Ministers will discuss the recommendations which the Commission adopted on 29 May under the Excessive Deficit Procedure (EDP).
At the moment there is an EDP ongoing for 20 EU Member States, i.e. all EU Member States except Bulgaria, Germany, Estonia, Luxembourg, Malta, Finland and Sweden are subject to an EDP. The Commission has recommended that the Council abrogate the EDP for Italy, Latvia, Hungary, Lithuania and Romania and open an EDP for Malta (MEMO/13/463). If the Council follows the Commission's recommendations outlined above, the overall number of countries in EDP will drop to 16.
Moreover, the Commission has adopted recommendations to the Council with a view to extend the deadlines for correcting the excessive deficit by two years in the case of Spain, France, Poland and Slovenia and by one year in the case of the Netherlands and Portugal. This extra time should not be considered as a relaxation of our objectives.
As Olli Rehn, Commission Vice-President responsible for Economic and Monetary Affairs and the Euro said: " All Member States for which we recommend the extension of the correction deadline should use the breathing space thus created to implement the structural reforms to facilitate the on-going adjustment and strengthen the foundation for growth and job creation". In addition, the Commission has recommended that the Council decides that no effective action has been taken by Belgium to put an end to the excessive deficit and that the Council gives notice to Belgium to take measures to correct the excessive deficit.
Olli Rehn said: "Maintaining the course of fiscal consolidation and structural reforms remains necessary in Europe in view of the high levels of public and private debt. The Stability and Growth Pact has proven that it functions as it should, when its rules are followed. It allows the pace of consolidation to be gradually adjusted once there is enough credibility and thus enough confidence in fiscal policy. This has allowed the pace of consolidation to be halved compared to last year, and it will to some extent, slow down further."
Commission/EIB report to the European Council (SOC)
Economic and Finance Ministers will exchange views on a joint report from the European Commission and the European Investment Bank (EIB) on the EIB's capital increase. The EUR 10 billion paid-in increase in the EIB's capital from Member State resources agreed at last June's European Council was a major component of the Compact for Growth and Jobs, enabling additional EIB lending of EUR 60 billion over three years. In 2012, EU Member States unanimously approved the capital increase in the EIB's Board of Governors. The Bank will thus increase its lending by the agreed EUR 60 billion in the period 2013-2015. Based on typical co-financing rates, this additional lending should support total investment in the range of EUR 180 billion. As requested by the European Council, the joint Commission/EIB report to the June European Council provides further details on the implementation of the capital increase, including the value-added generated by the increased lending in the four target areas, innovation and skills; SME access to finance (IP/13/558); resource efficiency; and strategic infrastructure.
The report also looks into the EIB's financing operations in vulnerable and programme countries.
Financial assistance to Ireland and Portugal (SOC)
Ministers will consider the tenth review of Ireland's economic adjustment programme, for which a joint EC/ECB/IMF mission took place end of April/beginning of May (MEMO/13/401). Approval of this review would pave the way for disbursement of €1 billion by the EFSF, with EU Member States expected to disburse a further €0.5 billion through bilateral loans. In addition, Ministers will consider the seventh review of Portugal's economic adjustment programme, for which joint EC/ECB/IMF missions took place in March, April and May (MEMO/13/226). The approval of this would allow the disbursement of €1.3 billion by the EFSF.
Moreover, Ministers are expected to adopt amendments to the Council Implementing Decisions that granted EU financial assistance to, respectively, Ireland and Portugal to enable the lengthening of the maturities on EFSM and EFSF loans to Ireland and Portugal as per the 12 April 2013 statement by the Eurogroup and the ECOFIN Ministers.
The Commission is confident that this measure will help both countries to successfully return to market financing and exit their respective adjustment programme. As Olli Rehn said: "This is a very important step and will help to facilitate a sustained return to full market financing and a successful programme exit for Ireland and Portugal."
ECB/Commission Convergence Reports and enlargement of the euro area (SOC)
Ministers will discuss the Convergence Reports on Latvia published by the European Commission and the European Central Bank, respectively, on 5 June. The Commission concluded in its report that Latvia has achieved a high degree of sustainable economic convergence with the euro area and proposed that the Council decide on Latvia’s adoption of the euro as from 1 January 2014 (IP/13/500, MEMO/13/495). Ministers are expected to take the formal decision in July, after the European Parliament has given its opinion, euro area Finance Ministers have given a recommendation and EU Heads of State or Government have discussed the subject at the European Council meeting on 27-28 June. As regards the latter, Ministers will prepare a letter from the President of the Council to the European Council summarising their deliberations.
Olli Rehn, Commission Vice-President responsible for Economic and Monetary Affairs and the Euro said at the presentation of the Convergence Report: “Latvia’s experience shows that a country can successfully overcome macroeconomic imbalances, however severe, and emerge stronger. Following the deep recession of 2008-9, Latvia took decisive policy action, supported by the EU-IMF-led financial assistance programme, which improved the flexibility and adjustment capacity of the economy within the overall EU framework for sustainable and balanced growth. And this paid off: Latvia is forecast to be the fastest-growing economy in the EU this year." He added: "Latvia's desire to adopt the euro is a sign of confidence in our common currency and further evidence that those who predicted the disintegration of the euro area were wrong.”
Climate and energy
Energy and Climate Framework (SOC)
The Commission is reflecting on a post 2020 Energy and Climate Framework. The 2030 framework is necessary as it will provide predictability and regulatory certainty to investors, stakeholders and Member States. A green paper was adopted in March 2013 and the Commission will follow it up with a proposal by the end of the year. This will also allow the EU to engage actively with other countries in the international negotiations that are expected to agree an international agreement by the end of 2015.
Follow-up of the May European Council (SOC)
By the end of this year, the Commission will also present an analysis of the composition and drivers of energy prices and costs in Member States, with a particular focus on the impact on households, SMEs and energy intensive industries, and looking more widely at the EU's competitiveness vis-à-vis its global economic counterparts.
Report to the European Council on Tax issues (ET)
The Commission expects the Council of Finance Ministers to adopt a report to the European Council, outlining the importance of tax policy at EU level and detailing developments and progress in this area.
Report to the European Council on Tax issues in the framework of the Euro Plus Pact (ET)
The Commission expects Council of Finance Ministers to adopt a report for the European Council on tax issues in the framework of the Euro Plus Pact. The report emphasises the importance of work in the coming months on the fight against fraud and tax evasion, and avoidance of harmful tax practices.
Combatting Tax Fraud and Evasion (ET)
Commissioner Šemeta will present the Commission's proposal to extend the automatic exchange of information between EU tax administrations, as part of the intensified fight against tax fraud and evasion (see IP/13/530). Under the proposal, dividends, capital gains, all other forms of financial income and account balances, would be added to the list of categories which are subject to automatic information exchange within the EU. This paves the way for the EU to have the most comprehensive system of automatic information exchange in the world.
This measure 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).
Rules for 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 October 2008 and October 2011, the European Commission approved €4.5 trillion (equivalent to 37% of EU GDP) of state aid measures to financial institutions. This averted massive banking failure, 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 June 2012 by the European Commission for EU-wide rules for bank recovery and resolution aim to change this (IP/12/570 , MEMO12/416). 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.
Commissioner Barnier welcomes the efforts and commitment of the Irish Presidency to reach agreement on the proposal by the summer, in line with the conclusions of the European Council of December 2012. Moreover, the Commission urges the Council to reach a general approach and to maintain a high level of ambition. In particular, national flexibility around bail-in is appropriate in certain cases but it must also be properly limited. Too much flexibility could result in a patchwork of 27 (soon 28) systems and a fragmentation of the single market.
Rapid agreement among Member States would set the stage for compromise discussions to commence with the European Parliament, and allow the co-legislators to adopt the proposal in the coming months
It is also worth recalling that the Commission will urge the Council to reach agreement on another important proposal on deposit guarantee schemes, which is equally crucial for the new financial framework that is now underway.
Revised rules for Markets in Financial Instruments (MiFID/MiFIR) (CH)
A general approach on this proposal is due to be adopted without substantial discussion following important progress in recent COREPER meetings.
In force since November 2007, the original MiFID governs the provision of investment services in financial instruments (such as brokerage, advice, dealing, portfolio management, underwriting, etc.) by banks and investment firms and the operation of traditional stock exchanges and alternative trading venues (so-called multilateral trading facilities). While MiFID created competition between these services and brought more choice and lower prices for investors, shortcomings were exposed in the wake of the financial crisis. Drawing lessons from the 2008 financial crisis, the G20 agreed at the 2009 Pittsburgh summit on the need to improve the transparency and oversight of less regulated markets – including derivatives markets – and to address the issue of excessive price volatility in commodity derivatives markets.
In Parliament, the ECON committee adopted the draft report of Rapporteur Markus FERBER (EPP/DE) by unanimity on September 26th 2012. The Council is now expected to reach agreement ona General Approach on the proposals to revise the Markets in Financial Instruments Directive (MiFID).
The Commission proposals of 2011 pursue the following goals: adapt and strengthen the regulation of market infrastructures, including by framing the risks associated with new technologies; enhance transparency for equity and non-equity markets, such as derivatives, bonds and structured products; enhance transparency and market supervision of commodity derivatives; improve the protection of investors; and strengthen and harmonize the supervisory system through the single market and introduce a common EU regime with regard to non-EU countries. Therefore, they aim at achieving more efficient, transparent and sound securities markets.
Commissioner Barnier will welcome the agreement on the general approach expected at the Council. However, he hopes some further improvement will be made during trilogues to make European capital markets safer, more transparent and efficient so that they can best perform their role of financing the real economy.
He will reiterate his readiness to help the two co-legislators to address these issues in a constructive manner during the trilogues.
Combatting VAT Fraud (ET)
The Council is due to reach political agreement on two anti-VAT fraud measures without discussion: the Commission's proposal for a Quick Reaction Mechanism (QRM) (see IP/12/868), and the Commission proposal to allow applying the reverse charge on certain categories of goods and services subject to carrousel fraud (see IP/09/1376).
Under the current derogation system, the Member State in question can only start applying reverse charge after the Council agrees on a proposal from the Commission. This procedure can take up to a year. The proposed QRM and reverse charge mechanism will significantly improve the chances of Member States to effectively tackling complex fraud schemes, such as carrousel fraud, and to reducing otherwise irreparable financial losses.
Both measures are key actions of the Commission's plan to fight against tax fraud and evasion of 6 December 2012 (see IP/12/1325). The foreseen political agreement demonstrates Member States' willingness to engage against tax fraud.
VAT on telecom, broadcasting and e-services (ET)
The Council is expected to reach political agreement without discussion on the Commission's proposal for an implementing regulation on the place of supply of services. This proposal will enable the taxation of telecommunications, broadcasting and electronic services at the place of their actual consumption as of 1st of January 2015. For the customer the VAT rate will be the same regardless of where his supplier is established.
In 2008, the VAT Directive was modified in order to take into account the development of -commerce. At that time, to better ensure taxation at the place of consumption, it was agreed that as of 1st January 2015 telecommunications,
Economic situation (SOC)
Over breakfast session, Economic and Finance Ministers will discuss the economic and financial situation in the EU and the euro area.
The Commission's Spring 2013 Forecast (published on 3 May) highlights that the EU economy is slowly emerging from the recession. The headwinds continue to be strong, but in the second half of this year, growth should turn positive. It projects EU GDP growth of -0.1% in 2013 and 1.4% in 2014 (after -0.3% in 2012).
It is crucial at this stage not to relent with the structural reforms that are needed to strengthen the foundations of employment and of more robust and balanced GDP growth.