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Conseil/00/49

Brussels, 28 February 20006450/00 (Presse 49)

2245th Council meeting- ECOFIN-Brussels, 28 February 2000

President : Mr Joaquim PINA MOURA

Minister for Finance and Economic Affairs of the Portuguese Republic

CONTENTS

PARTICIPANTS 

ITEMS DEBATED

IV?Updated Stability Programme of Germany (1999-2003) PAGEREF _Toc476535948 \h IV?Updated Stability Programme of Italy (1999-2003) PAGEREF _Toc476535949 \h V?Updated Stability Programme of Belgium (2000-2003) PAGEREF _Toc476535950 \h VII?Updated Stability Programme of Spain (1999-2003) PAGEREF _Toc476535951 \h VIII?Updated Convergence Programme of United Kingdom (2004-2005) PAGEREF _Toc476535952 \h IX?Updated Convergence Programme of Denmark (1999-2005) PAGEREF _Toc476535953 \h XIBROAD ECONOMIC POLICY GUIDELINES PAGEREF _Toc476535954 \h XIICOMMISSION REPORT ON THE FUNCTIONING OF PRODUCT AND CAPITAL MARKETS - CARDIFF PROCESS PAGEREF _Toc476535955 \h XIIPREPARATION OF THE SPECIAL EUROPEAN COUNCIL ON EMPLOYMENT, ECONOMIC REFORMS AND SOCIAL COHESION -Towards a Europe based on Innovation and Knowledge, Lisbon - 23/24 March 2000 PAGEREF _Toc476535956 \h XIIICOMMUNICATION STRATEGY IN THE LAST PHASES OF THE COMPLETION OF EMU PAGEREF _Toc476535957 \h XIIIMANAGING DIRECTOR OF THE IMF - EU CANDIDATE PAGEREF _Toc476535958 \h XIVMISCELLANEOUS PAGEREF _Toc476535959 \h XIVITEMS APPROVED WITHOUT DEBATEECOFIN--Technical scheme for handling counterfeit eurocoins - Conclusions PAGEREF _Toc476535962 \h XIV--VAT - reduced rate for labour-intensive services * PAGEREF _Toc476535963 \h XV--Sixth VAT Directive - Derogation for Germany * PAGEREF _Toc476535964 \h XV--Excessive deficit procedure * PAGEREF _Toc476535965 \h XVIEXTERNAL RELATIONS--FRY/Serbia - sanctions PAGEREF _Toc476535967 \h XVI--Kosovo PAGEREF _Toc476535968 \h XVI--Relations with Morocco PAGEREF _Toc476535969 \h XVII--EC-ASEAN Cooperation Agreement PAGEREF _Toc476535970 \h XVIIEUROPEAN ECONOMIC AREA PAGEREF _Toc476535971 \h XVIIDEVELOPMENT COOPERATION--ACP-EC PAGEREF _Toc476535973 \h XVII--South Africa PAGEREF _Toc476535974 \h XVIIISECURITY AND DEFENCE--National military experts PAGEREF _Toc476535976 \h XVIIIINTERNAL MARKET--Directive on electronic commerce PAGEREF _Toc476535978 \h XVIII--Fourth Motor Insurance Directive PAGEREF _Toc476535979 \h XIX--Directive on late payments PAGEREF _Toc476535980 \h XIX--Statistics relating to the trading of goods PAGEREF _Toc476535981 \h XIX--UN/ECE regulations PAGEREF _Toc476535982 \h XXENVIRONMENT--Voluntary participation in a Community eco-management and audit system (Review of the EMAS Regulation) * PAGEREF _Toc476535984 \h XXTRANSPARENCY--Public access to Council documents PAGEREF _Toc476535986 \h XXAPPOINTMENTS--Economic and Social Committee PAGEREF _Toc476535988 \h XX_________________

For further information call 285.64.23 or 285.68.08

PARTICIPANTS

The Governments of the Member States and the European Commission were represented as follows:

Belgium :

Mr Didier REYNDERSMinister for Finance
Denmark :
Ms Marianne JELVEDMinister for Economic Affairs
Mr Michael DITHMERState Secretary for Economic Affairs
Germany :
Mr Hans EICHELFederal Minister for Finance
Mr Caio KOCH-WESERState Secretary, Federal Ministry of Finance
Greece :
Mr Yannos PAPANTONIOUMinister for the National Economy and Finance
Spain :
Mr Rodrigo de RATO y FIGERADOSecond Deputy Prime Minister and Minister for Economic Affairs and Finance
France :
Mr Christian SAUTTERMinister for Economic Affairs, Finance and Industry
Ireland :
Mr Charlie McCREEVYMinister for Finance
Italy :
Mr Giuliano AMATOMinister for the Treasury, the Budget and Economic Planning
Mr Vincenzo VISCOMinister for Finance
Luxembourg :
Mr Jean-Claude JUNCKERPrime Minister, Minister for Finance, Minister for Labour and Employment
Mr Henri GRETHENMinister for Economic Affairs
Netherlands :
Mr Gerrit ZALMMinister for Finance
Austria :
Mr Karl-Heinz GRASSERMinister for Finance
Portugal :
Mr Joaquim PINA MOURAMinister for Finance and Economic Affairs
Mr António NOGUEIRA LEITEState Secretary for the Treasury and Finance
Finland :
Mr Sauli NIINISTÖMinister for Finance
Sweden :
Mr Bosse RINGHOLMMinister for Finance
Mr Sven HEGELUNDState Secretary, Ministry of Finance
United-Kingdom :
Mr Gordon BROWNChancellor of the Exchequer
Commission :
Mr Pedro SOLBES MIRAMember
Mr Frits BOLKESTEINMember
Other participants :
Mr Philippe MAYSTADTPresident of the European Investment Bank
Mr Jean LEMIERREChairman of the Economic and Financial Committee
Mr Norman GLASSChairman of the Economic Policy Committee
_Toc476535947IMPLEMENTATION OF THE STABILITY AND GROWTH PACT

Under this heading, the Council tackled the updating of the Stability Programmes of Germany, Italy, Belgium and Spain, as well as the updating of the Convergence Programmes of the United Kingdom and Denmark. For each programme the Council adopted an opinion which is reproduced below:

  • Updated Stability Programme of Germany (1999-2003)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies(1), and in particular Article 5 (3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 28 February 2000 the Council examined the updated Stability Programme of Germany which covers the period 1999-2003. The Council notes with satisfaction that the deficit outcomes both for 1998 and 1999 were clearly better than expected in the initial programme. This achievement in conditions of lower-than-expected economic growth has significantly advanced the objective of attaining a medium-term budgetary position of close to balance or in surplus, as required by the Stability and Growth pact. The Council notes, however, that the better results in 1998 were almost exclusively due to the difficult-to-predict development of regional and local government finances. These developments, therefore, tend to underline the importance of an efficient cooperation on government finances at national level to facilitate the planning and monitoring of the budgetary consolidation process.

The Council notes that the information provided in the updated stability programme, as was the case for the previous programme, does not in all respects comply with the code of conduct on the content and format of stability and convergence programmes. In particular, the programme lacks detailed information on the components of government revenue and expenditure and on the factors determining the debt ratio. The Council, therefore, repeats the request made in its opinion to the previous stability programme(2) that the German authorities provide this additional information, at the latest, in the next update of the stability programme.

The macroeconomic scenario of the updated programme(3) assumes that the German economy will enjoy average annual growth of some 2½ per cent over the programme period. The Council considers this scenario realistic, provided that wage moderation and structural reforms on product and labour markets continue.

The updated programme foresees a decline in the general government deficit to ½ of a per cent of GDP by 2003, while the gross debt ratio is expected to decrease to 58½ per cent of GDP over the same period. The Council considers it appropriate that the budgetary consolidation envisaged in the programme is achieved by a decrease in the expenditure ratio which is only partially offset by a decline in the revenue ratio. The Council commends, in particular, the envisaged approach of controlling government expenditure by limiting its overall nominal increase to less than the expected nominal GDP growth. The Council recognises that the planned expenditure savings will create some room for tax relief in the framework of the reforms of income and corporate taxation which are welcome as they will lead to a desirable reduction in the high overall tax burden in Germany. The Council recommends, however, that the reforms be implemented with greatest caution so as to minimise the risk of a lasting deterioration of the structural government deficit.

The Council considers that the envisaged medium-term deficit objective of ½ per cent of GDP in 2003 is in conformity with the provisions of the Stability and Growth Pact, as is the objective for 2002. Moreover, Germany's budget balance will remain close to the minimum benchmark position, which allows the automatic stabilisers to work without risk of the deficit breaching the 3 per cent of GDP reference value, already from 1999 on. The Council recommends, however, that in the event of higher growth than expected the fiscal gains be used to reduce the deficit below the targeted level with a view to widening the safety margin and creating additional room for the desirable further tax reductions planned beyond the programme's horizon. Furthermore, available privatisation opportunities should be used at all levels of government in order to make sure that the debt ratio is firmly kept on a downward trend.

The Council notes that, despite the programme's intentions of a restructuring of the budget in favour of government investment, the federal government plans to reduce investment spending in nominal terms from its current level. The Council reiterates its recommendation that the German government review its investment plans without, however, jeopardising the budgetary targets of the programme.

The Council welcomes the reform measures announced in the programme, in particular in the domains of the pension and health systems and in public administration, which are key to sustainable public finances and employment growth. A determined implementation of the reforms, in combination with measures aimed at increasing the flexibility of product and labour markets, as recommended by the Broad Economic Policy Guidelines and envisaged in the German structural progress report for the Cardiff process, would be conducive to the achievement of the objectives of the stability programme.

  • Updated Stability Programme of Italy (1999-2003)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies(4), and in particular Article 5 (3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 28 February 2000 the Council examined Italy's updated stability programme, which covers the period 1999-2003. The Council notes with satisfaction that despite the cyclical slowdown, the initial programme's objective of a budget deficit of 2.0% of GDP in 1999 appears to have been attained, as recommended in the Broad Economic Policy Guidelines. Lower than expected interest payments and higher than expected revenues, namely from improved tax collection, have contributed to this outcome. The decrease in the gross government debt/GDP ratio has kept pace in 1999, as large privatisation receipts have offset the negative impact of lower growth. The Council notes the confirmation of the objectives for the net borrowing of the general government in 2000 and 2001 (respectively, 1.5% and 1.0% of GDP). It welcomes the commitment to further budgetary consolidation, which would support a decline by over 3 percentage points per year in the debt/GDP ratio, to reach 100.0% in 2003. The Council considers that the updated programme is consistent with the Broad Economic Policy Guidelines.

The macroeconomic projections in the updated stability programme assume a gradual acceleration in GDP growth, from an annual rate of 1.3% in 1999 to nearly 3% in 2002-2003. The Council notes that such an acceleration constitutes a realistic scenario and that the cyclical upswing in 2000 and 2001 could turn out stronger than assumed in the updated programme; on the other hand, the new assumptions on interest rates could be too optimistic in the light of recent developments in financial markets.

The Council notes the continuation of the budgetary strategy outlined in the initial programme, aiming at pursuing the stabilisation of public finances and promoting growth and an equitable distribution of income. The strategy is based on keeping the primary surplus at a high level and on reducing current expenditure as a percentage of GDP, in parallel with some easing of the still heavy tax burden and an expansion of public investment, particularly in the South. The Council notes that the deficit targets are maintained even though the primary surplus is now planned to stabilise at the level of 5% of GDP lower than in the initial programme. The Council notes the commitment of the Italian authorities to reduce non-interest current expenditures as a percentage of GDP from 37.9% of GDP in 1999 to 36.2% of GDP in 2003.

The Council considers that the underlying budgetary position in 2000 should be sufficient to provide a safety margin against breaching the 3 percent of GDP deficit threshold in normal cyclical fluctuations; the proposed path of budgetary consolidation would widen such a safety margin, implying that Italy would continue to satisfy the requirements of the Stability and Growth Pact up to 2003. However, the Council reaffirms that Italy must secure a steady decline in its still high government debt ratio, and it considers that the budgetary objectives in the updated programme should be fulfilled in order to respect the commitment on the part of the Italian government to reduce the debt/GDP ratio to below 100% by 2003. Should growth turn out stronger than projected in the updated programme, the Council expects Italy to achieve better budgetary outcomes than planned and thus accelerate the reduction in the debt/GDP ratio towards the 60% reference value.

Following its Opinion(5) on the original stability programme, the Council urges the Italian government to address with determination the medium-term structural challenges to public finances from pension and other age-related budgetary expenditures. Recent government proposals to promote the expansion of funded pension provisions go in the right direction but would not eliminate the need to re-examine the parameters of the present system. A timely re-assessment of the parameters of the pension system would allow to contain the expected increase in the ratio of pension expenditures to GDP. The Council further encourages the Italian government to pursue with vigour its privatisation programme and to enhance the structural reforms of labour and product markets and of the public administration, which are all needed in order to foster competition and efficiency and revitalise the Italian economy.

  • Updated Stability Programme of Belgium (2000-2003)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies(6), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 28 February 2000 the Council examined the 1999 update of the stability programme of Belgium which covers the period 2000-2003. The Council notes with satisfaction that the general government deficit for 1998 was substantially lower than that estimated in the initial stability programme and that budgetary adjustment continued in 1999 despite a slowdown in economic activity and extra expenditure related to unforeseen events; the debt ratio was reduced by 6.3 percentage points during the last two years to an estimated 114.9 % of GDP at the end of 1999. The Council considers that the updated programme is consistent with the Broad Economic Policy Guidelines.

The budgetary projections of the updated stability programme are based on a prudent macroeconomic scenario assuming real GDP growth of 2.5 % per year for 2000 and 2001 and a trend GDP growth rate of 2.3 % for the following years. The Council considers that the GDP growth projections of the updated programme are likely to correspond to the lower limit of a range of probable macroeconomic projections; as a consequence, the Council expects that, in the event of stronger growth the budgetary outcomes will be better than projected in the updated programme, particularly in 2000.

The Council notes the intention of the Belgian government to advance, compared to the initial programme, the target of balanced government accounts to 2002, and achieve a budget surplus in 2003; it commends the commitment of the Belgian authorities to seek better budgetary results in 2000 than those projected in the updated programme; such a development would facilitate achieving a debt ratio close to 100 % of GDP in 2003 as projected in the programme. The Council considers that the underlying budgetary position of the general government since 1999 provides a safety margin against breaching the 3 % of GDP deficit threshold in normal circumstances, thus fulfilling the Stability and Growth Pact requirements; however, the Council considers that the improvement of the fiscal position envisaged in the programme is necessary in order to allow a steady decline of the still high debt ratio and to create room for the announced reform of income taxation.

The Council welcomes the renewed commitment in the 1999 update to maintain high primary surpluses as a central element of the fiscal consolidation strategy in Belgium; this strategy has proved its crucial role in advancing budgetary adjustments in the recent past and is considered essential in consolidating progress made in this area and ensuring a continued reduction of the debt ratio. The Council considers that a growth in primary expenditure of 1.5 % per year, in real terms, is appropriate in order to achieve the targeted primary surplus and encourages the Belgian government to implement it with rigour.

The Council notes that a key objective of the updated programme is to achieve a substantial increase in the employment rate in Belgium and to enhance economic efficiency by means of a package of reforms and policy measures; in this context, the Council welcomes the decision of the government to strengthen the effort towards reducing overall tax burden, in particular on labour. In the vein of its opinion on the initial stability programme(7), the Council encourages the Belgian government, within the expenditure limits fixed by the programme, to give priority to government investment in order to improve infrastructure and the productive potential of the economy ; it invites the government to provide in future updates of its stability programme projections on main categories of government expenditure, notably government investment.

The Council welcomes the co-operation agreement under which budgetary objectives, within a medium-term time horizon, will be fixed for all levels of government in Belgium as an important element enhancing transparency and credibility of the updated stability programme.

  • Updated Stability Programme of Spain (1999-2003)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council regulation (EC) N° 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(8), and in particular Article 5(3),

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 28 February 2000 the Council examined Spain's updated stability programme which covers the 1999-2003 period. The Council notes with satisfaction that the programme reaffirms the strategy adopted in the 1998 Stability Programme: promoting healthy economic growth through fiscal consolidation and structural reforms. The programme's objectives are to turn the estimated 1999 general government deficit of 1.3% of GDP into a surplus of 0.2% of GDP in 2003, while the gross debt ratio will decrease to 55.8% of GDP. Moreover, the programme builds on the continuation of the budgetary consolidation based on expenditure containment.

The Council welcomes the record of implementation of the 1998 Stability Programme, where GDP has grown briskly along with strong job creation. As regards public finances, general government balance and debt targets seem to have been exceeded. However, price developments since the second half of 1999 have been worse than expected.

The macroeconomic scenario in the updated programme assumes output growth to decelerate from its present high rate (3.7% in 1999) towards close to trend over the period 2000-2003 (3.3% on average). The Council notes that this macroeconomic scenario appears realistic. Following its opinion on the initial stability programme(9), the Council considers that a continuation of the strategy adopted, based on structural reforms along with the stable monetary framework under EMU and sound budgetary consolidation, should allow the Spanish economy to develop in line with the medium-term macroeconomic scenario.

The Council notes with satisfaction that the update continues with the budgetary strategy, which relies on the restraint of primary current expenditure, and allows for a reinforcement of government investment and for a reduction in tax burden. As the reduction of the government deficit is based on the expenditure side, the implementation of the still-pending reform of the National Budget Law to reinforce the control of public spending would be welcome.

The underlying budgetary position corresponding to the targeted surplus of 0.1% of GDP in 2002 would provide sufficient safety margin to prevent the deficit from breaching the 3% of GDP threshold during a normal cyclical downturn and would also allow for an additional margin in case of unforeseen developments; the safety margin will increase further in 2003. The Council therefore considers that the medium-term budgetary target of the updated Stability Programme is in conformity with the provisions of the Stability and Growth Pact. The Council considers the envisaged widening of the safety margin is justified in order to cope with the budgetary consequences of ageing. In this respect, the Council welcomes the commitment made to further increase the Social Security reserve fund created in 2000.

The Council notes with satisfaction that the budgetary adjustment is to be shared by all sub-sectors of government, in particular the fact that the territorial governments, in the framework of the existing internal stability pact, are targeted to be in balance from 2001 on. The Council stresses that the increasing role of territorial governments in various categories of expenditure requires the continued functioning of the present inter-governmental co-ordination mechanisms.

In the light of recent developments on prices, the Council considers essential that wage developments in Spain must continue to be geared towards price stability. Additionally, the Council considers that fiscal policy should be ready to tighten further to counteract any possible overheating risk.

The Council considers that the programme is consistent with the Broad Economic Policy Guidelines. The Council notes with approval that the update acknowledges the increasing role of structural policies and fiscal consolidation in the EMU. Structural reforms have indeed played an important role in increasing the potential output of the Spanish economy, keeping a positive growth differential with respect to the EU area along with a strong job creation. The Council, therefore, encourages the Spanish government to continue implementing the pending structural reforms.

  • Updated Convergence Programme of United Kingdom (2004-2005)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council regulation (EC) No. 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies(10), and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 28 February 2000 the Council examined the updated Convergence programme of the United Kingdom which covers the period 1998-99 to 2004-05. The programme envisages a government surplus of 0.3% of GDP in 1999-00, small surpluses in the two following years to 2001-02 and small deficits in the years 2002-03 to 2004-05. The Council commends the clear presentation of the convergence programme update that facilitates the analysis of the United Kingdom's current and prospective macro-economic and fiscal developments. The Council considers it appropriate that the programme stresses the securing of macro-economic stability supported by a sound budgetary position and continued structural reform. Moreover, the Council considers that the programme is fully in line with the Broad Economic Policy Guidelines.

The programme is built upon a macroeconomic framework showing a recovery in GDP growth from 1¾% in 1999 to growth close to trend put at 2½% - thereafter, which the Council considers to be realistic. Moreover, the projections in the programme for the public finances are, for reasons of caution, based on a lower assumption for trend growth namely 2¼% - which the Council considers to be appropriate.

With respect to inflation and interest rates, the United Kingdom continues to fulfil the convergence criterion with some margin. The Council notes that the monetary framework of inflation targeting, with operational responsibility for interest rate changes given to the Bank of England, has been an important condition for securing low inflation expectations. The Council notes that under the current policy framework, the programme projects the UK inflation target to be achieved over the programme period; it further notes that such an outturn is likely to be consistent with the ECB's definition of price stability.

The United Kingdom has fulfilled the convergence criterion on the long-term interest rate for some time. This helps confirm the credibility given to the UK's stability oriented framework for macro-economic policy. It notes that while there are signs of reduced exchange rate volatility, it cannot yet be concluded that this policy framework has delivered a stable exchange rate. Therefore, as in the opinion on the previous convergence programme(11), the Council recommends that the United Kingdom continue with the stability oriented policies with a view to securing exchange rate stability which, in turn, should help re-enforce a stable economic environment.

The Council notes with approval, that over the programme period - to 2004-05 - the general government finances are projected to be close to balance in underlying terms thus fulfilling the requirements of the Stability and Growth Pact. The Council nevertheless notes and welcomes the raising of government investment as a share of GDP within the expenditure totals. It also notes that the move to three-year allocations of departmental expenditure has placed the government finances on a more stable footing and the mechanism should help ensure that the tight budgetary position is locked in over the economic cycle.

The Council notes that the government gross debt ratio in the United Kingdom remains below 60% of GDP and is expected to fall to 45% in 1999-00. The Council welcomes the envisaged further reduction of the gross debt ratio to below 40% of GDP by 2004-05.

The Council welcomes the structural reforms included in the programme. It notes, with approval, that the progress on economic reforms should help provide the flexibility required to improve the underlying performance of the economy and ensure that divergences in economic cycles between the United Kingdom and its European partners are minimised.

  • Updated Convergence Programme of Denmark (1999-2005)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies(12), and in particular Article 9 (3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 28 February 2000 the Council examined Denmark's updated convergence programme, which covers the period 1999-2005. The updated convergence programme envisages budgetary surpluses of above 2 % of GDP over the entire programme period and projects the gross debt to be further reduced to 36 % of GDP in 2005.

The updated programme is based upon a macroeconomic scenario which assumes that, following a slowdown in 1999-2000, the Danish economy will grow at an average rate of about 2 % per year between 2001 and 2005. The Council notes that, while such a growth scenario appears realistic, it is based on an ambitious target for employment growth while the assumed gains in labour productivity seem moderate. Moderate productivity increases as assumed in the programme combined with relatively high wage rises could lead to a further erosion of cost competitiveness of Denmark vis-à-vis its trading partners, in particular in the euro-area, on top of those experienced already in the recent past.

Despite a considerable increase in consumer prices in the course of 1999, due mainly to strong wage increases and a rise in energy taxes, Denmark continued to fulfil the convergence criterion on inflation. The updated convergence programme notes, however, that there is a risk that inflation temporarily exceeds the reference value by a small margin in the first half of 2000. Although inflationary pressures should ease in the course of 2000 as the slowdown in domestic demand feeds through, the Council encourages the Danish government to monitor inflation closely and reiterates its recommendation to take further actions if needed(13). Moderate wage developments are of utmost importance in this regard and this year's wage negotiations at company level might prove challenging.

The Council notes with satisfaction that Denmark continues to fulfil the convergence criterion on the long-term interest rate and that the exchange rate has been stable vis-à-vis the euro. This indicates that Denmark's participation in the ERM II has further strengthened the credibility of its monetary policy.

The Council welcomes the Danish government's strategy of continued budgetary surpluses of above 2 % of GDP over the entire programme period. Denmark should thus - with a comfortable margin - continue to fulfil the requirement of the Stability and Growth Pact of a government position of "close to balance or in surplus". In view of the healthy situation of Danish government finances the Council also welcomes the lower weight of public finances in the economy in the forthcoming years as this would increase economic incentives and contribute to a more favourable medium-term outlook for growth and employment.

The Council notes that the government gross debt ratio in Denmark is expected to be further reduced over the programme period and considers this priority commendable in facing the future budgetary challenges arising from the ageing population.

The Council encourages the Danish authorities to keep up the momentum with its comprehensive structural reforms. In particular, the recent reforms regarding the tax system and the labour market, which are in line with the Broad Economic Policy Guidelines, are essential stepping stones in the achievement of the policy aims of the updated convergence programme. However, given that Denmark currently experiences its lowest level of unemployment since the 1970s, the reforms already undertaken in the labour market may need to be complemented by further measures to reach the ambitious target on employment growth set in the programme. Finally, in view of the future budgetary challenges deriving from the ageing population in Denmark, further structural labour market reforms may prove necessary in the medium term to keep public finances on a sustainable path.

BROAD ECONOMIC POLICY GUIDELINES

The Council had an orientation debate on the Broad Economic Policy Guidelines (BEPG) for the year 2000. The aim was to give guidance to the Commission for its preparatory work, as well as to the Committees (EFC and EPC) which will further discuss the draft to be presented by the Commission. The Council will come back to the matter for a substantial debate on the draft Guidelines at its May session.

As far as the substance is concerned, the debate centred around the themes of the strength of growth recovery, greater convergence between Member States and the assessment of the inflation outlook, as well as the most appropriate policy mix for sustaining the recovery whilst maintaining price stability. In this context, the importance of sound budgetary policies, fiscal stabilisation and wage moderation were stressed particularly. One of the main lines of reflection was devoted to the further development of structural reforms designed to secure sustained and job creating growth.

There was a degree of overlap between the debate on the BEPG and that on the preparation of the Lisbon Special European Council (see below).

COMMISSION REPORT ON THE FUNCTIONING OF PRODUCT AND CAPITAL MARKETS - CARDIFF PROCESS

The Council took note of a presentation by Commissioner BOLKESTEIN of the main elements of the report of his institution on the functioning of the product and capital markets.

This is the second annual report of the Commission on this matter in response to the mandate given by the Cardiff European Council. This report constitutes the documentary basis for the exercise of mutual surveillance on economic reform. It also provides substantial input for the preparation of the Broad Economy Policy Guidelines and serves as the basis for Commission proposals to update target actions included in the Internal Market Strategy.

The report contributes to the process of economic reform in two ways: first it monitors and assesses product and capital market performances to identify regulatory failure or weaknesses at EU level; secondly, it lists policy recommendations to lighten and improve the quality of the Community's regulatory framework and to remove barriers to the efficient functioning of the markets.

The President concluded that the Commission report - in particular its recommendations - was an important element to be taken into account in the preparatory work for the Lisbon Special European Council on Employment, Economic Reform and Social Cohesion.

PREPARATION OF THE SPECIAL EUROPEAN COUNCIL ON EMPLOYMENT, ECONOMIC REFORMS AND SOCIAL COHESION -Towards a Europe based on Innovation and Knowledge, Lisbon - 23/24 March 2000

The Council had a discussion on the issues and priorities that it would like to see addressed - under ECOFIN auspices - at the Special European Council on Employment, Economic Reform and Social Cohesion.

For its discussion the Council heard a presentation by Commissioner SOLBES of the Commission's contribution to the Lisbon Special European Council - "An Agenda of Economic and Social Renewal for Europe". It also received contributions from the Economic and Financial Committee (EFC) and the Economic Policy Committee (EPC) as well as by the EIB, represented by its President, Philippe MAYSTADT.

The preparatory work of the EFC has concentrated in particular on the improvement of the functioning of financial markets in general, the role of efficient risk capital markets and the quality and sustainability of public finances. The EPC has focused its discussions on a number of key areas where urgent structural reform is needed: structural conditions of labour markets and the modernisation of the social security systems, promotion of competitive markets, for example by liberalising network industries and promoting R&D so as to improve access to fast, innovative and competitively priced services, etc.

The President of the EIB indicated in particular the areas in which the Bank can promote the overall objectives through mobilising its financial instruments, in particular in the fields of human capital, SME's and Entrepreneurship, Research and Development Networks, Diffusion and Innovation. He elaborated on the possible use of the banks financial instruments for the implementation of the Lisbon Strategy: additional loans of 12 to 15 billion euro, a further billion for risk capital on the Bank's own resources, cooperation with other partners.

During the subsequent debate, Ministers indicated the priorities and objectives their countries were pursuing for the Lisbon Special European Council which coincided largely with the elements identified by the EFC and EPC and stressed in particular the need to arrive at Lisbon to concrete and operational conclusions.

The President concluded that all the contributions made within the ECOFIN Council by Member States, institutions and bodies would be taken into account by the Presidency for the preparation of the Lisbon conclusions. To this end, he would present to the next ECOFIN Council of 13 March a paper based on a draft prepared by the EFC for transmission to the Lisbon European Council. He indicated four main headlines for the Lisbon conclusions:

- an economy and a society based on innovation and knowledge

- an agenda for economic and structural reforms to secure competitivity and innovation

- renewal and sustainability of the European social model and its main structures

- macroeconomic policies and coordination for a sustainable growth.

COMMUNICATION STRATEGY IN THE LAST PHASES OF THE COMPLETION OF EMU

The Council heard a presentation by Commissioner SOLBES of the communication of its institution on the information strategy to be adopted in cooperation with Member States with regard to the last phases of the completion of the EMU accompanied by a working paper entitled: "2002: Nothing but the euro".

The suggested strategy covers the years 2000-2002 and indicates information actions to be undertaken in order to make the introduction of the euro a success. In the year 2000 the information campaigns will focus on enterprise, in particular SMEs, while during the year 2001 they will target more intensively the public at large, notably groups needing special assistance. A final effort needs to be made during the first months of 2002 to accompany the actual launching of the circulation of the euro.

MANAGING DIRECTOR OF THE IMF - EU CANDIDATE

Ministers unanimously agreed to present Mr Caio KOCH-WESER, currently State Secretary at the Ministry of Finance of Germany, as EU candidate for the post of Managing Director of the IMF to be filled following the recent resignation of Mr Michel Camdessus.

MISCELLANEOUS

Over lunch the Council was debriefed by its President on the discussions of the Euro-11 meeting which took place in the morning.

The Council also agreed on making accessible to the public via the Internet (on the Council website) the Report of the Code of Conduct Group on Business Taxation (Primarolo Group) as submitted to the ECOFIN Council on 29 November 1999. While deciding to make the text accessible to the public, the Council did not take any position on its content.

The Council discussed the possibility of providing financial assistance to Montenegro, concluded that macro financial assistance was not an available option in this case and asked the Commission to examine which of the specific Community instruments, notably humanitarian assistance, could be used to this end.

Ministers also touched upon the debt situation in Nigeria, problems in financial relations with Liechtenstein and met with Special Coordinator Bodo Hombach on financial aspects of the implementation of the Stability Pact for South Eastern Europe.

ITEMS APPROVED WITHOUT DEBATE

(Decisions for which statements for the Council minutes have been made available to the public are indicated by asterisks; the statements in question may be obtained from the Press Office.)

ECOFIN

Technical scheme for handling counterfeit eurocoins - Conclusions

Progress made with respect to the protection of the euro from counterfeiting is noted and the following technical scheme for handling counterfeit euro coins is welcomed.

The scheme should involve all parties in charge of fighting against counterfeiting, at national as well as European level. Each Member State should establish a Coin National Analysis Centre and a National Counterfeit Centre in accordance with national law and practice. The latter should ensure the link with a database, to be established at the ECB, containing all technical data on counterfeit euro banknotes and coin. As a centrepiece of the scheme a European Technical and Scientific Centre (ETSC), that will analyse and classify new counterfeit coins, will be established on a temporary basis in France, using the expertise of the Paris Mint. The Community budget should make an appropriate contribution to the costs involved in the functioning of the ETSC in accordance with the applicable financial regulations.

An in-depth status report on the ETSC's actions will be prepared at the end of 2003 or earlier if appropriate. On the basis of that report, the Council will decide upon the future status and permanent location of the ETSC in conformity with the applicable Treaty procedures. The assessment report will be prepared by the MDWG in collaboration with the Commission, after consulting the ECB. The report, together with an opinion of the ECB, will be submitted to the Council and to the EFC.

Member States and the Commission should take the necessary steps for the accomplishment of this technical scheme against euro coin counterfeiting.

VAT - reduced rate for labour-intensive services *

The Council adopted a Decision authorising Member States to apply a reduced rate of VAT to certain labour-intensive services in accordance with the procedure provided for in Article 28(6) of Directive 77/388/EEC.

This Decision will allow the Member States that have submitted an application to apply a targeted reduction in the VAT rate to certain labour-intensive services for a maximum three-year period running from 1 January 2000 to 31 December 2002. The Member States which implement the Decision, and the Commission, will make before October 2002 an assessment of the impact in terms of job creation and efficiency.

The formal decision indicates which of the services from the list of categories set out below Member States have been authorized to apply the reduced rates to.

1. Small services of repairing:

 - bicycles

 - shoes and leather goods

 - clothing and household linen (including mending and alteration)

    2. Renovation and repairing of private dwellings, excluding materials which form a significant part of the value of the supply

3. Window cleaning and cleaning in private households

4. Domestic care services (e.g. home help and care of the young, elderly, sick or disabled)

5. Hairdressing.

This formal adoption of the Directive follows the agreement in principle reached at the Council of 8 October 1999.

Sixth VAT Directive - Derogation for Germany *

The Council adopted a Decision authorising Germany to apply measures derogating from the right to deduct certain expenses in accordance with Article 27 of the Sixth VAT Directive.

The first derogating measure is intended completely to exclude the value added tax (VAT) which is charged on expenditure on goods and services from the right to deduct when over 90% of the goods and services are used for the private purposes of the taxable person, or of his employees, or for non-business purposes in general. This measure represents a derogation from Article 17 and is justified by the need to simplify the procedure for charging the VAT.

The second measure derogates from Article 17(2) and Article 6 of Directive 77/388/EEC and is intended to limit to 50% a taxable person's right under Article 17(2) to deduct VAT in respect of all expenditure on vehicles not used solely for business purposes, and also not to charge the VAT due on tourist industry vehicles used for private purposes; this ceiling on a taxable person's right to deduct VAT is justified by the proven difficulty of actually verifying the breakdown between business and private expenditure on this type of good and by the consequent likelihood of tax evasion or abuse; in addition such a measure will allow a more simplified system of taxation of the private use of vehicles.

Nevertheless, the ceiling on a taxable person's right to deduct VAT may not be applied to expenditure on vehicles which represent a taxable person's current assets; furthermore, the flat-rate ceiling on the right to deduct may not be applied where a vehicle is used up to a maximum of 5% for private purposes; in these cases the normal rules on deduction set out in Article 17(2) of Directive 77/388/EEC remain applicable.

Germany is authorised to make these derogations as from 1 April 1999 up to a period no later than 31 December 2002.

Excessive deficit procedure *

The Council adopted a Regulation amending Regulation (EC) N° 3605/93 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community.

The aim of the Regulation is to amend Regulation (EC) N° 3605/93 by making reference, in so far as various definitions are concerned, to the European System of National and Regional Accounts in the Community ("ESA 95").

EXTERNAL RELATIONS

FRY/Serbia - sanctions

The Council adopted

    - a Decision expanding and updating the visa ban list set out in Council Decision 1999/319/CFSP,

    - a Common Position suspending for a period of six months Article 4 of Common Position 1999/318/CFSP and repealing Common Position 1998/426/CFSP.

It is recalled that on 14 February 2000, Council agreed to maintain its overall policy framework of applying maximum pressure on the Milosevic regime through the strengthening of the sanctions targeted at the regime, without penalising the Serbian people, and it simultaneously reaffirmed its support for the democratic process in the FRY.

In this context the aim of the acts adopted by the Council is

    - to extend the scope of the visa ban list notably with regard to the Serbian Government, the police and security forces, members of the judiciary who condemned media using the unconstitutional law on media and public information, and persons close to the regime whose activities support President Milosevic (the new list is published on the Council website under http://consilium.europa.eu/Newsroom/latest news (doc. 6025/00)),

    - in the light of an urgent and unanimous call by the democratic opposition forces in the FRY, to suspend the flight ban for a period of six months.

Kosovo

The Council adopted an extension of Joint Action 1999/522/CFSP concerning the installations of the structures of the United Nations Mission in Kosovo (UNMIK).

The effect of this measure is to extend the current Joint Action for a further two months. This extension does not entail further financing.

Relations with Morocco

The Council adopted a Decision concerning the conclusion of an Agreement in the form of an Exchange of Letters between the European Community and the Kingdom of Morocco concerning certain amendments to Annexes 2, 3, 4 and 6 to the EU-Morocco Euro-Mediterranean Agreement.

The Decision has been made necessary by the time which has elapsed and the changes that have taken place since the signing of the EU-Morocco Agreement in February 1996. The effect of the amendments is to liberalise the tariff arrangements applied by Morocco to imports of industrial products originating in the EU.

The Agreement will come into force on 1 March 2000.

EC-ASEAN Cooperation Agreement

The Council authorised the Commission to negotiate the extension of the EC-ASEAN Cooperation Agreement to the Lao People's Democratic Republic and to the Kingdom of Cambodia and adopted the necessary negotiating directives to this end.

EUROPEAN ECONOMIC AREA

The Council approved on behalf of the EU two draft Decisions of the EEA Joint Committee

    - amending Annex XX (Environment) to the EEA Agreement. The purpose of this draft Decision is to amend Annex XX to the EEA Agreement to incorporate the acquis adopted by Decision 94/774/EC on the supervision and control of shipments of waste within, into and out of the European Community. This requires a Decision of the EEA Joint Committee amending Annex XX.

    - modifying Protocol 31 (concerning Education, Training and Youth) to the EEA Agreement. The aim of this draft Decision is to extend cooperation in the field of education, training and youth and to provide a framework for cooperation and set out the modalities for full participation of the EEA/EFTA States in the Community programmes and actions in this field.

DEVELOPMENT COOPERATION

ACP-EC

The Council adopted a Decision on the position to be adopted by the Community within the ACP-EC Committee of Ambassadors with a view to an initial decision on the transitional measures to be adopted to cover the period between the date of expiry of the Fourth ACP-EC Convention and 1 August 2000.

As a consequence, the position which the Community will adopt within the ACP-EC Committee of Ambassadors on the adoption of transitional measures shall be based on a draft Decision already established by that Committee.

It is recalled that the Fourth ACP¨-EC Convention expires on 29 February 2000. A new partnership agreement between the Community and its Member States, on the one hand, and the ACP States, on the other hand, is to be signed at Suva on 8 June 2000. Therefore, it is appropriate to extend most of the provisions of the revised Fourth ACP-EC Convention as transitional measures to be applied until 1 August 2000 and, at the same time, to apply the trade arrangements of the partnership as transitional measures.

In addition, the Council agreed to accept the ACP proposal to appoint Mr Carl GREENIDGE to the post of Director of the Technical Centre for the Agricultural and Rural Cooperation with effect from 1 March 2000 and until 31 August 2002. It is anticipated that a decision confirming this nomination will be adopted by the ACP-EC Committee of Ambassadors by written procedure.

South Africa

The Council adopted a Common Position with a view to the adoption of the Regulation of the European Parliament and the Council on development cooperation with South Africa.

It is recalled that the aim of the proposed Regulation is to allow the Community to implement financial and technical cooperation with South Africa to support the policies and reforms carried out by the South-African authorities in the context of policy dialogue and partnership.

SECURITY AND DEFENCE

National military experts

The Council adopted a Decision on the rules applicable to national experts in the military field on secondment to the General Secretariat of the Council during the interim period.

A decision of principle providing for the secondment of military experts was taken by the Council at its meeting of 14 February 2000. The present Decision sets out the rules applicable to these experts for the period of secondment.

The decision states that military experts shall be nationals of EU Member States. Their secondment shall be for a maximum of 3 years; in exceptional cases the period can be extended by up to 1 year.

Their task will be to provide military expertise to the Interim Military Body and to the Secretary General/High Representative. Acting under the authority of the Secretary General/High Representative and under the military guidance of the Interim Military Body, they shall carry out the tasks assigned to them in a predetermined work programme or job description.

Remuneration of military experts on secondment shall continue to be the full responsibility of the Member State concerned. They will also remain covered by their national social security legislation and health-care provisions.

The decision further contains provisions on the rights and obligations and working conditions as well as on other administrative rules concerning the military experts on secondment.

INTERNAL MARKET

Directive on electronic commerce

The Council adopted, the Belgian delegation abstaining, its common position on a directive on certain legal aspects of Information Society services, in particular electronic commerce, in the Internal Market ("Directive on electronic commerce"). The common position will be forwarded to the European Parliament for its second reading, in accordance with the provisions of the Treaty on co-decision.

The draft Directive aims at establishing a simplified and streamlined coherent legal framework for the development of electronic commerce within the Single Market. It builds upon and completes a number of other initiatives (regulatory transparency mechanism, protection of personal data, legal protection of conditional access services, electronic signatures) that together will eliminate the remaining legal obstacles to the on-line provision of services, and thereby optimise the benefits of electronic commerce for both citizens and industry in the European Union. It does not apply to the field of taxation, the processing of personal data or questions relating to agreements or practices governed by cartel law. There is no general exemption for financial services, but Member States can consider them on a "case by case" basis.

The draft directive will improve the coherence of the legal framework for electronic commerce in the European Union by:

    clarifying the application of key Internal Market principles (freedom of establishment of Service Providers and free movement of services) to Information Society services; the basic principle would be that such services could be provided throughout the EU if they comply with the law in their country of origin (NB: the Directive would apply only to service providers established within the EU and not those established outside);

    supplementing the existing Community legislation with additional harmonisation of certain specific legal aspects related to services, notably-to :

  • commercial communications (advertising, direct marketing, etc.) ;

  • the on-line conclusion of contracts ;

  • the liability of intermediaries ;

  • the enforcement and implementation of the legal framework.

These measures are intended to remove all legal obstacles resulting from divergent or overlapping Member State legislation and thereby guarantee, in conjunction with the existing acquis, the free movement of on-line services within the Community.

Fourth Motor Insurance Directive

The Council having not been able to accept all the amendments to the common positions on this draft directive voted by the European Parliament, a conciliation committee is called, in accordance with provisions for the co-decision procedure of the Treaty (Article 251).

Directive on late payments

The Council having not been able to accept all the amendments to the common positions on this draft directive voted by the European Parliament, a conciliation committee is called, in accordance with provisions for the co-decision procedure of the Treaty (Article 251).

Statistics relating to the trading of goods

The Council adopted its common position on a regulation amending Regulation (EEC) No 3330/91 on the statistics relating to the trading of goods between Member States, with specific reference to a simplified application of the nomenclature of products.

The draft regulation seeks to simplify the reporting of statistics on trade between the Member States for the information providers ,in particular for small and medium- sized enterprises.

UN/ECE regulations

The Council adopted five decisions on the position to be taken by the European Community on the following draft regulations of the United Nations Economic Commission for Europe :

    - approval of special equipment for motor vehicles fuelled by liquefied petroleum gas ;

- approval of motor vehicle headlamps emitting an asymmetrical passing beam or a driving beam or both and equipped with filament lamps ;

    - approval of motor vehicle headlamps emitting a symmetrical passing beam or a driving beam or both and equipped with filament lamps ;

    - approval of specific components of motor vehicles using compressed natural gas (CNG) in their propulsion systems and of vehicles with regard to the installation of specific components of an approved type for the use of compressed natural gas(CNG) in their propulsion systems ;

    -  uniform provisions for the approval of tank vehicles of categories N and O with regard to roll-over stability

ENVIRONMENT

Voluntary participation in a Community eco-management and audit system (Review of the EMAS Regulation) *

Following political agreement reached at the Environment Council on 24/25 June 1999 and legal-linguistic finalisation of the text and of the new logo, the Council formally adopted its common position on a review of the EMAS Regulation, allowing organisations to participate voluntarily in a Community eco-management and audit system. The common position will now be transmitted to the European Parliament for a second reading in accordance with the co-decision procedure. (See also Press Release no 9406/99 Presse 203).

EMAS provides economic operators with a tool to implement good environmental practices. Its objectives are to improve environmental performance, to demonstrate compliance with environmental legislation, and to communicate environmental achievements to the public.

The objective of the review is to broaden the scope of the Regulation to all organisations with significant environmental impacts, to increase the potential of EMAS and to rationalise the relationship between EMAS and the international standards in the field of environmental management. The proposal also intends to increase the visibility of participation in EMAS as well as the consistency of implementation across the Member States.

TRANSPARENCY

Public access to Council documents

The Council approved the replies to the confirmatory requests for access to documents made by

    -  Mr Tony BUNYAN (the Swedish delegation voted against);

    -  Mr Steve PEERS (the Danish and Swedish delegations voted against);

    -  Mr Roland LOUSKI (the Danish, Finnish and Swedish delegations voted against).

APPOINTMENTS

Economic and Social Committee

The Council adopted a Decision appointing Mr M. BULK a member of the Economic and Social Committee in place of Ms Jeannette van der HOOFT for the remainder of the latter's term of office, which runs until 20 September 2002.

(1) OJ L209, 2.8.1997.

(2) OJ C 124/03, 5.5.1999.

(3) In its revised version as of 1 February 2000, i.e. including the addendum to the updatedstability programme.

(4) OJ L209, 2.8.1997.

(5) OJ C68, 11.3.1999.

(6)OJ L 209, 2.8.1997

(7) OJ C 124, 5.5.1999

(8) OJ L209, 2.8.1997

(9)OJ C124, 5.5.1999

(10) OJ L209, 2.8.1997

(11)Council Opinion of 8 February 1999 on the convergence programme of the United Kingdom,1997-1998 to 2003-2004 (OJ C68, 11.3.99).

(12) OJ L209, 2.8.1997

(13) Council opinion on the convergence programme of Denmark, 1998-2005, 14 December 1999.


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