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C/01/102

6925/01 (Presse 102)

2335th Council meeting

- ECOFIN -

Brussels, 12 March 2001

President :

Mr Bosse RINGHOLM

Minister for Finance of the Kingdom of Sweden

CONTENTS

PARTICIPANTS 4

ITEMS DEBATED

PREPARATION OF THE STOCKHOLM EUROPEAN COUNCIL 5

    - FINAL REPORT ON THE REGULATION OF THE EUROPEAN SECURITIES MARKETS 5

    - COMMISSION SYNTHESIS REPORT ON THE LISBON STRATEGY 6

    - BROAD ECONOMIC POLICY GUIDELINES (BEPG) 7

    - CONTRIBUTION OF PUBLIC FINANCES TO GROWTH AND EMPLOYMENT : IMPROVING QUALITY AND SUSTAINABILITY 9

    - ANNUAL REPORT ON STRUCTURAL REFORMS - 2001 10

    - STATUS REPORT BY THE EIB ON ITS "INNOVATION 2000 INITIATIVE" (i2i) 11

    - STRUCTURAL INDICATORS - SHORT LIST 12

GALILEO 13

EU BUDGET ISSUES 14

    - Discharge procedures relative to the implementation of the 1999 budget 14

    - Efficient financial management - Presentation by the Commission of the report of the Personal Representatives Group for the second half of the year 2000 14

    - Priorities for the EU budget 2002 - Council conclusions 15

IMPLEMENTATION OF THE STABILITY AND GROWTH PACT 19

    - Updated Stability Programme of Belgium, 2001-2005 19

    - Updated Stability Programme of Spain, 2000-2004 21

    - Updated Stability Programme of Luxembourg, 1999-2003 23

    - Updated Stability Programme of Portugal, 2001-2004 24

LUNCH ITEMS 27

ANNEX 28

ITEMS APPROVED WITHOUT DEBATE

ECOFIN

  • Excise duty - Derogations for certain mineral oils

     - Excise duty on mineral oils - General Decision  I

     - Excise duty on fuels with low sulphur content- Germany I

     - Excise duty on water/diesel emulsions and water/heavy fuel oil emulsions - Italy I

     - Excise duty on diesel fuel used in local public transport - France I

     - Excise duty on diesel consumed by taxis - Netherlands II

     - Excise duty on low-sulphur diesel - Netherlands II

  • UCITS II

  • Reorganisation and winding-up of credit institutions III

BUDGET

  • European Centre for the Development of Vocational Training - Discharge procedure IV

  • European Foundation for the Improvement of Living and Working Conditions - Discharge procedure IV

  • 1999 discharge - Commission's action plan for improving financial management and procedures - Council conclusions IV

  • 1998 financial year - follow-up report - Council conclusions V

  • Greening of the CAP - special report No 14/2000 by the Court of Auditors - Council conclusions and recommendations VII

EXTERNAL RELATIONS

  • Special Report No 19/2000 from the Court of Auditors on the management by the Commission of the Programme of assistance to the Palestinian society - Council conclusions VII

  • European Union Monitoring Mission (EUMM) IX

  • EU contribution to combating the destabilising accumulation and spread al small arms and light weapons in Latin America and the Caribbean IX

  • European Development Funds - discharge for the financial year 1999 IX

TRADE ISSUES

  • Community participation in the International Lead and Zinc Study Group X

  • Accession of Moldova to the World Trade Organisation X

COURT OF JUSTICE

  • Rules of Procedure X

EMPLOYMENT AND SOCIAL POLICY

  • Codification of the Directive on employees' rights in the event of transfers X

TRANSPORT

  • Codification of the Directive on the minimum level of training of seafarers XI

APPOINTMENTS

  • Committee of the Regions XI

_________________

For further information call 02-285.64.23, 02-285.84.15 or 02-285.68.08

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
MrMichael DITHMERState Secretary for EconomicAffairs
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 FIGAREDOSecond Deputy Prime Minister and Minister for Economic Affairs
France :
Mr Laurent FABIUSMinister for Economic Affairs, Finance and Industry
Ireland :
Mr Charlie McCREEVYMinister for Finance
Italy :
Mr Vincenzo VISCOMinister for the Treasury, the Budget and Economic Planning
Luxembourg :
Mr Jean-Claude JUNCKERPrime Minister, Minister for Finance
Mr Henri GRETHENMinister for Economic Affairs, Minister for Transport
Netherlands :
Mr Gerrit ZALMMinister for Finance
Austria :
Mr Karl-Heinz GRASSERFederal Minister for Finance
Portugal :
Mr Joaquim PINA MOURAMinister for Finance
Mr Manuel BAGNAHAState Secretary for the Treasury and Finance
Finland :
Mr Raimo SAILASState Secretary, Ministry for Finance
Sweden :
Mr Bosse RINGHOLMMinister for Finance
Mr Sven HEGELUNDState Secretary to the Minister for Finance
Mr Curt MALMBORGState Secretary, Ministry of Finance
United Kingdom :
Mr Gordon BROWNChancellor of the Exchequer
* * *
Commission :
Mr Romano PRODIPresident
Ms Loyola de PALACIOVice-President
Mr Frits BOLKESTEINMember
Ms Michaele SCHREYERMember
Mr Pedro SOLBES MIRAMember
* * *
Other participants :
Mr Philippe MAYSTADTChairman of the European Investment Bank
Mr Mario DRAGHIChairman of the Economic and Financial Committee
Mr Norman GLASSChairman of the Economic Policy Committee

PREPARATION OF THE STOCKHOLM EUROPEAN COUNCIL

The Council prepared the ECOFIN aspects of the Stockholm European Council which has the follow-up of the Lisbon Strategy as its main topic, covering the following points :

  • FINAL REPORT ON THE REGULATION OF THE EUROPEAN SECURITIES MARKETS

The Council discussed the Report on the Regulation of the European Securities Markets presented on 15 February 2001 by the Committee of Wise Men, presided by Alexandre LAMFALUSSY, established on the basis of the terms of reference defined by the Council on 17 July 2000 and the Council conclusions of 27 November 2000 on the interim report. The aim was to present a report to the European Council, including a draft resolution on the matter.

The Council welcomed the recommendations of the Wise Men's Report which centre on making the regulatory process more effective and on adopting a priority list of securities markets legislation to be in effect by the end of 2003. It discussed in depth how the proposals of the Report based on a 4-level approach (framework principles, implementing measures, co-operation and enforcement) could be translated into operational terms.

This approach provides in particular for two layers in the legislation related to financial markets : basic political choices that can be translated into broad, but sufficiently precise, framework norms to be decided by normal EU legislative procedures, i.e. proposal by the Commission to the Council and the EP for co-decision, and the more detailed measures to be adopted by the Commission assisted by a new committee, the Securities Committee. A second new committee, the Regulators Committee, consisting of national regulators will be set up to advise the Commission and assist in the implementation.

The Council made good progress in defining the general rules for solving the institutional and organisational questions raised by the 4-level approach, whilst fully respecting the Treaty provisions, the prerogatives of the institutions concerned and the current institutional balance.

At the end of its discussion, the Council requested the Economic and Financial Committee to continue work on some still open provisions concerning the relations between the Council, the Commission and the European Parliament in the context of the specific legislative process outlined by the Lamfalussy Report with the aim of presenting a comprehensive draft resolution to the European Council for approval.

  • COMMISSION SYNTHESIS REPORT ON THE LISBON STRATEGY

The Council heard a presentation by Commission President PRODI highlighting the key elements of the Commission's synthesis report on "Realising the EU potential : consolidating and extending the Lisbon Strategy". He stressed in particular that the goal of the Lisbon Strategy is to review the European economic and social model, so as to increase the growth potential, obtain sustained growth and reach full employment, and that in this model, economic and social reforms should be seen as reinforcing each other rather than perceived as antagonistic.

He reviewed progress made in the year since Lisbon and recalled the 10 priorities for action in 2001 put to the Stockholm European Council : more and better jobs, new European labour markets, economic reforms for goods and services, integrated financial markets, the right regulatory environment, eEurope 2002, the IT skills gap, research, innovation and enterprise, frontier technologies and effective social protection for an ageing population. He called in particular for determined action in 4 fields :

- a skilled and mobile labour force to have more and better jobs,

- a leading role in innovation to transform ideas into new markets and growth,

- the completion of market reforms, and

- a firm commitment to tackle the demographic challenge.

The synthesis report will constitute a central background document for the review of the Lisbon Strategy at the Stockholm European Council. It is recalled that this report has already been discussed by the Employment and Social Policy Council of 6 March (see Press Release 6507/01 Presse 62). The executive summary of the report is reproduced in the Annex.

  • BROAD ECONOMIC POLICY GUIDELINES (BEPG)

      = Key issues paper

The Council endorsed the key issues paper on the 2001 Broad Economic Policy Guidelines (BEPG) which will be an important basis for the discussion of the Heads of State and Government on the future economic policies.

It is recalled that the Lisbon European Council decided that the BEPG should be one of the key instruments to achieve the new strategic goal to make the EU by 2010 "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion". The Council ECOFIN decided therefore in June 2000 that the BEPG should give operational content to the priorities established in the annual Spring Meeting and that the Council shall annually set out a key issues paper on the BEPG on which the European Council will be invited to focus its discussion.

The paper has been established following the orientation debate which took place at the February ECOFIN session. It has also taken on board substantive contributions by the Employment and Social Policy Council and the Internal Market, Consumer Affairs and Tourism Council.

The paper identifies main challenges and key issues for the 2001 BEPG including the macro-economic policy mix and the strengthening of the Union's potential growth rate through labour market reform, changes to the process of regulatory reform to foster efficiency and integration of financial markets, as well as policies to improve the functioning of product markets and enhance the transition to a more dynamic knowledge-based economy ; the paper also deals with the challenges of ageing populations.

    = Implementation of the 2000 guidelines - Commission report

The Council took note of the report on the implementation of the 2000 Broad Economic Policy Guidelines. This report serves two purposes. Firstly, it makes an assessment of the degree of implementation of the 2000 BEPG. As such it is part of the monitoring and surveillance process that takes place to ascertain that the recommendations are followed up. Secondly, it prepares the next BEPG. By comprehensively identifying which recommendations have been adopted and which have not, and by re-evaluating the 15 economies, the process of formulating the new recommendations has become more meticulous.

  • CONTRIBUTION OF PUBLIC FINANCES TO GROWTH AND EMPLOYMENT : IMPROVING QUALITY AND SUSTAINABILITY

The Council adopted the Joint Report of the Council and the Commission concerning the contribution of public finances to growth and employment and agreed to forward it to the European Council in Stockholm. (The report can be found on the Council website http://consilium.europa.eu.)

This Report examines how public finances can contribute to achieving the targets set in Lisbon through supporting a stable macro-economic framework via sound public finances, by making tax and benefit systems more employment friendly, and by re-orienting public expenditures towards physical and human capital accumulation. Particular attention is given to the economic and budgetary challenges posed by ageing populations.

The Council agreed in particular that future Stability and Convergence Programmes should include a section on the long-term sustainability of public finances ; these Programmes should from now on also set out the strategy of Governments to address the budgetary consequences of ageing.

It is recalled that the Lisbon European Council had requested such a report for the Spring 2001 European Council. It draws on a progress report examined by the Council on 7 November 2000 and a Commission communication on the quality and sustainability of public finances of 21 December 2000.

  • ANNUAL REPORT ON STRUCTURAL REFORMS - 2001

The Council heard a short presentation by the Chairman of the Economic Policy Committee of key elements of the 2001 Report on Structural Reforms. It commended the EPC for presenting a Report of high quality which will be taken fully into account by the Council when establishing the Broad Economic Policy Guidelines (BEPG). The Council agreed to forward the Report to the European Council in Stockholm.

This Report is a peer review exercise focussing on progress made in Member States in the structural reform of products, capital and labour markets. It provides benchmarking comparisons across countries, gives examples of "best practices" and proposes some key messages from the exercise, in particular with respect to areas in which further efforts are to be made in order to :

    - ensure effective competition and the completion of the internal market,

    - improve the ability of benefit systems and of labour market regulations and institutions to facilitate high employment,

- improve the quality and efficiency of public regulation, administration and services, and

- speed up the transition to the knowledge-based society.

Priority topics chosen for this year's exercise reflect the objectives agreed by the European Council in Lisbon.

This is the third report of the kind summarising the results of the annual country by country examination of economic policies which the EPC does according to its statutes.

  • STATUS REPORT BY THE EIB ON ITS "INNOVATION 2000 INITIATIVE" (i2i)

The Council heard a presentation by Mr MAYSTADT, EIB President, of the Bank's report on the progress and perspectives in implementation one year after the launch of its "Innovation 2000 Initiative" (i2i) pertaining to the Lisbon Process. The Council thanked the EIB for its commitment and the report which will be transmitted to the European Council in Stockholm.

The EIB summarises its report as follows :

    = i2i is able to give a substantial push to the emergence of a European knowledge-based economy and information society, as well as to support the creation of competitive and stable employment opportunities.

    = The implementation of i2i is well under way in the Member States, and the reform of the EIF in 2000 and the creation (under preparation) of the EIB's Structured Finance Facility in 2001 should further help in that context.

    = Special efforts during 2001 are in particularly needed in the new fields for EIB operations, like R&D and the media sector. Preparations are progressing and a strong pipeline is building up.

    = The extension of i2i to the Accession Countries should give additional impetus to the programme as well as provide it with an additional regional development dimension, as well as with a pan-European perspective.

The programme includes a dedicated lending envelope of 12-15 billion euros over a period of three years. The Governors approved both the reform of the statutes of the European Investment Fund and agreed to release a second billion euro out of the EIB annual surpluses over the next years, of which 500 million were directly made available out of the 1999 surplus. This allowed to develop the EIF into the specialised instrument of the Bank's involvement in risk capital operations and provided it with the necessary resources to fulfil its part under "i2i". In terms of concrete operations a total of 26 projects worth over 2.5 billion were approved since May 2000 and many of them have already been signed.

  • STRUCTURAL INDICATORS - SHORT LIST

The Council agreed the report on the short list of structural indicators to be forwarded to the Stockholm European Council.

It is recalled that on 7 November 2000, ECOFIN expressed the wish that a more limited set of structural indicators should be selected, taken from the list of 35 indicators agreed by the Council and the Commission to be used in the synthesis report (and which was welcomed by the Nice European Council). The short list could serve as the basis for the Council's discussions, provide a more concise overview of the performance of Member States and focus public debate.

Before the end of the year 2000, the French Presidency, in concertation with the Member States and the Commission, selected a well-balanced list of 12 indicators taken from the agreed list of 35 indicators. Following discussions in the Economic Policy Committee, the Council agreed on the short list of structural indicators, which cover the general economic background, employment, innovation and research as well as economic and social cohesion.

The Council also asked the EPC to continue work on indicators which need to be further developed in some areas to maximise their usefulness, for instance, to develop as soon as possible indicators reflecting the openness and market structure of network industries.

GALILEO

At the initiative of the Dutch Minister, the Council addressed the financial aspects of the Galileo-project and, in particular, the question of raising private capital through public/private participation. Commissioner DE PALACIO provided extensive information on the state of the project and the different elements of its financing.

EU BUDGET ISSUES

  • Discharge procedures relative to the implementation of the 1999 budget

Following preparatory work by the Budget Committee (with the presence of representative of the Court of Auditors) and the Permanent Representatives Committee, the Council adopted its recommendation to the European Parliament on the discharge to be given to the Commission with respect to the implementation of the general budget of the EC for the financial year 1999. The Council also approved general observations accompanying the recommendation - including Council conclusions on special reports adopted in the course of the year by different Council formations -and forwarded them to the European Parliament.

Before confirming the agreement on the recommendation reached by the Permanent Representatives Committee, and following an intervention by Commissioner SCHREYER, the Council held an exchange of views during which in particular the question of financial control systems and practices within the Member States was raised.

In connection with this item, the Council also adopted, without debate, conclusions on the follow-up to the Action Plan for improving financial management and procedures, as well as conclusions on the follow-up to the 1998 discharge procedure (see A-points, pages IV-V).

  • Efficient financial management - Presentation by the Commission of the report of the Personal Representatives Group for the second half of the year 2000

The Council took note of a presentation by Commissioner SCHREYER of the report of the Personal Representatives Group on efficient financial management for the second half of the year 2000.

  • Priorities for the EU budget 2002 - Council conclusions

Prior to the adoption - for the first time - of conclusions on Council priorities for the EU budget 2002, Ministers held an exchange of views on key budgetary orientations for 2002. Commissioner SCHREYER opened this debate by indicating that the Commission had adopted its budgetary priorities on 21 February 2001 in the framework of the so-called annual policy strategy decision (APS). Strategic priorities of the Commission for 2002 are sustainable development, monetary union, new European governance, enlargement, the Mediterranean area and development co-operation. These priorities do not translate necessarily into higher operational expenditure, but rather set preferences for specific allocations. Budget planning provides for a maximum increase of 3% in commitments, without rebudgetisation, and 4.3% with rebudgetisation. This will allow, according to the Berlin decisions, an increase in payments of 7.3%.

As for specific aspects of the 2002 planning, she indicated the Commission's intentions on how to handle procedurally the challenges of the BSE crisis within the existing CAP ceiling, as well as the reprogramming of unspent 2000 credits for structural measures. For internal policies, the expenditure will rise by 4.6%, mainly to cope with pluriannual programmes. For Chapter 4, no increase in expenditure appears to be necessary following the frontloading of the Balkans programme in 2000 and 2001. Administrative expenditure will rise by 4.9% with a specific increase of 9.3% for pensions.

During the Council debate, Ministers insisted in particular on the absolute need to respect the financial perspective and the interinstitutional agreement of 6 May 1999 on budgetary discipline and improvement of the budgetary procedure. They also addressed a certain number of key issues under the different headings (i.a. coping with the BSE crisis, commitments in the Balkans, the cost of structural reform and innovation, etc.).

The Council adopted the following conclusions on the budget guidelines for 2002 :

    "1. The Council welcomes the spirit of cooperation that governed work on the preparation of the budget for 2001 and emphasises the importance of continuing the good collaboration between the two arms of the budget authority and the Commission.

    2. The Council recalls the decision of the European Council in Berlin on 24 and 25 March 1999 that the Union should be equipped with more effective policies and the financial means to implement them in a spirit of solidarity, while ensuring similar budgetary rigour at the level of the Union to that applied at national level.

    3. The Council reaffirms that it applies the Interinstitutional Agreement of 6 May 1999 to the full. It lays great emphasis on compliance with the financial perspective, requiring that Community expenditure remain within the limits set therein, and on the importance of leaving a sufficient margin available under the ceilings for the various headings, except heading 2, to deal with unforeseen circumstances in particular.

    4. The Council stresses once again the importance of keeping a tight grip on commitment and payment appropriations for 2002. The level of payment appropriations entered in the budget must be sufficient, taking into account past uptake and the genuine possibilities for future uptake of appropriations, while endeavouring to maintain a strict relationship between appropriations for commitments and appropriations for payments. Outstanding commitments should not exceed a normal level, i.e. they should be in line with the expected execution of the budget. Particular attention should be paid to mopping up outstanding commitments not warranted by normal execution of the budget.

    To that end, the Council will closely examine the report which the Commission is to submit before 30 June 2001 on progress in reducing outstanding commitments, to bring them down to a normal level.

    5. The Council points to the importance of financial programming, in particular for headings 3 and 4 of the financial perspective, as stated by the budgetary authority in its Joint Declaration of 20 July 2000. It calls on the Commission to provide the budgetary authority with sufficient information on the reasons for new legislative and budgetary proposals. Such information should, as far as possible, include clear and measurable objectives for a set timescale.

    The Council supports the Commission's efforts to make better use of findings from evaluation and budgetary analysis for the purpose of improving the quality of implementation of Community projects and programmes and, if appropriate, deciding whether to renew them. The Commission is requested to make further improvements to its reports so that the results of that work can be taken into account in establishing the preliminary draft budget, with particular reference to explaining the options selected. The Council also wishes to receive regular reports on results and on measures taken, in order to bring such results into its legislative and budgetary proceedings in the most suitable manner.

    Multiannual programmes or, in other areas, decisions with long-term effects should include provision for a mid-term review.

    6. The Council is following with interest the Commission's work on activity-based budgeting (ABB). It points to the need rapidly to recast the Financial Regulation.

    7. The Council requests the Commission to include an estimate of the surplus in its autumn letter of amendment, as it did for the 2001 budget.

    8. As regards certain specific headings of the financial perspective, the Council identifies the following elements as crucial in preparing the 2002 budget.

       On the financial repercussions of the BSE crisis, the Council points out that, in accordance with the conclusions of the Nice European Council meeting, the financial perspective and the Council Regulation on budgetary discipline must be complied with, even if fresh measures have to be taken as a consequence of BSE.

       The Council states its intention of staying within the reference amounts for multiannual programmes under heading 4. In determining budget allocations, account must also be taken of information on other contributors and on the capacity of the partner countries to absorb funds and of the annual priorities which the Council has set itself. The budget allocations for the Western Balkans must take account of the reference amount set by the Council for the multiannual programme, including the fact that the budgets for 2000 and 2001 were drawn up with frontloading in mind. Budgetary choices generally should be guided by the discussions in the General Affairs Council on 22 January 2001, within the context of budgetary negotiations overall.

       The Council highlights the importance of measures in connection with the Lisbon European Council conclusions.

       Before any proposal for a new programme or a new budget heading is submitted to the budgetary authority, there must, in accordance with the Interinstitutional Agreement, be a report on the pilot projects and preparatory measures, containing inter alia an evaluation of the results.

       The Council supports the Commission's efforts to reform its administration and management. The Council is, however, concerned at the narrow margin available under the ceiling for heading 5. It stresses that the preliminary draft budget must leave a margin sufficient to cover the needs of all the institutions and that all possibilities of redeployment must be exhausted before additional funds are requested.

    9. The Council wishes these guidelines to be taken into account in the budget procedure, particularly in the preparation of the preliminary draft budget for 2002."

IMPLEMENTATION OF THE STABILITY AND GROWTH PACT

The Council completed the cycle of review of the updated Stability Programmes of Member States by examining the programmes of Belgium, Spain, Luxembourg and Portugal and adopted the following opinions :

  • Updated Stability Programme of Belgium, 2001-2005

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(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 12 March 2001, the Council examined the 2000 update of the Stability Programme of Belgium which covers the period 2001-2005.

In the last two years, real GDP growth was stronger than expected in the 1999 updated stability programme, reaching 2.7% in 1999 and 3.8% in 2000. As a result the general government deficit reached 0.7% of GDP in 1999 and turned to balance in 2000 according to the latest estimates. The government debt ratio to GDP was reduced by 5.5 percentage points to 110.6% of GDP in 2000. The Council notes that these results comply with its opinion on the 1999 updated programme as well as with the Broad Economic Policy Guidelines.

The 2000 updated stability programme is based on a macroeconomic scenario assuming real GDP growth at trend, estimated at 2.5% in the period from 2001 to 2005; while this cautious approach is understandable, the Council notes that, at least for 2001 and 2002, some forecasts are currently higher. The updated stability programme projects a general government surplus of 0.2% of GDP in 2001 rising to 0.7% of GDP in 2005 while the government debt ratio is projected to decline by 22 percentage points of GDP to 88% of GDP in 2005.

The Council notes that the projections for the government balance are considered in the updated programme as objectives which should be met even in the event that economic activity would falter. The Council commends the budgetary consolidation strategy based mainly on the achievement of large primary government surpluses, reaching more than 6% of GDP per year; this strategy, already successfully implemented in recent years, is particularly appropriate in the case of Belgium where government debt is still very high. The Council notes that the reduction of the high government debt remains a high priority. The Council notes that, according to the updated programme, in order to achieve high primary surpluses, expenditure control is expected to result from applying a limit of 1.5% to the increase in real terms in primary expenditure in Entity I (federal government and social security). It notes also that within this framework, budgetary margins estimated at 1.3% of GDP in 2005 are expected to become available to finance tax cuts and selected expenditure measures.

The Council acknowledges that after a prolonged period of needed budgetary restraint, a number of policy areas should be taken into consideration in Belgium, such as tax alleviation, particularly on labour, and an active employment policy; however, the Council considers that control on government expenditure must still be given the highest priority and urges the Belgian government to respect the limit of 1.5% set for primary expenditure in real terms already in 2001. The allocation of the budgetary margins should be closely monitored in order to be consistent with this limit. Furthermore, given the level of government indebtedness and in view of budgetary challenges in the long term, the Council recommends that all additional revenues which might stem from better than expected real GDP growth be allocated to debt reduction.

The Council commends the structural reforms described in the updated stability programme in particular those intended to increase the employment rate as well as the policy aiming at ensuring the long-term sustainability of public finances.

The Council welcomes the new agreement concluded in December 2000 between the Federal government, Communities and Regions in Belgium aimed at ensuring budgetary adjustment and sustainable public finances in the medium term at the different levels of government.

The Council regrets that no information was supplied in the stability programme about projected total expenditure and revenue ratios and specific categories of government expenditure such as expenditure for pension and health care as well as government investment expenditure. The Council recommends that more detailed projections are provided in future stability programmes in order to allow a fully informed assessment.

The Council considers that the budgetary results achieved in Belgium are already in conformity in 2000 with the requirement of the Stability and Growth Pact and will remain so throughout the period covered by the 2000 updated programme.

  • Updated Stability Programme of Spain, 2000-2004

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(2), 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 12 March 2001 the Council examined Spain's updated stability programme which covers the 2000-2004 period. The Council notes that the programme reaffirms the strategy adopted in the two previous programmes: promoting healthy economic growth through fiscal consolidation and structural reforms. Notwithstanding, the update has the same lack of information found in the two previous programmes, which makes more difficult the assessment of both the macroeconomic scenario and the estimate of the underlying budgetary position. This lack of information should be corrected in future updates.

The programme's objectives are to turn the estimated 2000 general government deficit of 0.3% of GDP into a balance in 2001 and a surplus of 0.3% in 2004, while the debt ratio falls to 49.6% of GDP at the end of the forecast period.

The Council welcomes the overall record of implementation of the previous update. GDP has grown more briskly than expected along with strong job creation, while general government balance and debt targets have been overachieved. Nevertheless, recent price developments have been worse than expected, reflecting increasing core inflation stemming from strong domestic demand as well as external factors. The Council therefore considers essential that wage growth should be compatible with price stability. The Council recommends that wage indexation be phased out. It also recommends that if inflationary pressures should persist, the Spanish authorities should tighten fiscal policy further.

The macroeconomic scenario considered in the updated programme assumes output growth to decelerate from its present high rate (4.0% in 2000) to 3.6% in 2001 and to slightly below trend over the period 2002-2004 (3.2% on average). Although for 2001 recent developments may point to a weaker outturn, the Council notes that this medium-term macroeconomic scenario appears broadly realistic overall.

The update continues with the successful budgetary strategy based on the restraint of primary current expenditure, which will allow for a reinforcement of government investment and for a reduction in the tax burden through a fiscal reform in 2002. Fiscal policy can be considered mildly restrictive over the period. As the envisaged strengthening of the government balance is based on expenditure restraint, the Council reiterates its encouragement for the approval of appropriate instruments, such as the proposed Law of Budgetary Stability, to reinforce control of public spending at various levels of government. In turn, the Spanish authorities should be prepared to consider measures to offset the budgetary impact of the recent court ruling on civil servant wages in the event that this ruling is upheld on appeal.

The underlying budgetary position from 2001 should provide sufficient safety margin to prevent the deficit from breaching the 3% of GDP threshold during a normal cyclical downturn. The safety margin will increase further after 2001. The Council therefore considers that 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 by the Spanish authorities to allocate the expected social security surpluses to further increase the Social Security reserve fund created in 2000. The Council notes that as recommended in the 2000 Broad Economic Policy Guidelines this fund was reinforced in 2000. Nonetheless, the update does not provide additional steps to tackle the long-term sustainability of public finances in view of the ageing population. The Council recommends the Spanish authorities to adopt new measures in order to ensure the viability of the public pension system, and would welcome greater attention to the issue of long-term sustainability in future updates.

The Council considers that the budgetary adjustment should be facilitated by its being shared by all levels of government, and in particular notes with satisfaction that the territorial governments are targeted to be in balance from 2001 on. Given the increasing role of territorial governments in various categories of expenditure (notably investment), this requires the continued effective functioning of the existing co-ordination between general government sub-sectors, which should be reinforced through the appropriate instruments under domestic discussion, such as the proposed Law of Budgetary Stability. The Council also welcomes the commitment to apply any better-than-expected budgetary results of central government to public debt redemption.

The Council considers that the programme is consistent with the Broad Economic Policy Guidelines. The Council notes with approval the importance given in the update to structural policies. Structural reforms play an important role in increasing the potential output of the Spanish economy while easing inflationary pressures. The Council, therefore, encourages the Spanish government to implement the envisaged structural reforms, which must be closely monitored and speeded up and reinforced if necessary.

  • Updated Stability Programme of Luxembourg, 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(3), 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 12 March 2001 the Council examined the 2000 update of the stability programme of Luxembourg which covers the period 2000-2003.

The Council notes that continuing commitment to sound economic policies, in particular budgetary policies, has entailed a remarkable economic performance in Luxembourg: real GDP growth reached 7.5% in 1999 and an estimated 8.3% in 2000.

The Council notes with satisfaction that the budgetary objectives set in the 1999 update have been exceeded, as the general government surplus reached 4.4% of GDP in 1999 and likely more than 3% of GDP in 2000. The Council considers that the updated stability programme is consistent with the Broad Economic Policy Guidelines.

The Council notes that the updated programme takes into account the effects of the ambitious reduction in income tax planned for 2001 and 2002 ; as a result of these tax cuts, the general government surplus is projected to come down to about 2½% of GDP in the years2001-2003. While the very healthy public finance situation in Luxembourg clearly allows a significant reduction in the tax burden, the Council, considering the fiscal impulse given by the tax reform to a fast growing economy where wage increases are already accelerating, encourages the government to be ready to tighten the stance of fiscal policy if inflationary risks become more evident.

The Council notes that government expenditures are still increasing at a rapid pace although their ratio to GDP is projected to decline by 2 percentage points during the period to 2003; therefore, the Council recommends to the Luxembourg government to monitor closely and be ready to limit expenditure increases which might become a source of vulnerability for the public finances should real GDP growth falter.

However, the Council commends the policies aimed at strengthening economic efficiency, particularly increased public investment. It notes the measures aimed at strengthening the reserve funds in the social security sector, particularly for pension provision. More information on the implications of the cost of the ageing population should be provided in the next update. The Council also notes the recent ILO study on pensions commissioned by the Government. The Council notes that, although the government debt is particularly low in Luxembourg, more information concerning developments in this area should also be provided.

The Council considers that the underlying financial position of the general government corresponding to the projected surpluses over the period of the programme to 2003 provides an adequate safety margin against breaching the 3% of GDP deficit threshold, thus fully complying with the Stability and Growth Pact requirements.

  • Updated Stability Programme of Portugal, 2001-2004

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 12 March 2001 the Council examined the updated stability programme of Portugal which covers the period 2001-2004. The Council notes that the present update maintains the budgetary targets of the previous programme update, i.e. the general government balance is projected to improve from an estimated deficit of 1.4 per cent of GDP in 2000 to a balanced position in 2004, while the general government consolidated gross debt should be brought to below 50 per cent of GDP by the end of the programme period. The present update assumes annual average output growth of 3¼ per cent over the period 2001-04, which is slightly below the growth projections of the previous programme update.

Regarding the budgetary implementation in 2000, the Council notes that overruns in current primary expenditure and lower than estimated revenues from mineral oil taxes (0.5 percent of GDP) were only partially offset by lower than projected capital expenditure and higher than budgeted tax revenues in some areas (income taxes, VAT). The deficit target of 1.5 per cent of GDP was achieved only because of the proceeds from the sale of UMTS licences, which were not initially budgeted and amounted to 0.4 per cent of GDP. The overruns in current primary expenditure in 2000 were not in line with the 2000 Broad Economic Policy Guidelines in so far as these recommended strict adherence to the budgetary target through tight expenditure restraint. The Council notes with concern that such overruns have been a feature of the budgetary implementation in earlier years. The Council further notes that the underlying budgetary position net of UMTS proceeds has hardly changed from 1999 to 2000. This appears inappropriate in the current conditions of excess demand in the Portuguese economy and in view of the need to achieve a budgetary position in line with the Stability and Growth Pact, both of which call for a tighter budgetary stance, as advocated by the Broad Economic Policy Guidelines.

The Council notes that the growth scenario underlying the current update is more realistic than the previous one. The Council considers that the current conditions of excess demand, which have translated into a large and widening external imbalance, pose a downward risk to sustained economic growth. To achieve a more balanced and sustainable growth pattern it is, therefore, essential that the projected re-composition of growth away from domestic demand towards exports materialises. The Council urges the Portuguese authorities in this context to monitor closely price and wage developments in the economy with a view to strengthening competitiveness. It seems crucial, in particular, that the current acceleration in consumer price inflation does not feed into a wage price spiral. The Council recommends that the Portuguese authorities should be ready to tighten fiscal policy further should inflationary pressures persist.

As regards government finances, the Council notes that, abstracting from UMTS proceeds, the projected improvement in the government balance in 2001 amounts to 0.7 per cent of GDP. This implies an appropriate tightening of the budgetary stance in 2001 and requires control of current expenditure, in particular through the reinforcement of budgetary procedures. In the absence of such reinforced control mechanisms there is a risk of continuing expenditure overruns, particularly in the area of health care and the government wage bill. The Council welcomes the efforts which are being made in this respect and encourages the Portuguese government to implement forthcoming measures swiftly and with determination in the framework of the envisaged Public Finance Consolidation Programme. Moreover the Council considers that control of total expenditure should not rely on cutbacks in public investment given the catching-up needs of Portugal and the Broad Economic Policy Guidelines for 2000 which call for redirecting government spending to give greater relative importance to investment in physical and human capital, innovation and information technologies.

The Council notes that according to the programme update the overall consolidation effort is spread more or less evenly over the period 2001-04. Moreover, the reduction in the deficit ratio results from similar cumulative changes of ¾ of a p.p. of GDP on both the revenue and the expenditure side of the budget. The Council notes the intention of the Portuguese authorities to further increase tax revenues in the coming years, as a consequence of broadening the tax base and a more efficient tax administration brought about by ongoing reform of the tax system. However, this budgetary consolidation strategy should be consistent with a reduction in the tax burden as advocated in the Broad Economic Policy Guidelines and already noted by the Council in its opinion on the previous update(5). In fact, the tax burden in Portugal has risen rapidly in recent years and may have reached a level that could impede more dynamic growth. Moreover, while acknowledging that the increase in the revenue ratio is brought about despite ongoing cuts in tax rates, the Council considers that continued reliance on higher efficiency in the collection of taxes is not without risks as tax efficiency measures might deliver diminishing returns.

The Council considers that the budgetary position underlying the medium-term deficit targets of the Portuguese stability programme update is in line with the requirements of the Stability and Growth Pact only after 2002. The Council therefore reiterates its recommendation in the opinion on the previous update to aim for a faster decline in the deficit ratio with a view to increasing the necessary safety margin that allows Portugal to let the automatic stabilisers work in the event of a cyclical downturn. The Portuguese authorities should, therefore, do their best to achieve better results than planned. The Council expects that, in the next update of the programme, the Portuguese government will introduce concrete measures to attain such a more ambitious pace of budgetary consolidation.

The Council welcomes the planned budgetary and structural reform measures outlined in the programme which are broadly in line with the Broad Economic Policy Guidelines. Among the most urgent reforms are the implementation of the new basic law for the budget. Additional measures in the area of health care to improve expenditure control and efficiency are also needed to underpin the process of budgetary consolidation. Moreover, with a view to ensuring the sustainability of government finances in the longer term, the Council encourages the Portuguese authorities to implement expeditiously the enabling legislation required by the recently adopted social security framework law. A rapid and determined implementation of these reforms, some of which were already announced in previous updates of the programme, is necessary to strengthen the overall credibility of the economic policy strategy. Also Portugal needs to develop a comprehensive strategy to address the budgetary challenges of ageing population. Therefore, the Council invites the Portuguese authorities to address this issue more extensively in the next update of its stability programme

*

* *

LUNCH ITEMS

Over lunch, Ministers received the customary debriefing by the President of the Eurogroup, Belgian Finance Minister Didier REYNDERS, on the discussions of the Group held on the previous evening which covered i.a. the economic situation and outlook in the eurozone, enhanced economic co-ordination within the zone and, in particular, the future use of the BEPG with respect to structural reform and public finances, development of the Eurogoup's activities and the usual update on the preparation of the changeover to the euro, in particular with respect to notes and coins.

Ministers also had an exchange of views on the possibility of EIB lending to Russia for specific environmental projects.

The President and the Commission informed Ministers on the state of play with regard to relations with third countries concerning taxation of savings.

Finally, Ministers discussed the letter from the President of the European Parliament's Monetary Affairs Committee requesting the EP's participation in the macro-economic dialogue and at the informal ECOFIN meeting.

ANNEX

"Realising the EU potential : consolidating and extending the Lisbon Strategy"

(Executive Summary)

At Lisbon the European Council defined an ambitious strategy for change. A strategy to make the European Union by 2010 "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion".

Lisbon invited the European Council to meet each Spring to discuss economic and social questions, against the background of the European Union's strategic goal. This report responds to the Lisbon mandate. It presents a picture of progress since Lisbon, drawing on economic and social indicators agreed with the Member States. It identifies decisions and action required over the next 12 months to consolidate and extend the Lisbon Strategy, and to deliver results. It will be for the Stockholm European Council to give the necessary impulse to ensure those decisions happen.

2000 has been a good year for the European Union economy. Governments and business have benefited from strong growth, continuing low inflation and healthy public finances. Around 2.5 million new jobs have been created, with more than two thirds of them having been taken up by women.

It has also been a year of notable policy successes as the Commission has moved forward in all the areas requested by Lisbon. But there have also been areas where progress has been too slow - where key proposals brought forward by the Commission risk being delayed or watered down for various reasons, including a lack of political will.

By the end of the year, unemployment has fallen significantly across the European Union, the euro has strengthened, and the economy has weathered the fuel price shock and the turbulence within stock markets. The economy looks set to grow at a steady pace over the coming years. The final preparations for the introduction of the euro are underway and the agreement at Nice on institutional reforms have cleared the way for enlargement. All this suggests that the roadmap provided by Lisbon was the right one.

But the European Union cannot afford to be complacent. Our relative economic strength must be used to speed up - rather than slow down - difficult reforms. Despite progress, achieving the EU's strategic goal requires determined action:

  • Employment. While new jobs have been created, 14 million people are currently out of work. The overall employment rate across the European Union is still far from the targets set at Lisbon and not enough has been done to set corresponding targets at national level. There are signs of labour shortages and skills gaps which risk limiting our capacity for further growth. And too many barriers discourage people from entering the workforce or limit mobility once they are in it.

  • Economic reforms. While economic reforms have progressed, efforts need to be accelerated to open key sectors of the economy further (telecommunications, energy, transport, posts, procurement). An internal market for services is still lacking. Ad hoc and sectoral state aid is still too common. The integration of financial markets and cross-border investment is held back by our cumbersome way of regulating the sector, and the supply of risk capital is barely a third of what is available elsewhere and not sufficiently focused on early stage finance.

  • Research and innovation in the knowledge society. Business in the European Union continues to invest less in new technologies and less in research than its competitors in the United States one of the factors explaining a productivity and innovation deficit within the European Union, despite our wealth of expertise and talent. The patenting of good ideas is still nationally based and too expensive. More needs to be done to pool research, business and financial skills particularly around "frontier technologies". Moreover, the take up by business, citizens and governments of the new e-economy is not fast enough.

  • Social cohesion. Poverty and exclusion persist within the European Union compounded by substantial regional variations in employment and the standard of living. Social protection systems need to be modernised and improved. With an ageing population, efforts need to start now to ensure that pensions are safe and sustainable into the future and that healthcare systems are ready to meet changing demands for care.

To answer these problems, action is needed across ten priority areas.

The actions proposed within each area form an integrated and mutually reinforcing response. They take the Lisbon strategy forward over the next decade. They imply difficult decisions and call for political will and vision. Yet if the European Union can move ahead across all these areas, we will be helping to realise and release the European Union's full potential.

Ten areas for decisions for Stockholm

    More and better jobs

    New European labour markets open to all, with access for all

    Economic reforms for goods and services

    Integrated financial markets

    The right regulatory environment

    eEurope 2002

    The IT skills gap

    Research, innovation and enterprise

    Frontier technologies

    Effective social protection for an ageing population

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

Excise duty - Derogations for certain mineral oils

  • Excise duty on mineral oils - General Decision *

The Council adopted, by way of derogation from the provisions of Directive 92/82/EEC, a general Decision concerning reduced rates of excise duty and exemptions from such duty on certain mineral oils, when used for specific purposes. The Decision will apply from 1 January 2001 and shall expire in respect of certain mineral oils listed in Annex I of the Decision after six years, and after two years in respect of fuel for the road haulage sector as listed in Annexe II of the Decision.

  • Excise duty on fuels with low sulphur content - Germany

The Council adopted a Decision authorising Germany to apply from 1 January 2003 until 31 December 2005 a differentiated rate of excise duty to fuels with a maximum sulphur content of 10ppm (parts per million), provided that the differentiated rates are in accordance with the obligations laid down in Council Directive 92/82/EEC of 19 October 1992 on the approximation of the rates of excise duties on mineral oils, and in particular the minimum rates laid down in Article 5 thereof.

  • Excise duty on water/diesel emulsions and water/heavy fuel oil emulsions - Italy

The Council adopted a Decision authorising Italy to apply a reduced rate of excise duty to water/diesel emulsions and water/heavy fuel oil emulsions from the 1 October 2000 until 31 December 2005, provided that the reduced rate is in accordance with the obligations laid down in Council Directive 92/82/EEC.

  • Excise duty on diesel fuel used in local public transport - France

The Council adopted a Decision authorising France to apply a differentiated rate of excise duty on diesel fuel used in local public passenger transport vehicles from 1 January 2001 until 31 December 2005, provided that the differentiated rates are in accordance with the obligations laid down in Directive 92/82/EEC.

  • Excise duty on diesel consumed by taxis - Netherlands

The Council adopted a Decision authorising the Netherlands to apply a degressive differentiated rate of excise duty not exceeding NLG 0,14 per litre, on diesel fuel consumed by taxis for the period running from 1 January - 31 December 2000, provided that the differentiated rate complies with the terms of Directive 92/82/EEC.

  • Excise duty on low-sulphur diesel - Netherlands

The Council adopted a Decision authorising the Netherlands to apply a differentiated degressive rate of excise duty on low-sulphur fuel (50 ppm), not exceeding NLG 0,085 per liter, from the period 1 January 2001 to 31 December 2004, providing that it complies with the terms of Directive 92/82/EEC.

UCITS *

The Council confirmed the agreement reached in the Permanent Representatives Committee (on the understanding that the preamble remains to be examined) on the content of a proposal for a directive amending Directive 85/611/EEC on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) with a view to regulating management companies and simplified prospectuses.

The Council instructed Coreper to examine the preamble and have the common position finalised (by legal/linguistic experts) with a view to its simultaneous adoption as an A item with a common position on a directive amending Directive 85/611/EEC on the co-ordination of laws, regulations and administrative provisions relating to UCITS.

The new legislative framework will ensure a high level of protection for individual investors by setting standards for both the investment products and the managers undertaking the investment. As regards the products, the proposed rules aim to ensure that funds raised from the public are invested in suitably qualified assets and that basic risk-spreading requirements are fully respected. As for the portfolio managers, the rules are set to impose harmonised market access and operating conditions and controls. This dual approach is expected to encourage a climate of investor confidence in which the markets can develop on an EU-wide basis.

The first proposal (agreed by Council 17/10/2000) focuses essentially on the "product" (the investment fund). It extends the range of financial assets in which collective investment undertakings benefiting from the single licence may invest, and recognises investment management techniques widely and successfully employed such as index "tracking" or securities lending.

The second proposal (see above) focuses on the financial intermediary which may manage UCITS (the management company). It proposes co-ordinated rules on market access, operating conditions and prudential safeguards to be respected by management companies. This co-ordination will allow a "European passport" regime equivalent to that already enjoyed by other financial service providers (banks, investment firms, insurance companies), whereby financial undertakings authorised to offer services in one Member State may offer their services throughout the Internal Market without additional authorisation.

The second proposal also aims at increased investor protection by ensuring that such intermediaries are sound, reliable, and duly supervised professional institutions. In particular, the directive establishes a capital adequacy requirement under the terms of which competent authorities shall not grant authorisation to a management company unless the management company has an initial capital of at least euro 125 000. When the value of the portfolio of the management company exceeds euro 250 million, the management company shall be required to provide an additional amount of own funds equal to 0.02 % of the amount by which the value of the portfolios of the management company exceeds that amount. The total of the initial capital and the additional amount shall not, however, exceed euro 10 million.

Finally, the second proposal overcomes the existing segmentation between individual and collective investment undertakings and portfolios on behalf of private and institutional investors, including pension funds.

Reorganisation and winding-up of credit institutions *

The Council approved all the European Parliament's amendments in accordance with Article 251 (3) of the EC Treaty, on a directive on the reorganisation and winding-up of credit institutions. Following the Council's approval, the directive will be deemed to have been adopted in the form of the common position thus amended.

Under the terms of the Directive, where a credit institution with branches in other Member States fails, the winding up process will be subject to a single bankruptcy proceeding initiated in the Member State where the credit institution has its registered office (known as the home state) and governed by a single bankruptcy law, that of the home state with certain exceptions specified in the Directive. This approach is consistent with the home country control principle that is the basis for the EU's banking Directives. The Directive will fill a major gap in the European Union's financial services legislation. It was identified as a top priority in the Financial Services Action Plan and the importance of its implementation was reiterated at the Lisbon Summit.

BUDGET

European Centre for the Development of Vocational Training - Discharge procedure

The Council adopted a positive recommendation on the discharge to be given to the Management Board of the European Centre for the Development of Vocational Training in respect of the implementation of the statement of revenue and expenditure of the European Centre for the Development of Vocational Training for the financial year 1999.

European Foundation for the Improvement of Living and Working Conditions - Discharge procedure

The Council adopted a positive recommendation on the discharge to be given to the Administrative Board of the European Foundation for the Improvement of Living and Working Conditions in respect of the implementation of the statement of revenue and expenditure of the Foundation for the financial year 1999.

1999 discharge - Commission's action plan for improving financial management and procedures - Council conclusions

"The Council welcomes the first progress report on the action plan for improving financial management and procedures, submitted by the Commission during the discharge procedure in respect of implementation of the 1999 budget; it would remind the Commission of its request for six-monthly progress reports on the implementation of the plan and on any potential improvements in the light of its application.

The Council notes that the report sets out the follow-up to the remedial action already undertaken, and the new measures to be envisaged following the observations made in the Court of Auditors' annual report on the budget for the financial year 1999; it is pleased that the Commission has been able to identify the most acute problems and has taken steps accordingly.

The Council would give a reminder that the action plan, first submitted as part of the discharge procedure in respect of implementation of the 1998 budget, is designed to improve the Commission's financial management so that it can obtain a favourable statement of assurance (SOA) from the Court and that the Council agreed, at its meeting on 13 March 2000, to make a thorough examination of the implementation of this plan during its discussion of the Court of Auditors' annual report for the following year, on the basis of a progress report from the Commission.

The Council reiterates that it would like there to be a timetable for the action plan, setting out precise objectives, by sector, making it possible to measure progress and compare one year with another, with target dates for achieving those objectives, so that management performance can be analysed; in this context, it considers that the time allowed for assessing what impact the action taken has had on the SOA should be made as brief as possible.

The Council considers it important that the action plan should be implemented in consultation with the Member States, inasmuch as they have a part to play in managing Community funds; in particular, it would like the remedial action in the course of preparation to be reconsidered, if necessary, in the light of Member States' reactions, particularly as regards the charging of interest on overdue payments in respect of financial corrections ordered by the Commission for clearance of accounts in the EAGGF field; it also welcomes the fact that the Commission has proposed extending the system of financial corrections to internal policies, external action, pre-accession expenditure and administrative expenditure."

1998 financial year - follow-up report - Council conclusions

"The Council notes the Commission's report on the action taken in response to the Council's comments on the 1998 discharge procedure.

Generally speaking, the Council is aware of the fact that the process of global reform in which the Commission has been engaged since September 1999 will fully bear fruit only gradually. In this respect, it emphasises the utility of the Council's in-depth follow-up of the various sectoral measures taken gradually by the Commission, particularly as part of the current follow-up exercise.

The Council notes the Commission's presentation on 19 October 2000 of its proposal recasting the Financial Regulation. This text is currently the subject of detailed examination by the Council's subordinate bodies with a view to adopting the new Financial Regulation as soon as possible. Pending implementation of the recasting, the Council regards it as essential that the Commission continue its reform.

The Council recalls that during the 1998 discharge procedure it asked the Commission to present an action plan to improve management and financial procedures, and that this action plan was presented at the ECOFIN Council on 13 March 2000.

The Council thanks the Court of Auditors for conducting an audit of how the Commission had followed up its previous comments in the general report on the 1999 discharge, as promised during the follow-up to the 1997 discharge procedure. It notes that during the discussions on the current Commission report the Court, on the one hand, specified that it attached the utmost importance to this report which it undertook to examine in detail and, on the other, felt that certain replies from the Member States did not supply the additional information enabling it to review its initial comments which it consequently maintained.

More specifically, with regard to follow-up to the discharge for the implementation of the 1998 budget, the following comments need to be made on the various sectors of activity:

Own resources

The Council notes that the Commission will shortly present a report analysing the trends in VAT revenue. It hopes that an in-depth discussion of the matter will thus be launched.

Common agricultural policy

The Council emphasises that the parallel which the Commission draws between the clearance-of-accounts audits and the Court's extrapolation of the level of error is based on information which cannot be compared, particularly over time. The Council calls on the Commission to continue its efforts to reduce the level of error.

The Council also refers to the fact that during the 1998 discharge procedure the Commission undertook to conduct assessments of all market sectors. The Council restates its interest in these assessments and follow-up to them, particularly in the cereals sector.

Structural measures

The Council welcomes the progress achieved in the programming and management of these measures by both the Commission and the Member States following the adoption of the new regulations governing the Structural Funds. It hopes that these efforts will be continued, particularly with regard to the practical implementation of these regulations.

Internal policies and external aid

With regard to these two headings, the Council seeks clarification on the breakdown between dormant commitments which can be released and those which have been released in accordance with the current Financial Regulation. It also requests any additional information on outstanding commitments, the issuing of recovery orders in relation to these dormant commitments and the adoption of other related measures by the Commission (such as the creation of specific units responsible for settling commitments, for example).

In the field of internal policies, the Council repeats the comments it made during the follow-up to the 1997 discharge with regard to the Commission's reinforcement of the regulatory framework for general measures relating to EU information and communication, since the reply provided by the Commission under the follow-up to the 1998 discharge was unsatisfactory regarding its presentation of a proposal for a legal basis for general information policy. The Council therefore invites the Commission to clarify its position not just on this specific point, particularly with reference to the 2002 budget, but also on the question of the definition of powers conferred upon it by the Treaty.

With regard to external aid, the Council welcomes the measures adopted by the Commission on technical assistance offices (TAO). The Council will examine with due care the proposal presented on 15 December 2000 on the establishment of executive agencies to be entrusted with certain tasks in the management of Community programmes (5314/01 FIN 4 INST 6).

Administrative expenditure

The Council welcomes the measures adopted by the Commission with regard to the rationalisation of the workings of its delegations. It asks the Commission to continue its efforts and to inform it of progress in this area at regular intervals.

Financial instruments and banking activities

The Council notes that the Commission has made good progress with negotiations with the parties concerned in order to guarantee that the Court of Auditors has access to information relating to the management of the European Investment Fund's (EIF) own resources, and that these negotiations should be completed during the year. The Council expects a consensus to be reached as soon as possible so that the Court of Auditors can fully exercise its control in this area."

Greening of the CAP - special report No 14/2000 by the Court of Auditors - Council conclusions and recommendations

"The Council:

     welcomes the fact that the Court of Auditors has brought out the complex nature of the relationship between the CAP and the environment and the importance of agriculture for rural development;

     notes that the Special Report of the Court, which focuses on the measures having an impact on the environment as introduced by the 1992 CAP reform, includes suggestions for possible improvements, many of which are already incorporated in the measures adopted in the Agenda 2000 reform;

     considers that a number of the Court's comments can make a constructive contribution to the debate on the importance of integrating environmental aspects into the CAP and better targeting of environmental measures.

The Council recommends that:

     this Report from the Court should be drawn on in work on future CAP reforms by the Commission and, in conjunction with the Commission's comments, by the Member States."

EXTERNAL RELATIONS

Special Report No 19/2000 from the Court of Auditors on the management by the Commission of the Programme of assistance to the Palestinian society - Council conclusions

"The Council examined the above report with interest and noted the Court of Auditors' comments and suggestions and the Commission's replies.

The Council stresses the importance of the European Union's assistance to the Palestinian society within the framework of the Middle East Peace Process. It welcomes the recognition by the Court of Auditors of the positive results of the program and of the Commission's ability to play an important role in sensitive and urgent political situations.

The Council recalls that the management of Community aid for third countries is undergoing unprecedented reform, at the Commission's initiative. The Council furthermore refers to the conclusions it adopted on 9 October 2000 on measures aiming at reinforcing coordination between the Commission and the Member States, making better use of the Union's overall effort and increasing its effectiveness. The Council also refers to the statement by the Council and the Commission on the European Community's development policy, made on 10 November 2000. The Council subsequently, on 22 January 2001, has had an orientation debate on improving the coherence and effectiveness of EU external action and adopted guidelines for strengthening operational coordination between the Commission and the Member States; the guidelines inter alia called for strengthened on-the-spot coordination. On the same occasion the Council concluded that the ongoing reform efforts must be pursued with vigour by the Commission and Council alike and that progress will need to be monitored carefully.

The Council furthermore expects that the overall reform will contribute to rationalisation, simplification and speeding up procedures.

The Council fully expects these reforms to have early positive effects on the program of assistance to the Palestinian society, in the various problem areas identified by the Court of Auditors.

On the basis of the Court of Auditors' recommendations, and while acknowledging efforts already undertaken by the Commission, the Council:

    - urges the Commission to re-allocate adequate resources, including adequate staff resources, to the program; notes the urgent need to allocate adequate staff resources to the Commission's Representative Office in Jerusalem;

    - noting that the Commission has initiated a process aiming at devolving greater authority to Commission delegations, welcomes that ECRO is included in the first phase of this process and looks forward to early results;

    - notes that the recent internal reorganisation in the Commission inter alia aims to reunite the project cycle and improve the decision-making procedure, including through establishment of a project pipeline as suggested by the Court of Auditors;

    - considering the lack of performance indicators to be among the key issues raised by the Court of Auditors, welcomes the Commission's intention of identifying and applying such indicators. The focus should be on results;

    - considers increased monitoring and independent evaluation to be crucial for the development of an effective management system covering all budget headings;

    - urges the Commission to establish time frames for all actions to be taken;

    - urges the Commission to implement the new standard framework for country strategy papers adopted by the Council on 10 November 2000;

    - urges the Commission to further improve and develop local coordination with Member States, with the Palestinian counterparts as the leading force, and with other international donors, in accordance with the guidelines for operational coordination between the Community, represented by the Commission, and the Member States, adopted by the Council on 22 January 2001;

    - invites the Commission to report regularly on progress within these areas, in particular concerning the use of performance indicators, the first time after six months and thereafter at least once per year."

European Union Monitoring Mission (EUMM)

The Council authorised the Presidency to open negotiations with the Federal Republic of Yugoslavia (FRY) to conclude an agreement in accordance with Article 24 of the TEU.

This authorisation allows the Presidency, assisted by the Commission as appropriate, to open negotiations with the FRY in order to conclude an agreement with the FRY on the activities of the EUMM in the FRY. This agreement should replace the Memorandum of Understanding of 13 July 1991 with the Federal Authorities of Yugoslavia on the ECMM, updated as necessary to take account of subsequent changes to the mandate of the monitoring mission as set out in the Council Joint Action 2000/811/CFSP, and contain provision for the establishment of an EUMM office in Belgrade.

EU contribution to combating the destabilising accumulation and spread al small arms and light weapons in Latin America and the Caribbean

The Council adopted a decision implementing Joint Action 1999/34/CFSP with a view to a European Union contribution to combating the destabilising accumulation and spread of small arms and light weapons in Latin America and the Caribbean.

This Decision is intended to implement Joint Action 1999/34/CFSP by making a financial contribution (Euro 345 000) to the projects of the United Nations Regional Centre for Peace, Disarmament and Development in Latin America and the Caribbean, located in Lima (Peru), acting as an extension of the UN Department for Disarmament Affairs. This contribution seeks to help the Centre in its training activities for customs and police officials by means of appropriate instruction and in its project of making available equipment that permits the creation of databases on the accumulation of small arms and light weapons in Latin America and the Caribbean.

The financial contribution seeks to establish a process of making officials aware of their responsibilities so as to secure the support of the populations concerned and also seeks to reinforce the role of both the European Union and the Centre in the area of prevention and is of particular significance for the European Union in view of the United Nations conference on the illicit trade in small arms and light weapons in all its aspects which is due to take place in July 2001.

European Development Funds - discharge for the financial year 1999

The Council adopted Recommendations concerning the discharge to be given to the Commission in respect of the implementation of the operations of the 6th, 7th and 8th European Development Funds for the financial year 1999.

TRADE ISSUES

Community participation in the International Lead and Zinc Study Group

The Council adopted a Decision concerning the participation of the Community in the International Lead and Zinc Study Group.

The Council took a Decision on 22 December 2000 regarding Community participation in the International Lead and Zinc Study Group (ILZSG). It is necessary to complete this Decision by including an annex with the text of the Terms of Reference of the ILZSG. In addition, the Commission has since indicated that it wished also to include the Rules of Procedure of the ILZSG in the Council Decision as their acceptance was required by Rule 1 of the said Rules of Procedure.

Accession of Moldova to the World Trade Organisation

The Council and the Representatives of the Governments of the Member States, meeting within the Council, gave their agreement to the accession of Moldova to the WTO. This joint position is being submitted by the Commission to the WTO on behalf of the Community and its Member States.

COURT OF JUSTICE

Rules of Procedure

The Council agreed an amendment to Article 16 of the Rules of Procedure of the Court of Justice.

This amendment provides for the sending of copies of certain procedural acts (application and defence) also to the European Parliament in order to enable it to assess whether the inapplicability of an act adopted by codecision is being invoked under Art. 241 TEC.

EMPLOYMENT AND SOCIAL POLICY

Codification of the Directive on employees' rights in the event of transfers

The Council adopted the consolidated version of Directive 77/187/EEC on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. The text constitutes an official codification (6) of that Directive without making substantive changes.

TRANSPORT

Codification of the Directive on the minimum level of training of seafarers

The Council adopted the consolidated version of Directive 94/58/EC on the minimum level of training for seafarers. The text constitutes an official codification (7) of that Directive without making substantive changes.

APPOINTMENTS

Committee of the Regions

The Council adopted the decision appointing Mr Sepp RIEDER an alternate member of the Committee of the Regions, in place of Ms Brigitte EDERER, for the remainder of the latter's term of office, which runs until 25 January 2002 ;

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(1)OJ L 209, 2.8.1997

(2)OJ L209, 2.8.1997

(3)OJ L 209, 2.8.1997

(4)OJ L 209, 2.8.1997

(5) OJ C 111, 18.4.2000

(6) Codification within the meaning of the Interinstitutional Agreement of 20 December 1994 on the accelerated working method for official codification of legislative texts

(7) Codification within the meaning of the Interinstitutional Agreement of 20 December 1994 on the accelerated working method for official codification of legislative texts


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