Brussels, 18 June 2012                                             BACKGROUND1                   ECONOMIC and FINANCIAL AF...
Bank resolutionThe Commission will present its proposal for a directive establishing a framework for the recoveryand resol...
o the stability and convergence programmes2, updated each year, set out the member states’      medium-term budgetary obje...
Having reached 4.3% of GDP in 2010, Germanys general government deficit was reduced to 1% ofGDP in 2011, below the 3% thre...
Cohesion fund – Hungary: Lifting of the suspension of commitmentsThe Council will be called on to adopt a decision lifting...
In July 2009, the Council issued a revised recommendation, setting 2011 as the target year forreducing the deficit below 3...
Financial transaction taxThe Council will hold a policy debate on a proposed directive aimed at introducing an EU-widefina...
Energy taxationThe Council will hold a policy debate, on the basis of a note from the presidency (doc. 10951/12),on a prop...
Other issuesOver breakfast, ministers will discuss the economic situation, as well as bank recapitalisation anddevelopment...
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Agenda Eurogrupo/ECOFIN

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Agenda Eurogrupo/ECOFIN

  1. 1. Brussels, 18 June 2012 BACKGROUND1 ECONOMIC and FINANCIAL AFFAIRS COUNCIL Friday 22 June in LuxembourgThe Eurogroup will meet on Thursday 21 June at 16.00.Proceedings on Friday will commence at 9.00 with a breakfast meeting to discuss the economicsituation, as well as bank recapitalisation and developments in sovereign debt markets.The Council, starting at 10.00, will be called on to approve country-specific recommendations tothe member states on their economic and fiscal policies.It is expected to close excessive deficit procedures for Germany and Bulgaria, and will be called onto lift the suspension imposed in March of cohesion fund commitments for Hungary, in the light ofactions taken by Hungary to correct its excessive deficit.The Council will debate proposals on energy taxation and for an EU-wide financial transactiontax, and the Commission will present its proposal to establish a framework for bank resolution.Over lunch, ministers will discuss the EUs multiannual financial framework for the2014-20 period.The G-20 summit and EMU convergence reports are also on the agenda. The Council will continueafter lunch.Press conferences: • after the Eurogroup meeting (Thursday evening); • at the end of the Council (Friday).Press conferences and public events by video streaming: http://video.consilium.europa.eu/Video coverage in broadcast quality (MPEG4): http://tvnewsroom.consilium.europa.euPhotographic library on www.consilium.europa.eu/photo for photos in high resolution. * * *1 This note has been drawn up under the responsibility of the press office Council of the European Union General Secretariat - press office press.office@consilium.europa.eu Tel.: +32 (0)2 281 63 19 -1-
  2. 2. Bank resolutionThe Commission will present its proposal for a directive establishing a framework for the recoveryand resolution of credit institutions and investment firms (doc. 11066/12). The Council is expectedto hold a preliminary discussion.The proposal, issued by the Commission on 6 June, is aimed at providing supervisory authoritieswith common tools and powers to tackle bank crises pre-emptively and to resolve any financialinstitution in an orderly manner, whilst minimising taxpayers exposure to losses in the event ofinsolvency.The directive would establish a range of instruments that supervisory authorities could use:preparatory and preventative measures, early intervention, and resolution tools and powers. Themain resolution measures would include:- the sale of (a part of) business;- establishment of a bridge institution (the temporary transfer of good bank assets to a publicly controlled entity);- asset separation (the transfer of impaired assets to an asset management vehicle)- bail-in measures (the imposition of losses, in order of seniority, on shareholders and unsecured creditors).The proposal is aimed at transposing into EU law commitments made at the G-20 Washingtonsummit in November 2008, when leaders called for a review of resolution regimes and bankruptcylaws "to ensure that they permit an orderly wind-down of large complex cross-border financialinstitutions."Based on article 114 of the Treaty on the Functioning of the European Union, the directive wouldrequire for its adoption a qualified majority in the Council and a majority in the EuropeanParliament (ordinary legislative procedure).European Semester – Recommendations on economic and fiscal policiesThe Council is due to approve, under this years European Semester:- draft recommendations to each member state on the economic policies set out in their national reform programmes;- draft opinions on the fiscal policies set out in the member states stability and convergence programmes; and- a specific draft recommendation on the economic policies of the member states of the eurozone.The texts will be forwarded to the General Affairs Council on 26 June, with a view to the EuropeanCouncil meeting on 28 and 29 June. Integrated guidelines covering both economic and employmentpolicies are due to be adopted in July.The European Semester involves simultaneous monitoring of the member states economic andfiscal policies, in accordance with common rules, during a six-month period every year: o the national reform programmes, presented annually, contain a macroeconomic scenario for the medium term, national targets for implementing the "Europe 2020" strategy for jobs and growth, identification of the main obstacles to growth, and measures for concentrating growth-enhancing initiatives in an early period; -2-
  3. 3. o the stability and convergence programmes2, updated each year, set out the member states’ medium-term budgetary objectives, the main assumptions about expected economic developments, a description of budgetary and other economic policy measures, and an analysis of how changes in assumptions will affect their fiscal and debt positions.Based respectively on articles 121(2) and 148(4) of the Treaty on the Functioning of the EuropeanUnion, the recommendations and opinions require for their adoption a qualified majority in theCouncil.In accordance with new rules established last year under the EUs "six-pack" of economicgovernance legislation, and specifically regulation 1175/2011, the Council is expected to complywith the recommendations and proposals of the Commission or explain its position publicly. TheCouncils explanations will be issued in July.Excessive deficit procedure – Germany and Bulgaria: Closure of the procedureThe Council is expected to adopt decisions closing the excessive deficit procedures for Germanyand Bulgaria, confirming that they have reduced their deficits below the 3% of GDP, the EUsreference value for government deficits.The decisions, to be adopted under article 126(12) of the Treaty on the Functioning of the EuropeanUnion, will abrogate the decisions the Council took in December 2009 and July 2010 respectively,under article 126(6) of the treaty, on the existence of excessive deficits in the two countries.As a consequence, 21 of the EUs 27 member states will remain subject to the excessive deficitprocedure, down from 24 following the closure in July 2011 of the procedure for Finland. A largenumber of procedures were opened subsequent to the global financial crisis and recession of 2008and 2009, and the EUs stability and growth pact (of which the excessive deficit procedure is part) isbeing used to support a rapid return by member states to sound fiscal positions.Adoption of the decisions will require:- as regards Germany, a qualified majority of delegations amongst 16 of the 17 member states of the eurozone (the delegation concerned does not vote);- as concerns Bulgaria, a qualified majority amongst 26 of the 27 delegations (the delegation concerned does not vote).GermanyThe excessive deficit procedure for Germany was opened in December 2009, when the Council alsoadopted a recommendation, under article 126(7) of the Treaty, on corrective measures to be taken.Germany planned a general government deficit of 3.7% of GDP for 2009 and a general governmentgross debt of 74.2% of GDP, above the EUs reference values of 3% and 60% of GDP respectively.The Council called on Germany to bring its deficit back below the 3% of GDP threshold in 2013 atthe latest. To achieve this, it called for a fiscal effort of at least ½ % of GDP on average annuallyover the 2011-13 period.2 Eurozone member states present stability programmes, those member states that dont use the euro present convergence programmes. -3-
  4. 4. Having reached 4.3% of GDP in 2010, Germanys general government deficit was reduced to 1% ofGDP in 2011, below the 3% threshold and two years ahead of the deadline set by the Council. Thisimprovement was driven by favourable cyclical conditions, a robust labour market, fiscalconsolidation efforts and the phasing-out of economic stimulus measures and financial sectorstabilisation measures.Germany plans for the deficit to remain at 1% of GDP in 2012 and to drop to ½ % of GDP in 2013,which is broadly in line with the Commissions forecast.The debt-to-GDP ratio reached 83% in 2010, notably due to the transfer of impaired assets to "badbanks" in the context of financial sector stabilisation. After dropping to 81.2% in 2011, Germanyplans for it to increase again to 82% in 2012 as a result of euro area stabilisation measures, beforefalling to 80% in 2013 and declining further thereafter. This is also broadly in line with theCommissions forecast.Following the correction of its deficit, Germany is in a three-year transition period during which itshould make sufficient progress towards compliance with the debt reduction benchmark, namely anaverage reduction of one-twentieth per year of the differential with respect to the 60% of GDPreference value.The Council is expected to conclude that Germanys excessive deficit has been corrected and that itsplanned fiscal adjustment is consistent with the debt reduction benchmark.BulgariaThe excessive deficit procedure for Bulgaria was opened in July 2010, when the Council alsoadopted a recommendation, under article 126(7) of the Treaty, on corrective measures to be taken.Bulgaria had registered a general government deficit of 3.9 % of GDP in 20093.The Council called on Bulgaria to bring its deficit back below 3 % of GDP in 2011 at the latest. Toachieve this, it called for a budgetary effort of at least ¾ % of GDP in 2011.Bulgaria reduced its general government deficit to 3.1% of GDP in 2010 and to 2.1% of GDP in2011. The Commission projects the deficit to continue falling to 1.9% of GDP in 2012 and 1.7% ofGDP in 2013.The Council is expected to conclude that Bulgarias excessive deficit has been corrected.3 Bulgarias general government gross debt was 14.8% of GDP in 2009, well below the EUs 60% reference value. -4-
  5. 5. Cohesion fund – Hungary: Lifting of the suspension of commitmentsThe Council will be called on to adopt a decision lifting the suspension4 of commitments forHungary from the EUs cohesion fund, in the light of an assessment by the Commission of actionstaken by Hungary in order to correct its excessive government deficit.The Council is expected to conclude that Hungary has taken the necessary corrective action inresponse to its recommendation of 13 March 2012 on measures needed to correct the deficit by2012.It is expected to consider that official deficit targets and planned fiscal efforts outlined in Hungarysannual update of its convergence programme submitted on 23 April comply with the Councilsrecommendation.In a communication issued on 30 May, the Commission found that Hungary had taken the necessarycorrective action and that its budget deficit is expected to reach 2,5 % of GDP in 2012 and toremain well below 3 % of GDP, the EUs reference value for government deficits, in 2013. TheCommission expects Hungarys 2013 deficit to reach 2,7 % of GDP. And on the basis of theCommissions spring 2012 forecast, its general government debt is expected to decrease to 78,5 %of GDP in 2012 and slightly further in 2013.In its March recommendation to Hungary, the Council set 2012 as the target year for achieving acredible and sustainable correction of Hungarys deficit, with a deadline of 13 September for takingeffective action to this effect. The Council called for an additional fiscal effort to meet Hungarysdeficit target of 2.5% of GDP in 2012, and for additional structural measures to ensure that thedeficit in 2013 remains well below the 3% of GDP threshold, even after the phasing-out of one-offmeasures.Suspension of cohesion fund commitments – also decided by the Council in March – followedHungarys failure to comply with the Councils previous recommendations under the EUs excessivedeficit procedure. It was the first time since the cohesion fund was established in 1994 that a clauseenabling the suspension of commitments for a beneficiary country had been invoked5.The suspension is currently due to take effect as of 1 January 2013. It affects EUR 495.2 million ofcommitments, amounting to 0.5% of the countrys nominal GDP and 29% of cohesion fundcommitments scheduled for 2013.Hungary has been subject to an excessive deficit procedure since July 2004, when the Council alsoissued a recommendation on corrective action to be taken. The Council issued furtherrecommendations in March 2005 and October 2006, having found in January 2005 and November2005 that effective action had not yet been taken.The October 2006 recommendation set out measures for correction of the deficit by 2009, one yearlater than previously scheduled. With the economic downturn however, the 2009 target could not bemet, and Hungary obtained a EUR 6.5 billion loan from the EU in November 2008 as part of a EUR20 billion package of assistance from international lenders.4 Implementing Decision 2012/156/EU suspending part of the commitments from the cohesion fund.5 The cohesion fund provides assistance for environment and trans-European transport network projects in member states with a per capita GNP of less than 90% of the EU average, with the aim of strengthening economic and social cohesion and promoting sustainable development. -5-
  6. 6. In July 2009, the Council issued a revised recommendation, setting 2011 as the target year forreducing the deficit below 3% of GDP. Whilst Hungary formally met that target in 2011, this wasonly thanks to one-off revenues amounting to almost 10% of GDP linked to the transfer of pensionassets from private pension schemes to the state. Consequently, the Council in January 2012considered this not to be a structural and sustainable correction of the deficit, and therefore foundthat Hungarys response to its recommendation had been insufficient.Based on article 4 of regulation 1084/2006 on the cohesion fund, the decision to lift the suspensionof commitments requires a qualified majority for adoption by the Council.Economic and monetary union – Convergence reportsThe Commission and the European Central Bank will present their biennial reports on the fulfilmentof economic and monetary union (EMU) convergence criteria by the eight non-eurozone memberstates that have an EMU derogation.The Council will hold an exchange of views.Seventeen of the EUs 27 member states currently use the euro as their currency. Of the ten that donot, eight have an EMU derogation6 – Bulgaria, the Czech Republic, Latvia, Lithuania, Hungary,Poland, Romania and Sweden – whilst Denmark and the United Kingdom are not required to adoptthe euro.Article 140 of the Treaty on the Functioning of the European Union requires the Commission andthe ECB to issue convergence reports at least once every two years, or at the request of a memberstate with a derogation.The reports assess:- the fulfilment of EMU obligations, including the compatibility of national legislation and central bank statutes with treaty provisions and with the statutes of the European System of Central Banks;- the fulfilment of convergence criteria as regards price stability, the sustainability of public finances, exchange rates and long-term levels of interest rates.They also take account of market integration, the balance of payments and developments withregard to unit labour costs and other price indices.Follow-up to G-20 summitThe presidency and the Commission will report to the Council on the outcome of the G-20 summitin Los Cabos (Mexico) on 18 and 19 June.The summit is expected to focus on ways to strengthen international financial architecture andregulation; reduce food price volatility; promote "green" growth and greater investment in scientificand agricultural technology and research.6 Having a derogation implies that a member state has not yet fulfilled the conditions for adopting the euro. -6-
  7. 7. Financial transaction taxThe Council will hold a policy debate on a proposed directive aimed at introducing an EU-widefinancial transaction tax7 (FTT), as well as on possible alternatives to the proposed tax (e.g. banklevy, financial activity tax or direct regulation). The discussion will be based on a progress report bythe presidency.The Commissions proposal for an FTT was discussed by the Council in November 2011 and at twosubsequent meetings in March, where it was suggested that alternative ways of taxing the financialsector should also be examined, alongside the Commissions proposal. Work at technical level hassince followed this two-track approach.Work on the proposal itself has included examination of the possibility of introducing the FTT step-by-step, starting with a transaction tax that would exclude derivatives.The Commissions proposal would cover transactions relating to all types of financial instruments,including capital market and money market instruments (with the exception of paymentinstruments), units or shares in collective investment undertakings and derivatives. The proposal isnot limited to trade on organised markets, but also covers over-the-counter and other types of trade.Transactions with central banks would, however, be excluded.Another key issue is the location of taxation: whether the tax should be paid in the country wherethe financial operator is established, as proposed by the Commission, or in the country where thefinancial instrument is issued.The Commission proposes that tax rates be set by each member state, with a harmonised minimumrate of 0.1% of the taxable amount for all transactions except derivative agreements, for which therate would be 0.01%. It estimates that on the basis of its proposal, and depending on how marketsreact, yearly revenues could amount to EUR 57 billion.It considers that its proposal will enable the financial industry to make a fair contribution to taxrevenues, and will also create a disincentive for transactions that do not enhance the efficiency offinancial markets.In line with its proposal for a decision on the EUs system of own resources8, the Commissionproposes that the revenue generated by an FTT be used, either wholly or partially, to graduallyreplace member states contributions to the EU budget.Based on article 113 of the Treaty on the Functioning of the European Union, the directive wouldrequire unanimity in the Council for its adoption, after consulting the European Parliament (speciallegislative procedure).7 Doc. 14942/118 Doc. 12478/11 -7-
  8. 8. Energy taxationThe Council will hold a policy debate, on the basis of a note from the presidency (doc. 10951/12),on a proposed directive on the taxation of energy products and electricity9.The proposal is aimed at restructuring directive 2003/96/EC on energy taxation in order to align itmore closely with EU policy objectives in the areas of energy and climate change.In particular, the Commissions proposal seeks to:- ensure a consistent tax treatment of energy sources based on both CO2 emissions and energy content;- reduce the tax burden on renewable energies;- provide a framework for the use of CO2 taxation to complement the EUs emission trading scheme, whilst avoiding overlaps.Under the directive, energy taxation would consist of two components: CO2-related taxation andgeneral energy consumption taxation. The proposal revises the minimum level of taxation to reflectCO2 emissions and energy content, whilst ensuring consistency across various sources of energy.Currently, tax treatment in some member states strongly favours certain energy products, inparticular coal.In March 2008, the European Council called for a revision of the energy taxation directive to bringit more closely in line with EU energy and climate change objectives. The Commission presentedits proposal in April 2011.The member states expressed their views during six Council working party meetings under theDanish presidency, but fundamental differences remain. The Council will be called on to provideguidance for further work.The key outstanding issues are the inclusion of CO2 as a component for taxation and the removal ofimbalances in the tax treatment of different energy products. Germany, Poland and the UnitedKingdom are strongly opposed to the inclusion of CO2 as a component in the taxation of energyproducts. While many member states and the Commission agree on the need to revise the currentdirective to take into account European Council conclusions on climate change and CO2 emissions,Germany, Poland and the UK want to keep full national flexibility on energy taxation.The draft directive is also aimed at contributing to the promotion of employment and growth byencouraging member states to impose higher taxes on polluting energy products whilst reducing thetax burden on labour.Based on article 113 of the Treaty on the Functioning of the European Union, the directive wouldrequire unanimity in the Council for its adoption, after consulting the European Parliament (speciallegislative procedure).9 Doc. 9270/11 -8-
  9. 9. Other issuesOver breakfast, ministers will discuss the economic situation, as well as bank recapitalisation anddevelopments in sovereign debt markets. At lunch, they will discuss the EUs multiannualfinancial framework for the 2014-20 period.Without discussion, the Council is expected to approve: o a report to the European Council on tax issues, as requested in March. Additionally, finance ministers of signatory countries are expected to approve a report on tax issues in the framework of the Euro Plus Pact10; o conclusions on implementation of a code of conduct aimed at eliminating situations of harmful tax competition in the EU with regard to business taxation, in the light of a biannual report.Under “other business”, the Council will take stock of progress on: o a draft regulation and a draft directive amending the EUs rules on capital requirements for banks and investment firms ("CRD 4"); o a draft regulation and draft directive on credit rating agencies ("CRA 3"); o a draft directive on credit agreements relating to residential property (mortgage credit directive); o a draft directive on the harmonisation of transparency requirements for listed companies.The Council agreed its position on CRD 4 on 15 May, whilst agreement was reached on the otherthree dossiers by the Permanent Representatives Committee – credit rating agencies on 21 May,mortgage credits and transparency requirements on 30 May – enabling negotiations with theEuropean Parliament to start with a view to adoption in first reading.The CRD 4 proposals are aimed at transposing into EU law the so-called Basel 3 agreement,concluded by the Basel Committee on Banking Supervision, to strengthen bank capitalrequirements, introduce a mandatory capital conservation buffer and a discretionary countercyclicalbuffer, and set new regulatory requirements for bank liquidity and bank leverage. Parliament andCouncil have so far held 16 trilogue negotiations on the CRD 4 proposals.The proposals for a directive and a regulation on credit rating agencies set out to amend existinglegislation in order to reduce investors over-reliance on external credit ratings, mitigate the risk ofconflicts of interest in credit rating activities and increase transparency and competition in thesector.The proposed mortgage credit directive is aimed at creating a single market for mortgages, with ahigh level of protection, whilst promoting financial stability by ensuring that mortgage creditmarkets operate in a responsible manner.The draft directive on the harmonisation of transparency requirements for listed companiessimplifies accounting rules and reporting obligations in order to make regulated markets moreattractive for small and medium-sized companies raising capital in Europe. It is also aimed atproviding greater legal clarity with respect to the disclosure of corporate ownership. _________________10 Concluded in March 2011 by 23 of the 27 member states, the Euro Plus Pact is aimed at strengthening coordination on economic policy with a view to improving competitiveness and enabling a greater degree of convergence. -9-

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