The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council was held in Luxembourg on 9 October 2012; the informal Economic and Financial Affairs Council was held in Nicosia on 14 and 15 September.
On 14 and 15 September Ministers discussed the following items:
Fiscal implications of the implementation of banking union
There was a presentation on this topic by the Bruegel think tank, followed by an exchange of views by Ministers.
Economic situation and recent developments in banking and sovereign markets
There was a de-brief to Ministers on issues discussed at the earlier Eurogroup discussion. The European Banking Authority then presented on progress made with the recent banking recapitalisation exercise and looked forward to the next stress test exercise. Following this, Ollie Rehn, Commissioner for Economic and Monetary Affairs, gave a summary of the economic outlook and ongoing structural adjustment.
IMF Board representation
Ministers discussed taking forward the 2010 IMF quota and governance reform agreement, whereby advanced European countries are required to reduce by two their number of seats on the IMF board. The reduction does not directly affect the UK, which continues to have its own single seat.
Facility for Euro-Mediterranean Investment and Partnership (FEMIP)
There was a presentation by the European Investment Bank on this subject, followed by an exchange of views.
Follow-up to June European Council (JEC) on banking union in general and the establishment of an effective single supervisory mechanism
The Commissioner for Internal Market and Services, Michel Barnier, introduced the European Commission’s recently published proposals on banking union and plans for the European Central Bank to take on a supervisory role for banks in the euro area. Representatives from the European Banking Authority, the European Central Bank, the chair of the Economic and Financial Affairs Committee, and member states responded. The discussion raised a number of issues that would need to be addressed going forward, including the viability of the time line.
I intervened to set out the UK view, emphasising the principles behind the Government’s approach and their commitment to work with European partners to help resolve the euro area crisis and support the single market. The UK supports measures that are designed to break the link between sovereign debt and instability in the financial sector, provided the single market is preserved as the new structure is implemented. I stressed the importance of ensuring that this objective is integrated into the single supervisory mechanism and banking union as a whole and raised concerns on the impact on the functioning of the European Banking Authority (EBA) under the new arrangements including in relation to voting arrangements in the EBA. In particular, we must ensure that and the European Central Bank’s relationship with the EBA is the same as for national supervisors in non-participating member states.
Ministers also had a discussion on how to best reform the shadow banking sector and it was agreed that further work needs to be undertaken.
On 9 October Ministers discussed the following items:
Financial Transactions Tax
Ministers were updated on developments since this was discussed at ECOFIN in June. The June European Council had suggested adoption of the enhanced co-operation proposal by the end of the year, and the presidency suggested it would be helpful if those member states willing to participate would indicate their intentions and for the Commission to set out a time line for next steps. Eleven member states indicated their willingness to participate: formal representations in writing are required, after which the European Commission will assess the request.
I intervened to confirm that the UK would not be joining. I stressed that the UK is not against taxation of the sector and already has a bank levy. We would not seek to stand in the way of enhanced co-operation: however this must be done in the context of a clear proposal and in line with the treaty. Currently there remains uncertainty over the likely scope and the purpose for which the revenues would be used. I pointed out that the Commission’s own original assessment had foreseen a GDP reduction of between 0.5% and 3.5% for the European economy: the impact on all 27 member states must be considered and therefore we want to see a specific proposal.
Revised capital requirements rules (CRDIV)
The presidency stressed the importance of making progress but noted there are some key outstanding issues for negotiation with the European Parliament. A vote of the European Parliament plenary has been scheduled for November. The presidency undertook to work to get political agreement to full compliance with the Basel III agreement by the end of the year.
Proposal for a Directive on the fight against fraud to the Union’s financial interests by means of criminal law
The Commission provided information on the proposals. The proposal has three objectives: to harmonise definitions of fraud and related offences; to set minimum sanctions in order to render fraud more unattractive; and to address different statutory limitation periods. I intervened to support the overall idea of tackling fraud but also to express strong concerns about the inclusion in the proposal of VAT administration, as the application of VAT rules and investigation of fraud falls solely under member states’ control and competence. I also questioned the choice of legal base and warned that we might want to assert our opt-in right. Others shared our concern regarding the legal base; the Council legal service expressed a view which supports our position.
Current legislative proposals—economic governance, Deposit Guarantee Schemes Directive (DGSD) and bank resolution and recovery (RRD)
The presidency said the DGSD and RRD proposals are vital elements of the single rulebook for financial services and should be adopted as soon as possible. They will seek a general approach on the RRD by December; informal negotiations with the European Parliament on DGSD will continue in parallel with the RRD, as they are closely linked.
On economic governance, the Commission noted the importance of the so-called “two-pack” legislation for the euro area to strengthen fiscal governance: agreement needs to be reached with the European Parliament on outstanding issues including the scope of the regulation and the role of independent bodies.
Follow-up to the Informal ECOFIN held 14-15 September 2012
The presidency summarised the exchange of views on the single supervisory mechanism at the informal meeting. They had taken note of the concerns expressed, including the balance of powers between national supervisors and the ECB, the strict separation of the ECB’s supervisory and monetary functions, accountability mechanisms, and EBA voting rules. The presidency noted that meeting the proposed 1 January 2013 deadline will require everyone, including the European Parliament, to co-operate.
European Semester 2012
Ministers considered possible changes to the European semester process. The presidency highlighted some issues for consideration including time constraints, implementation of the “comply or explain rule” introduced by the “six pack” economic governance legislation, how to ensure that country specific recommendations (CSRs) are robust while allowing member states to make their own policy choices, and strengthening member states’ ownership of CSRs.
Implementation of the Stability and Growth Pact
The presidency asked ECOFIN to endorse a recommendation to extend by one year the deadline given to Portugal for reducing its excessive deficit. The Commission advised that unforeseen circumstances including the rebalancing of the economy and a Constitutional Court ruling had given rise to the need for the extension.
The UK intervened to say that while we supported the changes to the Portuguese programme, we had concerns about the process. The decision to amend the conditionality underlying the programme required the consent of the Council in accordance with the regulations governing the use of the European financial stabilisation mechanism (EFSM), but the decision was announced publically without first seeking Council’s agreement. For this reason, the UK abstained, though the Government remains supportive of Portugal’s reform programme and efforts to address its deficit. In addition, the Government raised their concern at the insufficient time made available, between Council being asked to consider the decision and the ECOFIN meeting, to allow for proper parliamentary scrutiny. The presidency concluded that Council endorsed the decision and noted the UK abstention.
International meetings: follow-up to the G20 Finance Deputies meeting on 23-24 September and preparation of the G20 Finance Ministers and Governors meeting on 4 and 5 November; and preparation of the annual meeting of the IMF and World Bank Group on 12-14 October
Ministers endorsed the terms of reference document for the G20 meeting in Mexico and the draft EU presidency statement for the IMF meeting.