Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

Europaudvalget 2008-09
2911 - Økofin Bilag 6
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2911 - Økofin - Bilag 6

COU CIL OF

THE EUROPEA U IO

Contribution to the European Council

2911th ECO OMIC and FI A CIAL AFFAIRS

Brussels, 2 December 2008

I. A coordinated European response for growth and jobs

The EU economic outlook has been deteriorating since the last European Council. Economic

activity in the EU as a whole has contracted in the third quarter of 2008 and could contract further

in the fourth quarter. Consumer and business confidence are very low. In such a context, we are

committed to taking all necessary actions to restore confidence, financial stability and growth.

Financial markets and especially inter-bank markets are still not functioning properly. Member

States need to be able to swiftly implement the measures decided in the financial sector, in the

framework defined at the October European Council, so as to improve the conditions of credit to

companies and households. This will, together with ECB action, progressively contribute to

alleviating tension on financial markets.

The recent decrease in commodity prices is welcome both for households and firms. Still, more

transparency on oil markets is required. We welcome the Commission’s proposal to establish a

weekly statistical summary of the commercial stocks in the Community as part of its directive

proposal on stocks of crude oil and/or petroleum products, and look forward to its timely

implementation, based on the usual cost-benefit analysis.

The rapid slowdown of inflation, stemming from rapidly diminishing commodity prices and

reduced inflationary pressures in the economy, is also a welcome support to consumer purchasing

power. Inflation expectations over the medium-term have been decreasing and are well anchored in

line with price stability. Against this background, the ECB has already cut interest rates by 100

basis points.

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Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

We agree that decisive action is needed both at the EU and national levels in order to sustain

demand and investment, so as to avoid negative self-reinforcing developments, and in order to

contribute to restoring higher growth and employment in the European Union.

In this context, and with a view to preparing the discussions at the European Council on 11-12

December, we discussed and welcome in principle the Commission communication of 26

November on a "European Economic Recovery Plan", as a good basis for designing a

comprehensive, consistent and coordinated European response, taking into account the specificities

of Member States, and we agree that a package in the magnitude of 1.5% of GDP would provide a

significant stimulus to our economies.

A coordinated European policy response

We agree that our actions will have to be taken swiftly, in a consistent and coordinated manner,

while maintaining confidence in the sustainability of our public finances.

While taking into account the particular situation of each Member State, a coordinated approach,

based on common principles, will increase the effectiveness of the actions taken.

In addition to monetary policy and measures taken to stabilise the financial sector, fiscal policies

have an important role to play in stabilising the economy. Member States should let the automatic

stabilisers play fully, as they are powerful in the EU and contribute to sustaining demand. In

addition, further measures are warranted. They should be framed against the background of national

economic situations, notably taking into account the margins of manoeuvre and measures already

announced.

We should also acknowledge the specific case of those Member States, in particular outside the

euro area, which are facing significant external and internal imbalances, where budgetary policy

should essentially aim at correcting such imbalances.

We agree that these measures should build on the following principles:

•

they should be timely, temporary, targeted and co-ordinated. To this end, we agree that, while

designing a fiscal stimulus, Member States could choose from a "menu” of targeted measures on

the revenue and expenditure side, which are likely to have greater impact in supporting activity

in the short-run, and avoid negative cross-border spill-overs;

they should be adapted to the specific situations and challenges of each Member State;

short-term fiscal stimulus should be consistent with prudent medium-term fiscal strategies.

Implementing this strategy will temporarily result in higher deficits. The Stability and Growth

Pact provides for flexibility, which will have to be used judiciously. Extraordinary

circumstances combining a financial crisis and a recession justify a co-ordinated budgetary

expansion in the EU. However, higher deficits will have to be reversed and medium-term

objectives pursued in a time frame consistent with the recovery of the economy, so as to avoid a

permanent deterioration of the budgetary positions. The long-term sustainability of public

finances should be ensured in accordance with the Stability and Growth Pact.

•

Taking into account their different situations, Member States can choose among a variety of

targeted public expenditures and tax measures to provide a short-term fiscal stimulus.

Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

The macro-economic slowdown does not call for slowing down or backtracking reforms. On the

contrary, and in view of the effects of the financial crisis on the real economy, emphasis should be

placed in particular on reforms. Measures to address the short-term crisis should be consistent with

our longer-term strategy embedded in the Lisbon Agenda, and with openness and free trade. In

particular, measures improving the functioning of markets and lowering costs, stimulating

innovation and productivity, strengthening the marginal incentives to work through for example

lower taxes and social contributions where appropriate, improving the competitiveness of our

economies, should be considered.

A coordinated European response should also build on European instruments

We welcome the key contribution European institutions can make at EU level.

We agree, in particular, on the importance of appropriate financing to SMEs, climate change and

energy, infrastructure and key sectors particularly hit by the current slowdown, within the current

ceilings and headings of the financial perspectives.

In this respect, we welcome the EIB additional financial support to the economy of up to EUR 31.2

billion in 2009-2010, increasing annual investments of the EIB to EUR 60–65 billion. The EIB

should ensure that these funds will benefit the whole Union, and will be disbursed in a timely

fashion, while sharing risks.

These funds will provide additional support to SMEs and “mid-cap” companies, which are more

likely to suffer from the current situation. They will also support further investment in the field of

energy, climate change and infrastructure. In particular, as part of a European Clean Transport

Facility, which doubles the amount available to this sector, we welcome the fact that the EIB will

offer specific support to facilitate their transition to cleaner car technologies by the automotive

manufacturers and their supplier industry. We welcome the progress report of the working group

established in Nice and encourage it to take the necessary steps to enlarge the possible investor

base, including the private sector, while starting to launch the equity fund Marguerite - the 2020

European Fund for Energy, Climate Change and Infrastructure. The working group should report on

its achievements by mid 2009.

The EIB and the EBRD will also increase their present level of financing in the new Member States.

We stand ready to support an increase in capital of the EIB, through the incorporation of its

reserves, in 2009.

Finally, within the current financial perspectives, we are ready to consider speedily the proposal by

the Commission to bring forward projects financed by the EU structural funds. In addition,

initiatives at EU level in favour of SMEs (Small Business Act) are welcome. Community resources,

particularly the European Social Fund and the European Globalisation Adjustment Fund, should

continue to support employment-related measures through simplified procedures and accelerated

implementation at European, national, regional and local levels. The EU can also provide an

impetus for investment and growth through trans-European energy inter-connections, broadband

and other infrastructure projects, in particular by implementing the right regulatory framework.

Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

II. Restoring financial stability, enhancing financial supervision and deepening the

integration of the internal market

The Council (Ecofin) has worked actively to set a coordinated EU response to the financial crisis,

through legislative and non-legislative initiatives. The objective was to address concretely and in a

coordinated manner the consequences of the financial turmoil in the short-term on the EU financial

sector. The Council (Ecofin) also gave an impulse to the ongoing efforts aimed at improving the

European supervisory and regulatory framework.

Much has been achieved but work will need to be pursued, particularly since the crisis has not yet

been abated. In particular, the EU will have to vigorously pursue its work to enhance financial

stability and to improve the European supervisory and regulatory framework, amending and

updating the existing roadmaps where necessary. In addition, it should work to keep its critical role

at international level, in the wake of the G20 Summit.

1. Ensuring the rapid and coordinated implementation of the short-term measures taken in

response to the financial crisis

In the wake of the European Council of October 15-16, which defined a common framework for

action, Member States worked on the implementation of this framework at national level so as to

stabilise the financial sector. Overall, these plans amount to EUR 1,800 billion in government

guarantees and EUR 280 billion in recapitalisation schemes.

In order to restore financial stability, Member States should ensure that all agreed measures

are swiftly and fully implemented so as to meet the urgent need to improve the functioning of

the credit market and to restore credits to companies and households

We have agreed on a

common framework at EU level for the pricing of guarantees defining minimal benchmarks. The

Council urges the Commission to issue guidance for precautionary early recapitalisation in order to

sustain credit: (i) that clarifies the principles and conditions governing the different types of

recapitalisations, in the spirit of the European Council conclusions which stressed the difference

between distressed and non-distressed banks and taking into account the recommendations of the

European Central Bank; and (ii) that allows recapitalisation measures to be implemented quickly

and flexibly in the Member States.

In the current exceptional circumstances, the Commission should allow for flexibility in the

implementation of state aid commitments of Member States. In this context, the Council urges the

Commission, before the European Council and after further discussion with Member States, to

adopt guidance on recapitalisation measures. The Council insists in particular on the following

elements, which are key for the success of the support schemes and for restoring the functioning of

the financial markets and increasing credit to the economy:

•

a clear distinction should be made between fundamentally sound and distressed banks;

this distinction should notably apply to the pricing of recapitalisations and dividend policy, in

line with the ECB's recommendations. It is important not to discourage capital-raising from

private investors, and to replace in due time state capital;

decisions by the Commission should be fully consistent with the objective, shared by all, to

ensure that banks provide appropriate financing to the real economy;

restructuring measures are not expected from fundamentally sound and viable banks benefiting

from recapitalisation measures.

•

Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

The Council invites the Commission to work closely with the ECB on these aspects.

It is a matter of priority to safeguard that the measures in the common framework function properly,

particularly the guarantee schemes which could help bring down the cost of financing for the

financial institutions to the benefit of households and companies. Therefore, the Council (Ecofin)

urges the Commission to promptly review the functioning of guarantee schemes and recapitalisation

measures in Member States and submit recommendations on how to enhance their effectiveness.

In order to step up the protection of individual savings, the Council (Ecofin) has reached a political

agreement for revising the directive concerning deposit guarantee schemes: the agreement reached

would lead to a reduction of the current pay-out delay from 2011 onwards, increase the minimum

level of coverage up to EUR 50,000 from July 2009 onwards, and harmonise – subject to a

Commission report concluding whether it is necessary - the level of coverage at EUR 100,000 by

end 2011.

The Council is committed to reaching an agreement with the European Parliament

before the end of the year in order to ensure a rapid entry into force of the directive.

The Council (Ecofin) stresses, that until the financial stability has been fully restored, the

actions related to the resolution and management of financial crisis remain the top priority

within the EU.

Therefore, the Ecofin Council will continue to monitor market developments

closely and invites the Economic and Financial Committee to stand ready to propose further

coordinated policy action at the EU level.

2. Further improving transparency on the markets

Improving transparency is essential to restoring confidence on financial markets. Banking

institutions have made progress in 2008 to release exhaustive and comparable financial information

related to their exposures, losses and write-downs arising from the financial crisis. Nevertheless,

qualitative disclosure on valuation techniques still has to be improved. The Council encourages the

industry to pursue its initiatives regarding the improvement of investor information and

transparency in the securitisation market and on consistent and comparable implementation of CRD

under Pillar III.

The Council calls for further progress in these areas and asks the Commission

and CEBS to report on the progress achieved on transparency of financial institutions in

Spring 2009.

In order to strengthen their transparency and responsibility, the Council agreed on the need to put

into place a European oversight of credit rating agencies.

The Council welcomes the legislative

proposal of the Commission and is determined to find an agreement on it before Spring 2009.

More generally, improvements of valuation standards are also needed as revealed in the context of

the crisis. The Council welcomes the revised framework for reclassification of financial assets and

the guidance on the application of fair value measurement when markets become inactive published

by the IASB, which can be considered fully consistent with the conclusions reached at EU level on

the same matter. It reminds the IASB of the issues recently raised by the Commission and urges the

standard-setter to give urgent consideration to these and, where appropriate, to come forward with

the technical solutions as requested in time for the publication of year-end results. Further

improvements in market valuation together with assessing the implications for risk management

practices by banks will be needed and can be expected in 2009.

More broadly, and in line with

the G20 decisions, the Council will examine the progress achieved and the need for further

action concerning the IASB governance reform to ensure that there is appropriate

accountability to the public authorities.

Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

Strengthening the prudential rules, the risk and crisis management framework and the

European supervisory framework

The Council agreed on a general approach on two crucial prudential directives - CRD in the

banking sector and Solvency II in the insurance area. This will provide a reinforcement of the

prudential rules in the financial sector and a better management of risks. In the insurance field

(Solvency II), the new risk-sensitive prudential requirements will provide incentive for good risk

management and better taking into account risks taken by insurance undertakings. In the banking

sector,

the CRD directive enhances the management of liquidity risk, improves the quality of

banks' own funds through the definition of consistent rules concerning hybrid instruments,

and reviews the large exposure regime. It also sets a deadline (2012) for uniform formats,

frequencies and dates of reporting for banks. Lastly, the CRD

also addresses the concerns

raised by the “originate to distribute model” by making sure that originators retain a proportion of

risks and that investors have a thorough understanding of the financial product they are buying.

Both directives enhance the supervision of cross-border financial groups, with the

introduction of colleges of supervisors and an increased coordination between supervisory

authorities on key decisions.

Definitive adoption of these two directives before the end of the current Parliament mandate

is of a high priority in the EU response to the financial crisis.

In addition, the Council agreed on strengthening and improving the functioning of the EU

committees of supervisors:

their decision making will be facilitated by the possibility to adopt

measures by qualified majority voting, coupled with a "comply or explain" mechanism. The

Council welcomes the Commission’s commitment to modify by the end of the year the

decisions on the Committees, so as to assign them specific tasks, such as, for example,

mediation, providing non-legally binding recommendations and guidelines, and training and

staff exchange. These new tasks are already included in the CRD and Solvency II.

Convergence between supervisors will be enhanced by the modification of national mandates

of supervisors at the national level to ensure that they are able to take into account the EU

dimension in the performance of their duties, including having regard to the financial stability

concerns in other Member States.

This is foreseen both in the CRD and Solvency II.

Further steps are needed in 2009 to complement these improvements in order to further

strengthen financial stability:

•

to remedy potential undue pro-cyclical effects of the prudential and accounting rules:

the

Council (Ecofin) expects the European working group on pro-cyclicality, consistent with the

FSF and Basel Committee work,

to deliver a first outline by end 2008 leading to a first

report by March 2009 to be finalised no later than mid 2009. On this basis, the

Commission is invited to consider a possible

proposal of legislative action by the Commission

by end 2009;

to ensure that the executive pay system provides the right incentives to avoid excessive

risk-taking or a shortening of time horizons,

especially in the financial industry.

The Council

has encouraged Members States to implement the existing Commission recommendation.

A number of measures have been taken recently at national level to address this issue.

The

Council (Ecofin) asks the Commission to update its recommendation

so as to promote a

more effective control by shareholders, and encourage a stronger link between pay and

performance, including on leaving pay (“golden parachutes”);

•

Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

•

to enhance preparedness on financial crisis management:

improvements are needed to allow

for better cross-border crisis management when facing general/systemic crises. In particular,

consistency between national tools and rules for asset transferability should be considered.

The

Council welcomes the intention of the Commission to deliver a white paper on early

intervention by mid 2009;

to mitigate counterparty and operational risks and improve transparency in the Credit

Default Swaps (CDSs) market:

it is essential to shift the operations of this market from

bilateral to CCP clearing.

The Council welcomes the positive step taken by the Commission

to accelerate work and make progress in early 2009;

to further improve our supervisory framework and enhance the Lamfalussy process: the

Council is looking forward to the upcoming recommendations of the high-level group on

supervision established by the Commission and chaired by M. de Larosière, in March

2009, in view of considering further actions in this field by the end of 2009;

to ensure safe and sound European post-trade infrastructures in order to prevent systemic

risks from spreading over the financial system, and to increase transparency on the OTC

derivatives markets.

4. The Council will undertake work so as to ensure that EU positions on a renewed

international financial architecture are well founded and reflected in the months ahead

The EU has played a key role in initiating a debate at the international level.

Looking ahead, several of the issues identified as needing further work at the G20 level are

issues on which the EU has already developed, or is currently developing, common views.

The Council (Ecofin) will provide inputs on the key issues,

including thorough analytical work

on the underlying reasons for the systemic financial crisis,

by mid- March 2009, so as to

contribute to the work undertaken in relevant international financial institutions and by the

G20 finance ministers.

Also, in line with the work carried out at an international level in various

fora, the Council (Ecofin) will continue to fight against illicit finance risks arising from non-

cooperative jurisdictions, and to fight against tax havens.

The Council requests that the EFC start working

in particular on the following issues and to

report back to the Council:

•

by January/February 2009

- reviewing the adequacy of the IMF’s resources and the IMF lending instruments in the light

of short-term policy needs related to financial packages to be developed by the IMF;

- IMF relations with other fora and IFIs;

by March 2009

- an overall assessment of progress made with the key short-term work priorities outlined in

the report, and an assessment of the causes and lessons of the present and previous financial

crises in further detail; and, on the basis of these, and taking into account the overall

financial stability situation in the markets, propose updated short-term and long-term work

priorities;

- standard setting and surveillance of financial institutions at global level as set out in the

Declaration of the G20 summit and the Council's (Ecofin) roadmaps;

- progress in sharing information with non-cooperative jurisdictions;

•

Rådsmøde nr. 2911 (økonomi- og finansministre) den 2. december 2008 - Bilag 6: Redegørelse vedr. rådsmøde økofin 2/12-08

•

in the course of 2009

- strengthening of IMF surveillance, including how the IMF should develop early warning

mechanisms which would build on swift identification of systemic vulnerabilities thanks to a

stronger integration of bilateral and macro-financial surveillance and on strengthened joint

IMF/World Bank Financial Sector Assessment Programs (FSAP);

- reviewing the mandate and governance of IFIs.

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