PDF to HTML - Convert PDF files to HTML files

Europaudvalget 2010-11 (1. samling), Det Udenrigspolitiske Nævn 2010-11 (1. samling)
EUU Alm.del Bilag 310, UPN Alm.del Bilag 112
Offentligt

COUNCIL OF

THE EUROPEAN UNION

Brussels, 11 March 2011

SN 1803/11

CONCLUSIONS OF THE HEADS OF STATE OR GOVERNMENT OF THE EURO AREA

OF 11 MARCH 2011

The Heads of State or Government of the Euro area adopted the following conclusions:

The Pact for the Euro which establishes a stronger economic policy coordination for

competitiveness and convergence (attached) has been endorsed. This Pact will be presented to

the European Council of 24/25 March 2011 with a view for non-euro area Member States to

indicate whether they intend to participate in the Pact. At the same time Euro area Member

States shall indicate first measures they pledge to implement under the Pact for the next year.

The Heads of State or Government of the Euro area assessed progress made since the

European Council of 4 February 2011 on the comprehensive response to the crisis, with a

view to completing this package for the 24/25 March European Council.

SN 1803/11

PDF to HTML - Convert PDF files to HTML files

They welcome the progress made in the implementation of the on-going IMF/EU programs in

Greece and Ireland, and the strong commitments by

Greece to rigorously continue structural reforms, increase capacity building for their

implementation, fully and speedily complete the € 50 bn privatization and real estate

development programme it has announced and to introduce a strict and stable fiscal

framework with the strongest possible legal basis to be decided by the Greek

government;

Ireland to introduce a strict and stable fiscal framework, with the strongest possible

legal basis, and to stick to fiscal targets through expenditures decreases and revenue

increases as foreseen in the programme.

Following their statement of 4 February concerning the assessment by the Commission, in

liaison with the ECB, of the implementation of measures taken to strengthen fiscal positions

and growth prospects, they welcome progress made in a number of countries. In particular,

Heads of State or Government, the President of the Commission and the President of the ECB

welcome and support the package of far-reaching measures announced today by Portugal

concerning fiscal, financial and structural reforms.

The Heads of State or Government of the Euro area invite Ministers of Finances to complete

their work on the ESM and the EFSF in time for the European Council of 24/25 March 2011.

This work should strictly adhere to and fully implement the European Council conclusions of

December 2010 and the Eurogroup statement of 28 November 2010, which define the key

features of the ESM (see annex II). The following conclusions have been drawn from the

discussion:

SN 1803/11

PDF to HTML - Convert PDF files to HTML files



Financing capacity

The ESM will have an overall effective lending capacity of 500 billion euros. During

the transition from EFSF to ESM, the consolidated lending capacity will not exceed this

amount. The ESM effective lending capacity will be ensured by establishing the

appropriate mix between paid-in capital, callable capital and guarantees. A timetable for

the gradual paying in of capital will be established, fully respecting national

parliamentary procedures.

Until the entry into force of the ESM, the agreed lending capacity of 440 billions euros

of the EFSF will be made fully effective.



Instruments

The Heads of State or Government recall that the ESM will provide financial assistance

when requested by a Euro area member and when such intervention is deemed

indispensable to safeguard the stability of the Euro area as a whole. Any decision to that

effect will be taken by unanimity on the basis of a debt sustainability analysis of the

Member State concerned conducted by the Commission and the IMF, in liaison with the

ECB. Financial assistance will be subject to strict conditionality under a macro-

economic adjustment programme.

Financial assistance from the ESM and EFSF will take the form of loans. However, to

maximize the cost efficiency of their support, the ESM and the EFSF may also, as an

exception, intervene in the debt primary market in the context of a programme with

strict conditionality.

SN 1803/11

PDF to HTML - Convert PDF files to HTML files



Financial conditions

Pricing of the EFSF should be lowered to better take into account debt sustainability of

the recipient countries, while remaining above the funding costs of the facility, with an

adequate mark up for risk, and in line with the IMF pricing principles. The same

principles will apply to the ESM.

Against this background and in view of the commitments undertaken by Greece in the

context of its adjustment programme, the interest rate on its loans will be adjusted by

100 basis points. Moreover, the maturity for all the programme loans to Greece will be

increased to 7.5 years, in line with the IMF.

Finance Ministers will specify modalities of implementation of these decisions.

All Member States will ensure that concrete plans, compliant with EU State aid rules, are in

place to deal with any bank that demonstrates vulnerabilities in the stress tests that will be

completed by the summer.

The Heads of State or Government call on Finance Ministers to finalize their work on the

Commission six legislative proposals on economic governance and to reach, before the end of

March, a general approach ensuring full implementation of the recommendations of the Task

Force. In this context, they agree that the setting up of a numerical benchmark of 1/20 for debt

reduction, to be assessed taking into account all relevant factors, as outlined in the

Commission proposal, should be fully part of this package. They all support the adoption of

the draft directive on national fiscal framework. In deciding on the steps in the SGP the

Council is expected to, as a rule, follow the recommendations of the Commission or explain

its position in writing.

The Heads of State or Government agree that the introduction of a financial transaction tax

should be explored and developed further at the Euro area, EU and international levels.

_______________________

SN 1803/11

PDF to HTML - Convert PDF files to HTML files

ANNEX I

A PACT FOR THE EURO

STRONGER ECONOMIC POLICY COORDINATION FOR COMPETITIVENESS AND

CONVERGENCE

Euro area Heads of State and Government have decided to adopt a Pact for the Euro to strengthen

the economic pillar of the monetary union, achieve a new quality of economic policy coordination

in the Euro area, improve competitiveness, thereby leading to a higher degree of convergence. This

Pact focuses primarily on areas that fall under national competence and are key for increasing

competitiveness and avoiding harmful imbalances. Competitiveness is essential to help the EU

grow faster and more sustainably in the medium and long term, to produce higher levels of income

for citizens, and to preserve our social models. Non-euro area Member States are invited to

participate on a voluntary basis.

This renewed effort for stronger economic policy coordination for competitiveness and convergence

rests on

four guiding rules:

It will be

in line with and strengthen the existing economic governance

in the EU, while

providing added value. It will be consistent with and build on existing instruments (EU 2020,

European Semester, Integrated Guidelines, Stability and Growth Pact and new macro-

economic surveillance framework). It will involve a special effort going beyond what already

exists and include concrete commitments and actions that are more ambitious than those

already agreed, and accompanied with a timetable for implementation. These new

commitments will thereafter be included in the National Reform and Stability Programmes

and be subject to the regular surveillance framework, with a strong central role for the

Commission in the monitoring of the implementation of the commitments, and the

involvement of all the relevant formations of the Council and the Eurogroup. The European

Parliament will play its full role in line with its competences. Social partners will be fully

involved at the EU level through the Tripartite Social Summit.

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files

It will be focused, action oriented, and cover

priority policy areas that are essential for

fostering competitiveness and convergence.

It will concentrate on actions where the

competence lies with the Member States. In the chosen policy areas

common objectives will

be agreed upon at the Heads of State or Government level. Participating Member States

will pursue these objectives with their own policy-mix, taking into account their specific

challenges.

Each year, concrete national commitments will be undertaken by each Head of State or

Government.

In doing so, Member States will take into account best practices and benchmark

against the best performers, within Europe and vis-à-vis other strategic partners.

The implementation of commitments and progress towards the common policy objectives will

monitored politically by the Heads of State or Government

of the Euro area and

participating countries on a yearly basis, on the basis of a report by the Commission. In

addition, Member States commit to consult their partners on each major economic reform

having potential spill-over effects before its adoption.

Euro area Member States are fully committed to the completion of the Single Market which is

key to enhancing the competitiveness in the EU and the Euro area. This process will be fully

in line with the treaty.

The Pact will fully respect the integrity of the Single Market.

Our goals

Euro area Member States undertake to take all necessary measures to pursue the following

objectives:



Foster competitiveness

Foster employment

Contribute further to the sustainability of public finances

Reinforce financial stability

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files

Each participating Member State will present the specific measures it will take to reach these goals.

If a Member State can show that action is not needed on one or the other areas, it will not include it.

The choice of the specific policy actions necessary to achieve the common objectives

remains the

responsibility of each country, but particular attention will be paid to the set of possible measures

mentioned below.

Concrete policy commitments and monitoring

Progress towards the common objectives above will be politically monitored by the Heads of State

or Government on the basis of a series of indicators covering competitiveness, employment, fiscal

sustainability and financial stability. Countries facing major challenges in any of these areas will be

identified and will have to commit to addressing these challenges in a given timeframe.

a. Foster competitiveness

Progress will be assessed on the basis of wage and productivity developments and competitiveness

adjustment needs. To assess whether wages are evolving in line with productivity, unit labour costs

(ULC) will be monitored over a period of time, by comparing with developments in other Euro area

countries and in the main comparable trading partners. For each country, ULCs will be assessed for

the economy as a whole and for each major sector (manufacturing; services; as well as tradable and

non-tradable sectors). Large and sustained increases may lead to the erosion of competitiveness,

especially if combined with a widening current account deficit and declining market shares for

exports. Action to raise competitiveness is required in both all countries, but particular attention will

be paid to those facing major challenges in this respect. To ensure that growth is balanced and

widespread in the whole Euro area, specific instruments and common initiatives will be envisaged

to foster productivity in regions lagging behind.

Each country will be responsible for the specific policy actions it chooses to foster competitiveness,

but the following reforms will be given particular attention:

(i) respecting national traditions of social dialogue and industrial relations, measures to ensure costs

developments in line with productivity, such as:

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files



review the wage setting arrangements, and, where necessary, the degree of centralisation

in the bargaining process, and the indexation mechanisms, while maintaining the

autonomy of the social partners in the collective bargaining process;



ensure that wages settlements in the public sector support the competitiveness efforts in

the private sector (bearing in mind the important signalling effect of public sector

wages).

(ii) measures to increase productivity, such as:



further opening of sheltered sectors by measures taken at the national level to remove

unjustified restrictions on professional services and the retail sector, to foster

competition and efficiency, in full respect of the Community

acquis;



specific efforts to improve education systems and promote R&D, innovation and

infrastructure;

measures to improve the business environment, particularly for SMEs, notably by

removing red tape and improving the regulatory framework (e.g. bankruptcy laws,

commercial code).

b. Foster employment

A well functioning labour market is key for the competitiveness of the Euro area. Progress will be

assessed on the basis of the following indicators: long term and youth unemployment rates, and

labour participation rates.

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files

Each country will be responsible for the specific policy actions it chooses to foster employment, but

the following reforms will be given particular attention:



labour market reforms to promote “flexicurity”, reduce undeclared work and increase

labour participation;

life long learning;

tax reforms, such as lowering taxes on labour to make work pay while preserving overall

tax revenues, and taking measures to facilitate the participation of second earners in the

work force.

c. Enhance the sustainability of public finances

In order to secure the full implementation of the Stability and Growth Pact, the highest attention

will be paid to:



Sustainability of pensions, health care and social benefits

This will be assessed notably on the basis of the sustainability gap indicators

. These indicators

measure whether debt levels are sustainable based on current policies, notably pensions schemes,

health care and benefit systems, and taking into account demographic factors.

Reforms necessary to ensure the sustainability and adequacy of pensions and social benefits could

include:



aligning the pension system to the national demographic situation, for example by

aligning the effective retirement age with life expectancy or by increasing participation

rates;



limiting early retirement schemes and using targeted incentives to employ older workers

(notably in the age tranche above 55).

The sustainability gap are indicators agreed by the Commission and Member States to assess

fiscal sustainability.

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files



National fiscal rules

Euro area Member States commit to translating EU fiscal rules as set out in the Stability and

Growth Pact into national legislation. Member States will retain the choice of the specific national

legal vehicle to be used, but will make sure that it has a sufficiently strong binding and durable

nature (e.g. constitution or framework law). The exact formulation of the rule will also be decided

by each country (e.g. it could take the form of a "debt brake", rule related to the primary balance or

an expenditure rule), but it should ensure fiscal discipline at both national and sub-national levels.

The Commission will have the opportunity, in full respect of the prerogatives of national

parliaments, to be consulted on the precise fiscal rule before its adoption so as to ensure it is

compatible with, and supportive of, the EU rules.

Reinforce financial stability

A strong financial sector is key for the overall stability of the Euro area. A comprehensive reform of

the EU framework for financial sector supervision and regulation has been launched.

In this context, Member States commit to putting in place national legislation for banking

resolution, in full respect of the Community

acquis.

Strict bank stress tests, coordinated at EU level,

will be undertaken on a regular basis. In addition, the President of the ESRB and the President of

the Eurogroup will be invited to regularly inform Heads of State or Government on issues related to

macro-financial stability and macroeconomic developments in the Euro area requiring specific

action. In particular, for each Member State, the level of private debt for banks, households and

non-financial firms will be closely monitored.

***

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files

In addition to the issues mentioned above, attention will be paid to

tax policy coordination.

Direct taxation remains a national competence. Pragmatic coordination of tax policies is a necessary

element of a stronger economic policy coordination in the Euro area to support fiscal consolidation

and economic growth. In this context, Member States commit to engage in structured discussions on

tax policy issues, notably to ensure the exchange of best practices, avoidance of harmful practices

and proposals to fight against fraud and tax evasion.

Developing a common corporate tax base could be a revenue neutral way forward to ensure

consistency among national tax systems while respecting national tax strategies, and to contribute to

fiscal sustainability and the competitiveness of European businesses.

The Commission intends to present a legislative proposal on a common consolidated corporate tax

base in the coming weeks.

Concrete yearly commitments

In order to demonstrate a real commitment for change and ensure the necessary political impetus to

reach our common objectives, each year Member States of the Euro area will agree at the highest

level on a set of concrete actions to be achieved within 12 months. The selection of the specific

policy measures to be implemented will remain the responsibility of each country, but the choice

will be guided by considering in particular the issues mentioned above. These commitments will

also be reflected in the National Reform Programmes and Stability Programmes submitted each

year which will be assessed by the Commission, the Council, and the Eurogroup in the context of

the European Semester.

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files

Next steps

The Pact will be formally adopted at the EC on 24 March by Euro area Member States and those

Member States non participating in the euro which wish so. Those MS in a position to do so should

announce already on 24 March the concrete commitments to be achieved in the next 12 months. In

any event, concrete commitments should be included in the National Reform and Stability

Programmes to be submitted in April and will be presented to the June European Council.

****

SN 1803/11

ANNEX I

PDF to HTML - Convert PDF files to HTML files

ANNEX II

GENERAL FEATURES OF THE FUTURE MECHANISM

EUROGROUP STATEMENT OF 28 NOVEMBER 2010

"The recent events have demonstrated that financial distress in one Member State can rapidly

threaten macro-financial stability of the EU as a whole through various contagion channels. This is

particularly true for the Euro area where the economies, and the financial sectors in particular, are

closely intertwined.

Throughout the current crisis, Euro area Member States have demonstrated their determination to

take decisive and coordinated action to safeguard financial stability in the Euro area as a whole, if

needed and return growth to a sustainable path.

In particular, the European Financial Stability Facility (EFSF) has been set up to provide for swift

and effective liquidity assistance, together with the European Financial Stabilisation Mechanism

(EFSM) and the International Monetary Fund, and on the basis of stringent programmes of

economic and fiscal policy adjustments to be implemented by the affected Member State and

ensuring debt sustainability.

On 28 - 29 October the European Council agreed on the need to set up a permanent crisis

mechanism to safeguard the financial stability of the Euro area as a whole. Eurogroup Ministers

agreed that this European Stability Mechanism (ESM) will be based on the European Financial

Stability Facility capable of providing financial assistance packages to Euro area Member States

under strict conditionality functioning according to the rules of the current EFSF.

The ESM will complement the new framework of reinforced economic governance, aiming at an

effective and rigorous economic surveillance, which will focus on prevention and will substantially

reduce the probability of a crisis arising in the future.

SN 1803/11

ANNEX II

PDF to HTML - Convert PDF files to HTML files

Rules will be adapted to provide for a case by case participation of private sector creditors, fully

consistent with IMF policies. In all cases, in order to protect taxpayers' money, and to send a clear

signal to private creditors that their claims are subordinated to those of the official sector, an ESM

loan will enjoy preferred creditor status, junior only to the IMF loan.

Assistance provided to a Euro area Member State will be based on a stringent programme of

economic and fiscal adjustment and on a rigorous debt sustainability analysis conducted by the

European Commission and the IMF, in liaison with the ECB.

On this basis, the Eurogroup Ministers will take a unanimous decision on providing assistance.

For countries considered solvent, on the basis of the debt sustainability analysis conducted by the

Commission and the IMF, in liaison with the ECB, the private sector creditors would be encouraged

to maintain their exposure according to international rules and fully in line with the IMF practices.

In the unexpected event that a country would appear to be insolvent , the Member State has to

negotiate a comprehensive restructuring plan with its private sector creditors, in line with IMF

practices with a view to restoring debt sustainability. If debt sustainability can be reached through

these measures, the ESM may provide liquidity assistance.

In order to facilitate this process, standardized and identical collective action clauses (CACs) will

be included, in such a way as to preserve market liquidity, in the terms and conditions of all new

Euro area government bonds starting in June 2013. Those CACs would be consistent with those

common under UK and US law after the G10 report on CACs, including aggregation clauses

allowing all debt securities issued by a Member State to be considered together in negotiations. This

would enable the creditors to pass a qualified majority decision agreeing a legally binding change to

the terms of payment (standstill, extension of the maturity, interest-rate cut and/or haircut) in the

event that the debtor is unable to pay.

Member States will strive to lengthen the maturities of their new bond emissions in the medium-

term to avoid refinancing peaks.

SN 1803/11

ANNEX II

PDF to HTML - Convert PDF files to HTML files

The overall effectiveness of this framework will be evaluated in 2016 by the Commission, in liaison

with the ECB.

We restate that any private sector involvement based on these terms and conditions would not be

effective before mid-2013.

President of the European Council Herman Van Rompuy has indicated that his proposal on limited

treaty change to the European Council at its next meeting will reflect today's decision."

SN 1803/11

ANNEX II