Brussels, 05/01/2011 (Agence Europe) - The Hungarian Presidency has a lot on its plate when it comes to economic and financial issues, one of the most important of which, no doubt, is the aim to increase economic governance in the European Union. Hungary has not itself joined the euro yet but its ability to deal with this issue on behalf of the Council of the EU in the first half of 2011 will largely determine the success of its presidency. Other economic issues, like introducing the “European semester” and creating the European stability mechanism that is due to come into operation in 2014, or the introduction of bank taxes and EU rules on derivative and naked short-selling are other important areas where progress is also expected. The European Parliament is on an equal footing with the EU Council of Ministers on all these issues.
The Hungarian Presidency believes it is its duty to reach agreement by the summer on the six areas of draft legislation to boost economic governance in the EU (see EUROPE 10225). The legislation aims to boost budgetary discipline by paving the way as soon as possible to financial penalties and policies for countries breaking the EU rules, and focusing on monitoring public debt and introducing surveillance of macroeconomic imbalances. On Wednesday 5 January, the president of the European Commission, José Manuel Durão Barroso, said that greater economic governance was not an ideological dream but rather a pragmatic requirement (see article on preceding page).
European semester. The Hungarian Presidency will also be responsible for introducing the “European semester” during which member states will submit to their peers and the European Commission each year the main direction of their draft budget for the following year, before submitting the draft budget to their own parliaments for final adoption. The aim here is to encourage EU coordination of national budget decisions, themselves related to the national reform programmes to be introduced as part of the EUROPE 2020 strategy. The spring 2011 European Council will set guidelines to be followed by the member states when drawing up their national budgets.
In the eurozone, last year ended with Ireland's request for international financial aid. On Wednesday, the EFSM (EU) and the EFSF (intergovernmental) found it easy to raise the initial €5 billion of aid for the Irish.
ESM. The December 2010 European Council confirmed the EU's desire to introduce a European Stability Mechanism (ESM) for eurozone countries that will in the summer of 2013 replace the temporary systems currently being used to help Greece and Ireland (see EUROPE 10280). Including the involvement of private investors on a case-by-case basis, the ESM will require changes to the Lisbon Treaty and a new version of Article 136 is due to be confirmed in March 2011. The most recent European Council revealed differences among the EU's leaders over the idea of the eurozone issuing eurobonds. The debate is likely to re-emerge in discussions about economic governance.
Financial services. The Hungarian Presidency will be responsible for monitoring the introduction of the European Systemic Risk Board and the three new EU financial supervision authorities (one for banking, one for insurance and one for securities, see EUROPE 10285). The new EU bank stress tests to be coordinated by the European Banking Association, will be closely monitored because the stress tests were discredited by the problems experienced by Irish banks that passed the stress tests in the summer of 2010 but then caused the country to request financial aid.
Budapest will also try to make progress over several other items of draft financial legislation on the table, like the EU system for derivatives and short-selling (see EUROPE 10215) and the Single European Payments Area. The Commission will unveil further draft legislation in the first half of the year that the Hungarian Presidency may decide to deal with as a priority issue. Work may speed up on the question of a bank tax, for example.
In terms of setting up an EU financial crisis management system, the Commission will start a public consultation on Thursday on systems to be provided to national supervisors to ensure that the creditors of a failed bank and the holders of some debt in the form of shares assume some of the financial losses (“haircuts”). In the first six months of 2011, it will unveil a draft rewriting of EU Directive 2004/39/EC on European financial instruments (the MiFID Directive) to deal with certain shortcomings. Other legislation will cover ratings agencies (to increase competition on a market dominated by the Big Three) and the EU Directive 2003/6/EC on abuse of the market in order to align the penalties with the new financial techniques. It will continue preparatory work on increasing bank capital requirements (the Basel III Directive). (M.B./transl.fl)