Brussels, 14/01/2011 (Agence Europe) - On Tuesday 18 January, European finance ministers will discuss the existing and new funds for dealing with sovereign debt crises in the eurozone, kicking off with a debate at the Eurogroup, the meeting of eurozone finance ministers. During the week, people have been calling for an increase in the EFSF borrowing capacity, the fund that provided the financial aid for Ireland, and there is strong tension still on the money markets, although Portugal, Spain and Italy have managed to roll over their debt.
EFSF. On Monday evening, the question of increasing the EFSF's borrowing capacity will be discussed. The EFSF is an inter-governmental fund set up in the spring of 2010 to provide financial aid to the eurozone. Echoing the European Commission and the European Central Bank in calling for an increase in the EFSF's capacity (see EUROPE 10292 and 10293), the Belgian finance minister, Didier Reynders, described on Thursday as a “wholly reasonable objective” the doubling of the EFSF's €440 million-worth of guarantees for raising funds at good rates on the money markets. After initially refusing to discuss the issue, Germany and France (without which nothing can be done in the eurozone) say they are prepared to reflect on the matter if necessary. French finance minister Christine Lagarde says that increasing the EFSF's lending capacity (calculated at €250bn) is one of a range of options like the EFSF buying into debt on the secondary market. A diplomat queried whether amending the EFSF's rules of operation was really necessary anyway because the countries most likely to make use of it have now managed to roll over their debt without any outside aid. If a decision is taken on the EFSF (but that will not happen next week, according to German finance minister Wolfgang Schäuble) then the discussion may include how interest rates for EFSF loans are calculated for countries receiving financial aid. In Ireland, the only member state to have received aid from the EFSF to date (Greece was helped by a different mechanism), there is much debate about the high level of interest set for the loans provided through the EFSF (5.8%).
ESM. The ministers will work on business decided at the European Council in December 2010. They have been instructed to work intensively by March 2011 on the creation of a European Stability Mechanism (ESM) based on a statement published at the end of November when financial aid for Ireland was decided upon (see EUROPE 10266), points out a source close to the Hungarian Presidency. In the summer of 2013, the ESM will replace the temporary funds currently in place (the EFSF and the EFSM) and will involve private creditors on a case-by-case basis for the bailing out of eurozone country debt, where necessary. Thus far, five non-euro countries (Denmark, Hungary, the Czech Republic, the UK and Sweden) have signalled that they are planning to participate in the work of setting up the ESM.
On boosting economic governance in the EU, the ministers will discuss the legislation currently being negotiated. On Thursday, the European Parliament rapporteurs unveiled their six draft reports that will be discussed by an EP committee on Monday 24 January 2011 (voting expected in April). The diplomat points out that two of these items of draft legislation, on national budget procedures and on accelerating the excess deficit procedure, will not be decided by codecision. The ECOFIN Council will try to agree on general guidelines on the draft legislation in February in time for validation by the European Council in March.
On Tuesday, the ministers will take note of a report from the Economic and Financial Committee about national economic reform programmes submitted by the member states in November 2010. In the “European Semester”, each country will submit at the same time in April its stability and convergence programme and its economic reform programme based on recommendations that the European Council is due to publish in March 2011 (see EUROPE 10292).
Malta. Based on an assessment by the European Commission, Malta's progress in reducing its deficit to below 3% in 2011 will be deemed by the ECOFIN Council to be satisfactory.
Bank stress tests. Over breakfast, the ministers may discuss bank stress tests. On Thursday, the European Banking Authority said that the results of a new series of bank stress tests would be published in the summer of 2011, the tests themselves being carried out in February and March and the results published country-by-country, bank-by-bank, explained EU Internal Market Commissioner Michel Barnier earlier in the week in French newspaper Le Figaro. Alongside the stress tests themselves, European banks' ability to deal with cash flow crises will also be examined.
VAT. Germany has lifted its reservations and the ECOFIN Council will now adopt without debate a draft regulation setting out the place where VAT applies to the provision of services (Directive 2006/112/EEC) and in response to a request from the United Kingdom, the Hungarian Presidency has agreed to a debate on stimulating the internal market. (F.G./M.B./transl.fl)