Brussels, 08/07/2011 (Agence Europe) - On Monday 11 and Tuesday 12 July, EU27 finance ministers will be discussing the bank stress tests, the result of which are to be published on Friday 15 July, and progress in talks on the voluntary involvement of the private sector in the second bailout of Greece, on the same scale as the initial bailout of €110 billion.
Bank stress tests. The ministers will be briefed on the results of the 2011 bank stress tests, carried out on 91 European banks representing 65% of all bank assets in the EU (see EUROPE 10414). They will guarantee that in all the countries where banks have failed the tests, there are sufficient financial backstops in place to ensure the banks can restructure and refinance from the money markets or, failing that, be bailed out by the state.
The European bank supervision Authority, EBA, decided on the contents of the tests and coordinated them at national level. On Friday, it announced that the 2011 test results would be published on Friday afternoon, 15 July, on a bank-by-bank basis, providing details about the banks' exposure to eurozone sovereign debt. Banks that fail the tests will have to detail measures they are planning to take to boost their balance sheets by the end of next year.
The European Banking Federation (EBF) hopes the 2011 tests will be the last of them because such stress tests are not something to be made regular at pan-European level, explained its secretary general, Guido Ravoet, to a few journalists on Friday. He said the fact that a bank had failed the tests did not mean it was insolvent because the contents of the test (for example, a 4% fall in GDP in the eurozone) were unrealistic. He raised a competition question in that European banks were now at a disadvantage compared with banks in the United States, whose stress tests were not as strict. Robert Priester, bank supervision manager at EBF, warned of the danger of publication of the test results generating irrational behaviour, making it even more difficult for any bank failing the test to raise capital on the money markets. Proof of this, he said, was the fact that the deadline for increasing capital levels had been postponed until December 2012.
Greece. The Eurogroup, the meeting of which will be attended by the Polish finance minister, Jacek Rostowski, even though Poland is not in the euro, will examine private sector involvement in the cost of the second Greek bailout plan. No decisions are expected, however, until September 2011. The future statement by the ministers about private sector involvement, once endorsed by the European Council, will set out details of voluntary private sector involvement in the form of voluntary refinancing of Greek bonds when they mature, preventing the country from defaulting on its debt. A diplomat said the European Council conclusions document would set out the negotiating mandate. This contradicts comments by the Dutch finance minister, Kees de Jager, that Greece might be allowed to temporarily default on its debt (see EUROPE 10414). On Friday, the IMF gave the go-ahead for the payment of its €3.3bn contribution to the fifth instalment of the current €12 bn Greek bailout. Europe did the same earlier this month when the Greek parliament narrowly passed further austerity measures estimated to total some €28 billion by 2015.
ESM. The EU27 finance ministers will sign the intergovernmental treaty on Monday creating a European Stability Mechanism (ESM) that will replace the current EFSF in July 2013 (the EFSF has been used to bail out Ireland and Portugal, see EUROPE 10404). The ESM will have an effective lending capacity of €500bn and will be allowed to buy up struggling eurozone countries' bonds on the primary markets under strict conditions. With the same status as private investors, the ESM will not be granted precedence for repayment of its loans if a country defaults.
Finland. The ministers will cancel the excess deficit procedure launched in 2010 against Finland because its economy is doing better than expected and it has therefore been able to keep its public deficit below 3% of GDP (2.5% in 2010), doing better than forecast by the European Commission.
In a conclusions document to be published after the meeting, the ministers will assess the first European semester, during which the draft budgets of eurozone countries were discussed before they were presented for approval by parliament. The minsters will stress the importance of consolidating public finance and introducing structural reforms to meet the medium-term public targets.
The ECOFIN Council will examine the breakdown of negotiations over reform of the Stability and Growth Pact after the European Parliament refused to accept the most recent compromise reached by the member states. The talks broke down over making the preventative arm (penalties) of the SGP more automatic
(see EUROPE 10404). Ministers will examine the best way of introducing the structural reforms set out in the Euro Plus Pact signed by 23 member states in March 2011 to see whether intergovernmental action by heads of state is required or whether the Pact should be incorporated instead in the EUROPE 2020 strategy. The delegations will be briefed on the outcome of the G20 finance meeting in Paris this weekend (at ministerial level) under the aegis of the French Presidency of the G20.
Savings tax. On Tuesday, the ministers will examine progress since the May ECOFIN Council on the negotiating mandate to be granted to the European Commission over changes to the 2004 agreements between the EU and Switzerland, Liechtenstein, Monaco, Andorra and San Marino on the taxation of savings in order to bring the five agreements into line with the changes to the EU savings tax directive (2003/48/EC). The EU rules extend the tax to all savings products that generate interest or similar income, including trust funds, foundations and the like.
The European Commission will present a suggestion that the negotiations should be based on the most recent compromise deal (approved in May 2011 by all delegations apart from Italy, see EUROPE 10378 and 10380).
No decisions are expected on saving tax issues, however, because there are persistent areas of disagreement. Italy says the current directive does not work properly and wants the new directive to deal with shortcomings and make it harder to wriggle out of the rules. Rome has requested that the Commission draw up a report on how the current directive operates and does not want the Commission to start negotiating with non-EU countries until the necessary improvements have been introduced in the EU legislation (the draft revision of the directive). Italy is said to have relaxed its view somewhat and the Italian finance minister, Giulio Tremonti, is expected to make a statement about the question on Tuesday. Luxembourg and Austria object to the draft directive because they do not want any changes to be made to the transition period during which both countries will be allowed to continue with the current taxation at source (unanimous taxation, in other words) before having to exchange information about savings deposited in their banks by non-residents. Formal incorporation in the agreements with the five non-EU countries of the OECD exchange of tax information measures would force them to start exchanging information and would therefore put an end to anonymous bank accounts. (M.B./F.G./transl.fl)