Brussels, 25/11/2011 (Agence Europe) - European finance ministers will be meeting on Monday 28 November for an EU27 ECOFIN Council to discuss the eurozone sovereign debt crisis. At the Eurogroup meeting, eurozone finance ministers will decide whether they have the guarantees they need to pay the next instalment of aid to Greece and will examine ways of boosting the European Financial Stability Fund (bailout fund). All 27 European finance ministers will decide on public guarantees that states can provide to back up the bond emissions of their banks.
The eurozone ministers will examine the letter sent by the leaders of the three main political parties in Greece in the coalition government headed by technocrat Lucas Papademos. The socialist party PASOK, which was formerly in power, the conservative party New Democracy, which currently heads the opinion polls, and the far right LAOS party are required to unequivocally back the decisions taken at the recent eurozone summit about the second bailout package for their country (see EUROPE 10483). Greece's lenders want to make absolutely sure that the decisions are properly applied no matter which party wins the general elections in February 2012 and this pledge has been made a precondition for payment of the European section of the next instalment of aid (€8bn in total from the EU and the IMF), without which Greece will go bankrupt next month. A European Commission spokesperson said on Friday 25 November that the president of the European Commission had received the letter from the head of New Democracy, Antonis Samaras, but refused to comment any further before the Eurogroup meeting. The spokesperson said he was highly confident that the Eurogroup would agree to pay the European section of the next loan instalment. The ministers will look at how to boost administrative capacity in Greece and the ability to raise taxes and collect tax revenue. Likewise for the private sector's contribution to the Greek aid package, which is due to be fully negotiated by mid-December so that the write-down can be made from mid-January to the end of February in the form of an exchange of old Greek bonds for new.
Bank guarantees. Over lunch, the ECOFIN Council will examine the question of guarantees that member states will be allowed to give to banks registered in their country for one-year and two-year bonds so the banks can raise capital, but it is not clear that agreement will be reached. The European Banking Authority (EBA) says that between €600bn and €700bn will be needed by banks in 2012 and part of 2013. The idea is to only help banks that genuinely need a helping hand (thereby avoiding moral hazard), explained a diplomat. The mechanism will be coordinated by the EBA at EU level, but it is not certain that a pooling of the guarantees (as suggested by the Commission) will be agreed upon. The granting of purely national guarantees will be examined in the light of EU state aid rules and banks will be required to come up with restructuring plans in return for the aid.
The ECOFIN Council will take note of a progress report on the talks on increasing bank capital requirements (quality and quantity), the CRD IV Directive. The United Kingdom is expected to require greater flexibility in application of the rules in order to introduce more stringent requirements (see EUROPE 10424).
Excess deficits. On Tuesday, the ministers will discuss draft recommendations from the European Commission pointing out that five member states (Belgium, Cyprus, Hungary, Malta amd Poland) will find it difficult to meet their target of reducing their public deficit to below 3% this year (see EUROPE 10493). The five may be required to change tack and introduce new austerity measures (under Article 104.9 of the EU Treaty) to send a signal to the markets by the European Commission that the EU will be keeping up the pressure to cut public spending, explained a diplomat, adding that the Commission's Autumn Economic Forecasts said that Belgium's public deficit (as a proportion of GDP) would be 4.6% in 2012, 4.9% for Cyprus, 2,8% for Hungary (Ed: whose request for financial aid may change matters), 3.5% for Malta and 4% for Poland. The Commission will return in the spring of next year to the situation of countries that gave themselves the deadline of 2013 to return to below 3%.
Annual Growth Review. The European ministers will hold an initial debate about the 2012 Annual Growth Review, unveiled on Wednesday by the European Commission at the same time as draft legislation to beef up budget discipline in the eurozone and options for pooling eurozone debt (see EUROPE 10501). The Annual Growth Review kicks off the European semester, during which Brussels will be examining each country's planned budget and economic reforms for 2012. After discussions by several combinations of Council of Ministers, it will be discussed by the spring European summit.
Other business. The ECOFIN Council will adopt a conclusions document on statistics in the EU. In a draft that this newsletter has seen, the Commission is asked to devise changes to Regulation 223/2009 to increase the independence of national statistical offices and the EU's statistics office, Eurostat.
Taxation. The EU's finance ministers will discuss a draft report to be presented to heads of state in December on the “structured” talks of 26 October-9 November 2011 on coordination of tax policies in the Euro Plus Pact signed by 23 member states in March. They are expected to publish a conclusions document on the role of the company tax code of conduct that aims to remove the tax supermarket within the EU.
The aim of the talks is to decide on a tangible series of actions to coordinate fiscal policy, the main issues being: - avoiding damaging tax practices. This is recognised as a priority and should be carried out in accordance with a work programme set by the Council of Ministers in 2008. The report says that progress has been made in various areas by the Council of Ministers work group on the code of conduct and will examine possible directions for the future; - tackling tax fraud and tax evasion. Talk in the future will focus on savings tax and exchange of bank account information between the EU and five tax havens (Switzerland, Liechtenstein, and so on); - exchanging best practice on tax issues, which could cover areas like past and future reform, the quality and effectiveness of taxation, energy tax, transport, tax incentives to encourage backward regions, tax authorities, and experience with preventing monies being transferred overseas to avoid tax; - tax coordination with third countries outside the EU or at the bilateral level, particularly with the United States ; - taxing the digital economy; - talks on common tax indicators, tax system comparisions and the like. (MB/FG/transl.fl)