Brussels, 20/01/2012 (Agence Europe) - New year, but same old problems. For the first meeting of the Ecofin Council under the Danish Presidency in 2012, EU27 finance ministers will meet in Brussels on Monday 23 January to discuss the sovereign debt crisis, particularly fine-tuning of the second Greek bailout and the Stability and Governance Treaty (budget pact) in the Economic and Monetary Union. They are not expected to agree on derivatives rules due to disagreement on the one remaining issue.
Greece. The Eurogroup will discuss the situation in Greece, where the government and its private sector lenders are still negotiating the scope of private sector involvement in the restructuring of Greek debt (see EUROPE 10535) to reduce the debt from 160% of GDP to 120% by 2020 through a 50% write-down in the face value of Greek bonds to enable the country to avert default. Agreement on this question is required to finalise the second Greek bailout, which will provide some €130 billion of public aid over three years. In parallel, the troika of international lenders (European Commission, ECB and IMF) is continuing its latest fact-finding mission in Athens.
Budget Pact. As part of the solution to the debt crisis, ministers will discuss the talks to draw up a new budget convergence treaty to be endorsed by the European Council on Monday 30 January 2012 (see EUROPE 10531). The latest version of the deal in circulation on Thursday 19 January, which this newsletter has seen, makes significant changes to provisions on the role of the European Commission, attendance of eurozone summits by non-euro nations and the new treaty coming into force. Ratification of the Budget Pact has been made a prerequisite for aid from the European Stability and Growth Mechanism from March 2013 onwards.
The Commission will publish a report on the transposition into national legislation of the golden rule on limiting government lending. Only countries that have signed up to the new treaty will be able to take other countries to the European Court of Justice if they feel the country in question is breaking the rules, based possibly on the Commission report. Treaty countries will also be able to take a country to court for failing to comply with initial court rulings, at which point the court will be able to fine the country up to 0.1% of GDP.
If required and at least once a year, the president of the euro summit will be able to convene a meeting of non-euro country leaders that have ratified the new Budget Pact and meet a number of special budget rules that apply to eurozone countries, a meeting to which the president of the European Parliament may also be invited. The new treaty would come into force in January 2013 as long as 12 euro nations have ratified it by then.
Bailout funds. The ministers are expected to put the finishing touches to the intergovernmental treaty establishing the European Stability Mechanism (ESM) that comes into force on 1 July 2012. The firepower of the ESM, combined with what's left of the EFSF (European Financial Stability Facility) is, according to Reuters, €500 billion at present, but as the EFSF's firepower decreases, the ESM's will increase by the same amount and the level of the EU's lending capacity will be reviewed in March 2012. Unlike the EFSF (which is based on financial guarantees from eurozone nations), the ESM will have initial capital of €80 billion and on-call capital and guarantees to the tune of €620bn. Under the European Council Agreement of December 2011, a new emergency procedure was introduced to decide by a qualified majority of at least 85% of votes to issue emergency financial aid to a struggling country. Using the IMF rules, the ESM does not require automatic private sector involvement in the debt of a country in receipt of financial aid.
Economic governance. The Ecofin Council will have a preliminary discussion on the two draft regulations to supplement the updated Stability and Growth Pact that came into force in December 2011 (see EUROPE 10500). The first gives the Commission the right to scrutinise and adjust national budgets for the year ahead that must be submitted to the Commission in October of the previous year. The second expands the surveillance of the more fragile eurozone nations, particularly those in receipt of aid. The talks are continuing apace on both regulations with a real sense of urgency because the Danish Presidency wants broad agreement to be reached next month. A close source says that two political questions have emerged: - for the first regulation, whether the monitoring should extend to other countries in addition to those subject to excess deficit proceedings; - and whether, for the second regulation, a struggling country can be required to ask for financial aid. Germany and Italy do not want the Ecofin Council to discuss such an eventuality because of fear of how news about this would affect the money markets.
Hungary. On Tuesday 24 January, when discussing the excess deficit proceedings against more than 20 member states, the finance ministers will decide, based on a Commission recommendation (see EUROPE 10529), that Hungary has failed to take the necessary measures to restore sustainable public finances, but the ministers will not decide whether EU Cohesion Funds cash should be withdrawn from Budapest. Hungary's 2011 budget surplus is solely due to special one-off juggling of its accounts and would otherwise stand at 6% of GDP. The proceedings against four other member states (Belgium, Cyprus, Malta and Poland) are not on the agenda because the Commission believes all four have taken sufficient action at this stage to bring their deficits back below the 3% cut-off point this year.
Derivatives. Ministers will discuss the inter-institutional talks on EU rules for the derivatives markets (see EUROPE 10468). A three-way negotiating meeting scheduled for Monday 23 January has been cancelled and therefore political agreement will not be forthcoming at the ministerial meeting on Tuesday. The European Parliament is threatening to vote in first reading in its plenary session in February, which would delay the introduction of the legislation, initially due to come into force later this year.
The negotiators are at loggerheads over a single issue - the exact division of powers for authorisation central clearing houses (CCPs) for over-the-counter (OTC) derivatives, explains a diplomat. CCPs are designed to reduce counterparty risks and thus shore up financial stability. The agreement in principle at the Council of Ministers says that it will be for the supervisor of the host country to decide whether to authorise an EU-wide CCP, unless the college of supervisors unanimously decides to reverse the decision. The EP is opposed to this idea, because it wants Europe to have a greater say. The Danish Presidency suggests that the decision of the host country's supervisor should be reversible by a qualified majority vote at the college of supervisors - three-quarters of the vote, for example. The college of supervisors could call on the European Securities and Markets Authority (ESMA) to issue binding mediation. Germany, backed by France to a certain extent, is opposed to this, but London, where 80% of the derivatives market is based, seems more in favour. (MB/transl.fl)