Brussels, 11/07/2016 (Agence Europe) - On Tuesday 12 July, the European Finance Ministers are expected to note that Spain and Portugal did not take sufficient action between 2013 and 2015 to correct their excessive deficits and comply with the budgetary trajectory agreed upon at European level.
By adopting the recommendation of the European Commission (EUROPE 11589), the ministers will take an extra step in the excessive deficit procedures opened against the two Iberian countries. This will pave the way for the possible adoption of financial sanctions against them, a first ever for eurozone countries. These sanctions could take the form of a financial penalty (between 0 and 0.2% of GDP) and a suspension of the European structural funds (fine put into an escrow account of up to 0.2% of GDP or freezing of commitments for the year n+1).
“I do not feel that we will move towards a voting process to find a blocking majority” of member states opposed to observing that Spain and Portugal did not take sufficiently effective action to comply with their budgetary commitments, a diplomatic source said on Monday 11 July. The source added that the two Iberian countries have not complied with the trajectory laid down “in either nominal or structural terms”.
Although it should have been brought back below the 3% of GDP mark, the Portuguese nominal public deficit stood at 4.4% of GDP in 2015. As regards the structural deficit, the Commission notes a gap of 1.4% of GDP in the effort made (1.1%) and that agreed upon (2.5%) at European level, between 2013 and 2015.
In nominal terms,the Spanish deficit stood at 5.1% of GDP in 2015, rather than the 4.2% agreed upon. The aim of returning below 3% of GDP in 2016 therefore seems unachievable. Furthermore, between 2013 and 2015, the gap between the structural effort made by Madrid (0.6%) and the effort agreed upon (2.7%) was 2.1% of GDP.
Under the Stability and Growth Pact (article 126.8 of the Treaty), the European Commission will have 20 days (until the end of July) to make a proposal to the Council to adopt sanctions once it has noted an absence of sufficiently effective actions. Then, the Council may oppose sanctions within 10 days following the Commission proposal.
On Tuesday, therefore, there will be no talk of sanctions. However, there may be a vote when the matter at issue for eurozone countries alone involves taking a decision on the imposition of sanctions and the form these will take.
Again at budgetary level, the ministers will adopt the country-by-country socio-economic policy recommendations presented by the Commission in May (EUROPE 11553).
Fight against the financing of terrorism. The ministers will hold an initial exchange of views on the Commission's proposal to modify the 'anti-money laundering and fight against the financing of terrorism' directive to further limit the financial resources of terrorists and to take a further step in fighting tax evasion (EUROPE 11587). On the former plank, the Commission is proposing to tighten up the framework on virtual currency (e.g. Bitcoin) and on the use of prepaid cards and to improve the access of national intelligence cells to information on banking and payment accounts, which will be compiled in centralised national registers.
On reinforcing tax transparency, the Commission is proposing that the member states publish certain information from the registers of the beneficial owners of businesses and certain trusts (which engage in commercial activities). Information on other trusts will be included in the national registers available to parties with a 'legitimate interest', as provided for by the fourth 'anti-money-laundering' directive. This will be the case for family and charitable trusts. The question of trusts will be a sensitive one for the British, a Council source explained.
France, which was largely behind the Commission's proposals, hopes for a rapid adoption of the text. The Commissioner for Justice, Vera Jourova, who has competence on this dossier, on Monday 11 July attended a joint meeting of the committees on economic and monetary affairs and of civil liberties of the European Parliament to present this initiative. The Slovakian Presidency of the Council of the EU has made this one of its priorities and hopes to reach a political agreement in principle of the Council in the autumn so that it can start negotiations with the Parliament itself.
Also on the anti-tax evasion plank, the ministers are expected to formally adopt the 'anti-tax evasion' directive, which was the subject of an agreement in late June (EUROPE 11577). This directive represents the translation into European legislation of the measures proposed by the OECD in the framework of its 'BEPS' action plan to fight the erosion of tax bases and the transfer of profits. Two measures of this directive stemmed from the Commission's initial proposal for a common consolidated corporate tax base (CCCTB), a new version of which is expected for November. The 'anti-tax evasion' directive is expected to be amended between now and October to reinforce its provisions on hybrid mismatches.
The Commissioner for Taxation, Pierre Moscovici, will present the ministers with his communication on tax transparency, which pledges to tackle the issue of making intermediaries such as banks and other tax advisers more responsible (EUROPE 11586). He will also present amendments to the directive on administrative cooperation to introduce the exchange of information between tax administrations on the beneficial owners of trust and shell companies. On this point, Sweden is reported to have asked for more time for transposition. More generally, the British laid great emphasis on international cooperation.
Italian banks. The situation of the Italian banks is not on the agenda, but the possibility of an informal discussion of the issue over breakfast has not been ruled out. A senior diplomat explained that it would be unwise to bend the rules of the directive on bank recovery and resolution ('BRRD') given all the painstaking work which was necessary on this dossier. This directive rolls out within the EU the principle of a contribution to be made by the shareholders and creditors of a bank in the event of default ('bail-in').
The ministers will take stock of the work to complete banking union in the eurozone, with Belgium to be the last country to transpose the 'BRRD' directive into its national legislation, in September. This completion will open the door for debate on the creation of a backstop for the Single Resolution Fund, the financial arm of the 'resolution' plank of banking union.
The Ecofin Council will adopt conclusions on discussions underway at the Basel Committee on the reform of the banking prudential rules (Basel IV). The industry has expressed concern at the imposition of excessive capital requirements which, it argues, are limiting its capacity to finance the economy. France is reported to approve of including a maximum own funds threshold in the conclusions, although the draft text argues that the reform underway should not have any significant impact on increasing own funds.
Brexit. The ministers will hear from their UK counterpart on possible implications for the financial markets of the outcome of the referendum won by those in favour of the United Kingdom leaving the EU. On Monday, the Eurogroup held a discussion on this subject (see other article). (Original version in French by Mathieu Bion and Elodie Lamer)