On Friday 25 May, the European finance ministers will attempt to reach a qualified-majority agreement on the ‘reduction of banking risks’ legislative package, the adoption of which will shape progress in the work to move towards risk-sharing within Banking Union in the Eurozone.
This legislative package, which was tabled in November 2016 (see EUROPE 11674), introduces the TLAC buffer agreed upon at G20 level into European legislation for major systemic banks.
The entire discussion at technical level focused on the level of capital that banks must hold to absorb losses in the event of resolution and to allow them to take off again, a diplomat explained on Thursday 24 May. He added that following this reform “EU banks will be more capitalised in terms of resolvability than their American rivals”.
Following an unsuccessful attempt at the Ecofin Council of March (see EUROPE 11980), it appears that the political will now exists to make a compromise possible around the four remaining unanswered questions (see EUROPE 12024).
Most notably, a compromise seems to be taking shape on the level of subordinated instruments that a resolution authority may require of a banking group of systemic importance (G-SII and ‘top-tier banks’) with a balance sheet of more than €100 billion; this would be the first to be mobilised in the event of resolution.
The level of subordinated instruments to be achieved would be 8% of bank assets to be mobilised in the event of a bail-in. The question is whether, as France considers, it should be a single upper limit or, as Ireland believes, this threshold should be a minimum level. Resolution authorities will also have some leeway to set additional requirements on the basis of the risks to which the banking groups are exposed. The provisions would apply from 2024, but the resolution authority may, if necessary, adopt prudential measures earlier and on a case-by-case basis.
Satisfactory wording was also found to take account of inter-bank transactions within Banking Union in the Eurozone, which are considered less risky. The text also provides for one or more parent entities (‘intermediate parent undertaking’) to be created for branches of third-country banks active within Banking Union.
“A balanced proposal from the Bulgarian Presidency is on the table. This is the point of equilibria. My colleague, Helmut Scholz, and I agree on this. There is no time to lose, we must adopt it. This is particularly important as it will then be a discussion on the future of the Eurozone”, said the French finance minister, Bruno Le Maire, upon his arrival at Eurogroup meeting of Thursday 24 May (our translation). Reaching an agreement would send the citizens a message of stability for the Eurozone, his German counterpart, Helmut Scholz, added.
He hoped that an agreement on this legislative package would unlock progress in the work on risk-sharing within Banking Union, for instance through the creation of a backstop for the Single Resolution Fund (SRF) and the creation of a European Deposit Insurance System (EDIS).
Germany and France are actively preparing a roadmap on reinforcing Economic and Monetary Union, which will be presented to their counterparts ahead of the Ecofin Council of June with a view to the Eurozone summit, at which decisions in this area will be made, in Brussels at the end of June.
Taxation. The ministers will be called upon to reach a unanimous political agreement on three dossiers in the field of value-added tax (VAT) (see EUROPE 12024): - applying reduced rates to electronic publications (‘e-books’); - authorising certain member states to carry out pilot projects for a generalised reverse-charge system in order to prevent fraud (see EUROPE 11692); - the proposed regulation on administrative cooperation in the fight against fraud.
There is consensus on the dossier on administrative cooperation, which may be the subject of an agreement on Friday.
The two other dossiers, on the other hand, are more controversial and their fates are linked. In June 2017, the Czech Republic placed its veto on the text concerning electronic publications in response to France, which had an opposition in principle to the proposal that would allow Prague to carry out a pilot project for a generalised reverse-charge VAT system (see EUROPE 11810).
After nearly a year of stalemate, the Bulgarian Presidency of the Council of the EU hopes once again to “take temperatures”, according to a diplomatic source. It is not certain that an agreement will be possible on Friday, another source told us.
The new version of the compromise on the reverse charge system, which is very similar to the one submitted under the Maltese Presidency of the first half of 2017, makes very few changes, going no further than to include a reference to the definitive VAT system and safeguards for the single market, to respond to concerns raised by various member states.
The ministers will also adopt without discussion a directive that will require tax intermediaries devising or promoting tax planning to flag up potentially aggressive systems (see EUROPE 11980). Also expected to be approved without debate is a standard tax clause to be included in agreements entered into between the EU and third countries. This clause requires the parties to apply the principles of good governance in the field of taxation and to improve international cooperation.
Finally, and again without discussion, the ministers will remove the Bahamas and St Kitts and Nevis from the European blacklist of non-cooperative jurisdictions in taxation matters (see EUROPE 12020).
European Semester 2018. In the framework of the budgetary process of the ‘European Semester’, the Ecofin Council will adopt conclusions on reports by the Commission analysing macro-economic imbalances in twelve member states (see EUROPE 11910) and on the follow-up to the country-specific socio-economic policy recommendations issued in 2017. (Original version in French by Mathieu Bion and Marion Fontana)