The Finance Ministers of the European Union Member States are meeting in Luxembourg, on Friday 18 June, for their first formal in person meeting since the start of the Covid-19 pandemic. On this occasion, they will exchange views on the implementation of the Next Generation EU Recovery Plan, seek to make progress on a number of VAT-related issues and take note of progress on the Banking Union at technical level.
Next Generation EU. The European Commission will inform Member States about the ongoing evaluation process of the national recovery plans, as its President, Ursula von der Leyen, embarks on a tour of Europe to present the results of the evaluation in Portugal, Spain, Greece, Denmark and Luxembourg (see EUROPE 12739/7).
Next week, Mrs von der Leyen’s European tour could include France and Italy.
In its analysis, the Commission is required to verify that each national plan complies with the provisions of the Regulation establishing the Recovery and Resilience Facility (RRF), the budgetary instrument at the heart of Next Generation EU, including the minimum thresholds for investment in the thematic priorities (37% in the ecological transition, 20% in the digital transition) and the setting of milestones and deadlines which will condition the granting of aid tranches (see EUROPE 12626/1).
Each national plan will be transcribed into a proposal for a decision to be analysed and adopted by the EU Council no later than one month after the Commission formally transmits a recommendation.
In the EU Council, the discussion will not be about the plans, but about their compliance with EU law, an EU source said on Wednesday 16 June. The Ecofin Council could formally adopt the first national plans on Tuesday 13 July.
At the end of June in Lisbon, the Portuguese Presidency will organise a conference on economic recovery and the lessons to be drawn from the Covid-19 pandemic.
More information on the national recovery plans whose analysis has already been finalised: https://bit.ly/3gG3k0D
VAT. Ministers will also be asked to consider the Portuguese EU Council Presidency’s suggestion to split the Commission’s recent proposal to exempt from VAT the goods and services that the EU makes available to Member States and citizens in times of crisis (see EUROPE 1269/8).
Several Member States expressed concerns about the scope of the proposal and the lack of an impact assessment.
In order to break the deadlock, the Presidency will therefore propose to the ministers, in the short term, to limit the scope of the proposal to temporary exemptions linked to the response to the pandemic, which, given the urgency, could be approved by written procedure, and to continue, in a second phase, the discussion at technical level on a permanent exemption from VAT linked to the response to future crises (see EUROPE 12736/18).
The other dossier on the table of the Ecofin Council is the European Commission’s 2018 proposal to give Member States the freedom to set reduced, super-reduced and zero VAT rates (see EUROPE 11940/15).
The Portuguese Presidency is seeking political guidance from ministers on a number of issues (see EUROPE 12736/17) before continuing work at technical level, with overall agreement on the text expected under the Slovenian EU Council Presidency.
Lisbon will ask ministers to decide on its proposal to include a ‘standstill’ clause which would allow Member States to continue to apply their current exemptions, but, in order to ensure equal treatment of all EU countries, these exemptions would then become available to all EU Member States, provided that they inform the VAT Committee before the 1 January 2023.
According to a European source, the European Commission has some problems with this approach, which would open the door to more exemptions.
The Presidency is also seeking Member States’ views on its proposal to phase out environmentally harmful goods from the scope of reduced rates, including pesticides, chemical fertilisers, firewood and natural gas, by the 1 January 2035, through a ‘sunset clause’.
This is a sensitive issue for some countries, such as the Baltic States (for firewood) or Spain (for pesticides), but, overall, this solution should be acceptable to the majority of Member States, said the same source.
Banking Union. The Ecofin Council will take note of the Portuguese Presidency’s progress report on the completion of the Banking Union in the euro area, including the establishment of a European Deposit Insurance Scheme (EDIS).
This dossier was discussed the day before in the enlarged Eurogroup format, in view of the report that its president, Paschal Donohoe, is due to present to the Eurozone summit on Friday 25 June (see other news).
Germany is of the opinion that this draft report puts too much emphasis on financial risk sharing, via EDIS, and not enough on risk reduction issues such as the introduction of a regulatory treatment of sovereign risk in the EU.
See the draft report: https://bit.ly/3g2yWyz
European Semester. On the budgetary side, the Ecofin Council will adopt a recommendation in the context of the Excessive Deficit Procedure for Romania of April 2020 (see EUROPE 12459/17). Due to the difficult economic context linked to the Covid-19 pandemic, it will set 2024, not 2022, as the new deadline for the correction of the Romania’s excessive deficit.
More info at: https://bit.ly/3cPylOC
In addition, the ministers will endorse the country-specific socio-economic policy recommendations that the Commission sent to the EU27 in early June (see EUROPE 12732/1). As the freeze on fiscal rules is maintained for 2021 and 2022, the Commission has made only qualitative fiscal policy recommendations, which also take into account the start of operations under the RRF.
The ministers will also adopt conclusions on the budgetary impact of an ageing populations, in response to the specific report presented by the Commission in May.
See this report: https://bit.ly/3xr7ss6
Crypto-assets. It should be noted that the Regulation (EUROPE 12567/2) of Markets in Crypto-assets (MiCA) was originally scheduled to be on the agenda of this Ecofin Council.
Despite “strong support” for the compromise presented by the Portuguese Presidency, the item was taken off the agenda, as several Member States felt it would be better to get a global agreement on the whole digital finance package, a second EU diplomat explained.
However, the Portuguese Presidency will address this issue on Friday, as part of the traditional stocktaking exercise on financial services legislative proposals. It is expected to stress that the EU Council is “very close” to an agreement.
Solvency II. In other items, an update on the revision of the Solvency II Directive (see EUROPE 12518/22) has also been requested by France, which would like to obtain further information from the European Commission on the proposal it is expected to present in September.
For the French Ministry of Finance (Bercy), it is particularly important to ensure that insurers can participate in the financing of the post-Covid-19 economic recovery and, therefore, that this review does not lead to an increase in capital requirements for insurers.
Preparation of the ‘G20 Finance’. In addition, the Ministers will prepare for the ‘G20 Finance’ meeting of 9 and 10 July in Venice. According to Bercy, France wants to use this face-to-face meeting to meet with some of its European partners, such as Luxembourg, and to push forward international tax reform at the European level, following the G7 agreement earlier this week (see EUROPE 12740/12).
Lastly, Sweden asked that the European Court of Auditors’ report on gender mainstreaming be discussed (see EUROPE 12727/13). (Original version in French by Marion Fontana and Mathieu Bion)