The European Finance Ministers will have a first exchange of views on Tuesday 9 November on the reform of European fiscal rules and will take stock of the implementation of the Next Generation EU Recovery Plan.
Following the Eurogroup the day prior (see EUROPE 12826/9), the Ecofin Council will have a first exchange of views on the reform of the European economic governance framework after the European Commission reopened in mid-October a file frozen due to the Covid-19 pandemic (see EUROPE 12815/5).
In the EU Council, some Member States, such as Germany and the Nordic countries, are of the opinion that the Covid-19 pandemic proved that the existing framework was flexible enough and that relaxing the rules would run counter to fiscal discipline (see EUROPE 12788/1). Other countries, on the other hand, believe that more needs to be done, including the introduction of new provisions to credibly reduce the public debt, which has increased further, to deal with the health emergency.
The Commission is expected to make concrete proposals in the spring or summer of 2022, with the stated aim of having a revised EU framework in place well before January 2023, when the general derogation clause of the Stability and Growth Pact is deactivated.
European Semester. The Ecofin Council will adopt conclusions on the future of the ‘European Semester’ budget process in the context of the implementation of the Recovery and Resilience Facility (RRF), the fiscal instrument at the centre of Next Generation EU.
According to a draft text, Member States will advocate “a swift return to the core elements of the European Semester in the 2022 cycle, including the reinstatement of country-by-country reporting and country-specific recommendations”. However, they call for a streamlining of reporting requirements to avoid administrative overload and duplication.
The European Commission will kick off the 2022 ‘European Semester’ budgetary process on Tuesday 23 November.
See the draft conclusions: https://bit.ly/2ZZCX1n
European Recovery Plan. Ministers will take stock of the implementation of the Recovery and Resilience Facility, although no national recovery plan will be adopted on Tuesday.
At this stage, 22 national plans have been approved. The plans of four countries - Bulgaria, Hungary, Poland, and Sweden - are still being analysed by the Commission, while the Netherlands has yet to formally transmit its plan to the European level.
The Ministers will also discuss the arrangements in place to finance the European Recovery Plan, with the Commission being empowered to borrow €806.9 billion until 2026 (current prices), of which €250 billion in the form of green bonds. By mid-October, the Commission had issued €68.5 billion in long-term bonds, including €12 billion in green bonds (see EUROPE 12810/23), and €14 billion in short-term securities (EU-Bills). The weighted average maturity of the long-term securities issued is 12.75 years at an average annual rate of 0.07%.
In a preparatory note, the Slovenian Presidency of the Council of the EU stresses the importance of a diversified funding strategy in terms of the use of different funding instruments and funding techniques with an open and transparent communication to market participants on the operations carried out. The Presidency finds that the entry of the EU as a new bond issuer has not led to any crowding-out of European issuers or to higher interest rates, but has, on the contrary, increased investor interest in European and national bond issuances.
See the Slovenian note: https://bit.ly/2ZXndf3
Basel III. The Ecofin Council will have its first discussion on the recent legislative package aimed at finalising the integration in the EU of the ‘Basel III’ agreement on banking prudential rules (see EUROPE 12821/2).
The central elements of the reform include: - the creation of an output floor to converge the internal and standard methods that banks use to calculate their capital requirements according to the risks they face; - the treatment of banks branches from third countries; - increased consideration of environmental, social and governance risks.
Energy prices. In addition, the Ministers will discuss the surge in energy prices, which is having a strong impact on inflation, and its implications for economic recovery. No operational decision is expected on Tuesday.
The ECB expects this phenomenon to remain temporary and to fade away during 2022. And even if the return to moderate inflation will take longer than expected, the Monetary Institute will not have to raise its key rates next year.
Finally, the European Court of Auditors will present its report on the EU’s accounts for the 2020 financial year, which present a ‘true and fair view’ of the Union’s financial situation and shows too many irregularities on the ‘expenditure’ side. Ministers will adopt conclusions on statistics. And they will be informed of the results of the autumn meetings of the international financial organisations held in October in Washington. (Original version in French by Mathieu Bion)