EU Finance Ministers will continue, on Tuesday 15 March, their work on a coordinated European response to the Russian invasion of Ukraine and measures to cushion the impact of sanctions against Russia on the European economy. They will also try to reach a political agreement on two legislative proposals, one on the EU’s Carbon Border Adjustment Mechanism (CBAM) and the other on the transposition of Pillar I of the international tax reform into the EU.
The agenda of the Ecofin Council will “naturally be dominated by the war in Ukraine”, with the main objective of “defining a targeted, rapid and temporary economic response”, said Bruno Le Maire on Monday 14 March.
In line with the Versailles European Summit, he identified three fundamental pillars: - “keeping a reactive fiscal policy”; - adopt emergency aid for individuals and companies affected by rising energy prices, with OECD Secretary-General Mathias Cormann calling for increased taxation on energy companies; - support, including through State aid, companies that consume a lot of gas and/or are highly exposed to the Russian market.
On this last point, the European Commissioner for Competition, Margrethe Vestager, will present to the ministers the State aid framework that her services are preparing to support the European economy (see EUROPE 12908/4).
An update will also be given on the impact of international sanctions targeting Russia (see EUROPE 12910/1) and on measures to prevent circumvention of these sanctions (see EUROPE 12901/1, 12909/2).
“We want to make Vladimir Putin pay the price of war”, said Mr Le Maire, anticipating an “8%” slump in Russian GDP in 2022.
On the other hand, confirming the sequence advocated at the European summit in Versailles, the ministers are not expected to discuss, at this stage, possible financial mechanisms at European level to cushion the impact of international sanctions against Russia on the European economy.
“This is not the point at all. The question of funding comes last. First of all, we need to see the difficulties that arise and provide an appropriate response”, said a source in the French Finance Ministry (Bercy), noting that a budget of “€200 billion” remains available under the Next Generation EU recovery plan. And added: “The crisis is primarily a supply shock, an energy shock. All our problems stem from there”.
In the longer term, on the basis of the mandate received at the Versailles Summit (see EUROPE 12909/1), the Commission will have to present proposals in May to reform the European electricity market, the prices of which depend on those of gas. It is “urgent to adopt measures to decouple the evolution of electricity prices from the energy blackmail to which Putin is subjecting us”, said the Spanish minister, Nadia Calviño, on her arrival in Brussels.
The operation of electricity prices indexed to gas prices has been a success in ensuring low prices and a rise in renewable energies, but in the current situation it is not appropriate, an EU source said.
Budget guidelines 2023. Like the Eurogroup on Monday (see EUROPE 12909/20), the Ecofin Council will also discuss the coordination of budgetary policies at European level, on the basis of the guidelines provided by the European Commission at the beginning of March (see EUROPE 12902/18).
A meeting has been set “in May-June” to confirm, or deny depending on the evolution of the war in Ukraine, the deactivation, at the beginning of 2023, of the general escape clause of the Stability and Growth Pact, said Mr Le Maire.
Last Thursday, the ECB revised its GDP growth forecasts significantly downwards to 3.7% for 2022, 2.8% for 2023 and 1.6% in 2024 (see EUROPE 12908/23). But at this stage, the war in Ukraine is not expected to derail the economic recovery.
International tax reform. The Ecofin Council will discuss the directive implementing Pillar II of the OECD agreement on international tax reform in the EU.
On Monday, a political agreement by unanimity of the Member States was not yet guaranteed. “I have not lost hope of an EU27 agreement tomorrow, despite the major political obstacles”, Mr Le Maire said.
Last week, some countries had expressed doubts about the compromise proposed by the French Presidency of the EU Council (FPEU) (see EUROPE 12908/24).
According to an EU source, “the text is technically ready, but not politically”, the source summarised.
The sticking points are the date of entry into force of the international reform, the link between Pillars I and II and the mandatory application of the income inclusion rule.
As regards the date of entry into force, the agreement drawn up at the OECD provides for Pillar II to enter into force in 2023. Member States will discuss the exact date, with the new compromise proposing implementation by 31 December 2023 instead of 1 January 2023. Some countries, such as Sweden, need time to complete their national procedures.
Moving quickly would “maintain global leadership” and give Member States enough time to transpose the directive at national level without excessively delaying its entry into force, the source added.
According to an EU diplomat, Poland and Hungary are keen for Pillars I and II of the OECD agreement to be politically linked. However, the two pillars do not take the same legal forms. Pillar I, on the reallocation of taxing rights of multinationals, is still under discussion at the OECD and will be the subject of an international convention. Pillar II is implemented in the EU by means of a directive.
Some Member States want the income inclusion rule to be optional, as it affects very few companies on their territory. The new compromise proposes that they choose the date of implementation of this rule, to give their administrations more time to adapt.
“We still have 24 hours, we will mobilise our efforts. It is time to show political will”, the EU source said. “We must show that the EU is united and convinced”, the source concluded, arguing that the EU must also show that in these troubled times, multilateralism remains a strength.
See the latest French compromise proposal: https://aeur.eu/f/rk
EU’s Carbon Border Adjustment Mechanism. Ministers are expected to reach a political agreement in principle (‘general approach’) on the EU’s Carbon Border Adjustment Mechanism (CBAM) on the basis of a compromise proposal prepared by the French Presidency (see EUROPE 12907/19).
Although seven countries are not ready to approve this compromise, France wants the EU Council to adopt, by qualified majority, its negotiating position with the European Parliament.
For reluctant countries, it is regrettable that the text fails to address the following issues: - the timetable for the exit of free allowances under the Emissions Trading System (ETS); - the use of the resources to be collected by CBAM, possibly as own resources to the EU budget; - the possibility of export support for European companies; - the idea of an alliance on carbon pricing between international partners in a ‘climate club’ an idea suggested by Germany.
The French Presidency of the EU Council indicated, in an annex to the ‘CBAM’ legislative proposal, that these issues would be dealt with through other dedicated texts. For the Presidency, the EU Council will need to make sufficient progress on these issues before negotiations with the European Parliament can begin.
According to one diplomat, this approach “reassured the Member States”.
Miscellaneous. Finally, the ministers will adopt recommendations from the EU Council giving discharge to the European Commission for the implementation of the 2020 budget. The Ecofin Council will adopt three sets of conclusions on: - its guidelines for the 2023 budget (https://aeur.eu/f/rs ); - export credits (https://aeur.eu/f/rt ); - VAT in the digital age (see EUROPE 12905/15). (Original version in French by Mathieu Bion, Anne Damiani and Léa Marchal)