The European Finance Ministers will try to approve, on Friday 17 June in Luxembourg, the directive transposing into the European Union the OECD agreement on minimum taxation of multinationals, as well as the Polish recovery plan in the framework of the Next Generation EU Recovery Plan.
At breakfast, the ministers will analyse the macroeconomic situation, which is still marked by galloping inflation, fuelled above all by soaring energy prices and exacerbated by the Russian invasion of Ukraine.
This situation obliges the ECB to initiate the gradual rise in its main key rates from 21 July, its mission being to maintain inflation at 2% in the medium term (see EUROPE 12968/1). This decision contributes to increasing spreads between long-term sovereign debt rates, raising the risk of fragmentation within the euro area. The Frankfurt monetary institute announced, on Wednesday 15 June, the development of a new ‘anti-fragmentation’ tool (see other news).
International tax reform. The directive implementing Pillar II of the OECD agreement on minimum taxation of multinationals will be discussed again on Friday after having been taken off the agenda of the May ministerial meeting (see EUROPE 12959/10).
The current president of the Ecofin Council, France’s Bruno Le Maire, is working hard to secure a unanimous agreement by the Member States on an initiative launched five years ago. He also aims to demonstrate that the EU is at the forefront of international tax reform and is able to show the way to its partners.
According to our information, Poland, which up to now maintained its veto, is said to be able to accept the text of a declaration suggested on Tuesday evening by the French Presidency in order to strengthen the link between Pillars I and II of the OECD agreement and to ensure a follow-up on this issue, while the international negotiations on Pillar I are falling behind. 'There is no longer any obstacle in principle' from Poland, according to an EU diplomat.
But this time, Hungary is a problem. It said it was not in a position to agree 'for the moment', according to the diplomat.
Polish recovery plan. Related to the previous fiscal dossier, the Polish recovery plan will be on the table of the ministers. The EU Council has one month to decide on the controversial plan after the Commission approved it in early June (see EUROPE 12964/23, 12963/3).
The Member States are generally of the opinion that the Polish plan is sound on the issue of climate and digital transition. The controversy relates to Warsaw’s commitments to state compliance, with the country-specific recommendations to the Polish authorities in 2019 being the template for analysis in this area.
The Commission has assured that no financial payments will be made to Poland until a reform of the disciplinary system for judges is voted on and operational, in line with the milestones set out in the Polish plan. Some countries have doubts and are said to want the plan to be firmer, like the Netherlands, which will abstain if the vote is held on Friday. They are expected to issue a statement calling for strict monitoring of the implementation of the Polish plan.
See the proposal for an EU Council decision adopting the Polish plan: https://aeur.eu/f/25c
See its annex: https://aeur.eu/f/24q
These discussions are part of a review of the implementation of Next Generation EU, whose budgetary instrument has already disbursed almost €100 billion since autumn 2021. Twenty-four national plans have been adopted, with the Polish, Hungarian and Dutch plans still missing. The Commission has recently proposed a methodology for modifying the National Recovery Plans to include a ‘REPowerEU’ component to accelerate the end of dependence on Russian hydrocarbons (see EUROPE 12960/9).
In addition, the ministers are expected to endorse the socio-economic policy recommendations addressed to the Member States at the end of May (see EUROPE 12958/1).
As such, they are likely to endorse the Commission’s approach of postponing until the end of 2023 the deactivation of the clause allowing exemptions from the quantitative targets of the Stability and Growth Pact.
More info at: https://aeur.eu/f/24u
Money laundering. With regard to the European Commission’s proposed 2021 ‘anti-money laundering’ legislative package (see EUROPE 12917/24), the ministers will discuss, among other things, the creation of the new European Anti-Money Laundering Authority (AMLA). The direct and indirect powers of this authority and the location of its headquarters will have to be determined. Germany, which considers this issue a priority, would like the AMLA to be based in Frankfurt.
Croatia. The Ecofin Council will approve the recommendation of the euro area Member States to approve the adoption of the single currency by Croatia. This topic is on the agenda of the Eurogroup meeting the day before (see EUROPE 12971/20).
Insurance/Finance. Two texts will be politically agreed in principle, without debate. The Ecofin Council will adopt its negotiating position on the revision of the Solvency II Directive, which aims to take into account equity financing of insurers (see EUROPE 12971/18).
It is also expected to approve the French compromise proposal on the revision of the AIFM directive governing alternative investment funds (see EUROPE 12970/20). On this last point, some minor adjustments are expected to be made, following a request from Luxembourg.
Own resources. The ministers will also discuss the creation of new own resources for the EU budget.
For this, the French Presidency produced a report on the proposals presented. With regard to the Carbon Border Adjustment Mechanism (CBAM), the Commission proposes that 75% of the revenue generated by this mechanism should go to the EU budget. The Ecofin Council adopted its position on the future mechanism in mid-March (see EUROPE 12911/14), while the Parliament is expected to take a decision next week (see other news).
The EU Council notes that work on the following two issues, which fall outside the scope of the CBAM Regulation, will need to make sufficient progress before negotiations with the European Parliament can begin: - The rate at which the obligation to surrender CBAM certificates is determined by the rate at which free allowances are allocated to industry sectors covered by the CBAM, established by the EU Emissions Trading System Directive (ETS); - The issue of limiting potential carbon leakage from exports calls for appropriate solutions that ensure economic efficiency, environmental integrity and WTO compatibility.
With regard to the ETS, the Commission proposes to create a separate system for the building and road transport sectors. In its draft revision of the Own Resources Decision, the Commission proposes that 25% of all revenue generated by the two ETS systems should become an own resource.
See the French Presidency report: https://aeur.eu/f/24t (Original version in French by Anne Damiani, Mathieu Bion, Lionel Changeur)