On Tuesday 4 October in Luxembourg, EU Finance Ministers will try to reach a political agreement (‘general approach’) on a proposal to amend the Recovery and Resilience Facility (RRF), the central budgetary instrument of the Next Generation EU Recovery Plan. They will adopt the Dutch recovery plan. And the Ecofin Council will discuss the economic repercussions for the European Union of the Russian invasion of Ukraine, including ways to limit price volatility in the energy derivatives markets, as well as developments in EU customs services.
REPowerEU. The Czech Presidency hopes that the Member States will reach agreement on the legislative proposal that introduces chapters to implement the ‘REPowerEU’ strategy to reduce dependence on Russian hydrocarbons in the national recovery plans (see EUROPE 12960/9).
“Our feeling is that the discussions are going in the right direction” an EU source said on Thursday. Very critical of the Commission’s proposal, it mentioned “the financing modalities and the distribution key of this financing” as the main stumbling blocks of the proposal.
The initial proposal foresees the funding of the ‘REPowerEU’ chapters by: - the loan component of Next Generation EU still available (around €225 billion); - transfers from the Cohesion Policy and the Common Agricultural Policy (about €52 billion in total); - an envelope of €20 billion from the market stability reserve of the EU ETS (GHG emissions trading).
Discussions between Member States include new sources of funding, such as the Brexit Adjustment Reserve and the Climate Innovation Fund.
The €20 billion envelope that would come from the ETS is not stabilised and could be reduced.
The Netherlands has made a concrete proposal to preserve the “integrity and credibility” of the ETS, the pillar of the EU’s climate policy. Instead of using the market stability reserve, they propose to ‘frontload’ the auctioning of allowances for the period 2027-2030 to the period 2023-2026. This solution - which they say is gaining increasing support from national delegations - would avoid any risk of increasing greenhouse gas emissions. A sum of €10 billion could however be raised by combining it with the mobilisation of the Innovation Fund.
See the Dutch proposal: https://aeur.eu/f/3cr
The possibility of putting loans from the RRF facility that are not used by Member States into a common pot, which would then be redistributed to other applicant EU countries, is still on the table. Nevertheless, the source noted, it is difficult for a state to say, in the current climate of great economic uncertainty, that it is foregoing a possible envelope.
Another topic of discussion was the distribution key for the funding sources of the ‘REPowerEU’ chapters. On this point, the EU Council’s legal experts highlighted that the RRF, set up in the context of the Covid-19 pandemic, must remain an instrument of cohesion and contribute to economic, territorial and social convergence (see EUROPE 13028/13). But the investment needs of Member States to reduce dependence on Russian hydrocarbons do not necessarily match the allocations under the European Recovery Plan, as the European Court of Auditors has noted (see EUROPE 13000/2).
Next Generation EU. On Tuesday, the Ecofin Council will formally adopt the Dutch recovery plan with €4.7 billion in grants only (see EUROPE 13017/16). Only the Hungarian plan remains to be formalised and adopted.
See the draft EU Council decision approving the Dutch plan: https://aeur.eu/f/3b3 ; and its annex: https://aeur.eu/f/3B2
Financial markets and energy. On the economic repercussions for the EU of the Russian invasion of Ukraine, the ministers will discuss high energy prices and, in particular, the volatility observed in the financial markets for energy derivatives, which cushion the risks of excessive price fluctuations.
Cautious expansion of the range of ‘collaterals’ provided by players “may make sense”, the source said, noting that the European Commission was preparing a specific communication.
At the Energy Council (see other news), the French Minister for Energy Transition, Agnès Pannier-Runacher, hoped that the Commission would make proposals “in line with the mandate it was given on 9 September” (see EUROPE 13031/8). And went on to say: “We need to put circuit breaker mechanisms in these markets and also margin call coverage mechanisms to allow us to restore liquidity to the market”.
Other countries, such as Germany, advocate public cash support to actors. They fear that the weakening of collateral requirements will shift risks from the energy sector to the financial sector.
Customs. The Ecofin Council will discuss how customs services should evolve to become more efficient. The issue is particularly important for the Netherlands, through which a third of the goods entering the EU transit, and for Belgium.
An expert group set up by the Commission recommended in March the creation of a European Customs Agency (see EUROPE 12923/13). The institution is expected to propose a customs reform package in December 2022.
According to a Czech Presidency document obtained by EUROPE, the ministerial debate will focus on two issues: - how to balance the large number of new non-fiscal tasks imposed on customs with the traditional tasks? - should the central role and coordination of customs activities be strengthened and, if so, in which areas?
The Czech Presidency notes that, until now, customs have traditionally played several roles in the control of international trade flows. However, the environment in which they operate has changed considerably in recent years due to environmental issues, the rise of e-commerce and international sanctions.
Future EU legislation will give customs additional control tasks in the area of forced labour or deforestation.
EU customs collect more than €70 billion a year at the EU’s borders, of which almost €25 billion is in customs duties, a quarter of which is returned to Member States’ budgets. With the rise of e-commerce, the number of imported items has doubled in the last 5 years.
See the document on customs: https://aeur.eu/f/3cw
Taxation. Ministers are expected to approve without debate a revision of the EU ‘blacklist’ of non-cooperative tax jurisdictions. Updated every 6 months, this list, drawn up by the EU Council’s Code of Conduct Group, will be extended to the two British Caribbean overseas territories, Anguilla and the Turks and Caicos Islands, as well as the Bahamas (see EUROPE 13029/16).
The EU Council is also expected to approve the work programme of the Code of Conduct Group on harmful tax practices in the internal market (see EUROPE 13030/16).
Climate. It should be noted that the Ecofin Council will be asked to adopt conclusions on climate finance for COP27 in Sharm el-Sheikh, 6-18 November. However, this text will not include, at this stage, the figure for the annual financial contribution of the EU and its Member States to the financing of adaptation to and mitigation of climate change in third countries.
See the draft conclusions: https://aeur.eu/f/3cu
Finally, the ministers will prepare for the annual meetings of the IMF and the World Bank, which will take place from 10 October in Washington. (Original version in French by Mathieu Bion and Anne Damiani)