European finance ministers, meeting on Friday 12 June in Luxembourg, will examine the proposal to extend the Carbon Border Adjustment Mechanism and the legislative package on market integration and supervision (‘MISP’). Moreover, the last Economic and Financial Affairs Council (‘ECOFIN’) under the rotating Presidency of the EU Council is expected to take decisions under the Stability and Growth Pact and analyse the budgetary measures recommended by the European Commission for EU countries.
CBAM. Ministers will discuss extending the scope of the Carbon Border Adjustment Mechanism (CBAM), which entered into force on 1 January, with a view to reaching an agreement in principle (‘general approach’).
The extension of the CBAM to 180 additional products was proposed by the European Commission on 17 December (see EUROPE 13775/10). It is intended to prevent carbon leakage, in other words the relocation of these products outside the EU, and to strengthen fairness between European producers, which are subject to the ‘ETS’ greenhouse gas emissions trading system, and importers of certain carbon-intensive products (steel, cement, fertilisers, aluminium, hydrogen and electricity).
At present, discussions in the Council are focusing on the list of additional products that could be subject to the CBAM (400 products, according to the French Ministry of Finance), the power granted to the Commission to remove certain products from the list, the specific situation of the outermost regions and the framing of circumvention scenarios, which consist in decarbonising production of products destined for the EU without decarbonising production elsewhere.
The draft regulation must be adopted by the Council by a qualified majority of the Member States. An agreement is hoped for by the end of 2026.
‘MISP’ package. Ministers will hold a third policy debate on the legislative package proposed by the Commission to deepen capital markets integration through a reform of market infrastructure and supervision (see EUROPE 13862/2).
Two key issues in the reform will be at the heart of Friday’s discussions, namely the extent of the direct supervisory powers of the European Securities and Markets Authority (ESMA) and the architecture of its governance (see EUROPE 13883/22).
EU Member States remain divided on how to define the “significant” nature of market infrastructures that would be covered by direct European supervision, notably crypto-asset service providers (CASPs).
As regards ESMA’s future governance, although a convergence is emerging in favour of moving forward with the creation of an (Executive Board) within ESMA, several Member States are calling for rebalancing in favour of the national competent authorities, notably through a greater role for the Board of Supervisors and closer involvement of national supervisors in the day-to-day supervision of entities placed under the direct control of the European authority.
“ESMA must have the means to act. (...) This is absolutely fundamental in terms of financial stability. It is inconceivable that a European supervisor should have to seek authorisations in all directions in order to take decisions”, a source at the French Ministry of Economy (Bercy) stressed on Wednesday, considering it necessary that the room for manoeuvre of the future Executive Board should not be conditional on the Board of Supervisors.
According to this source, however, ministers are not expected to go into the details of how this governance would fit together. “The objective is to receive a clear political signal on the direction of travel, so that further work can continue on a more focused basis”, a European diplomat said on Tuesday.
Stability Pact. In the budgetary field, the ECOFIN Council will authorise Spain to activate the national escape clause of the Stability and Growth Pact in order to increase its military spending by 1.5% of national GDP until the end of 2028.
Spain indicates that, since 2021, the increase in its annual spending in the defence sector has risen within a range of between 0.9 and 1.1% of GDP. It will become the 18th EU country to have activated the national escape clause of the Pact.
See the draft decision: https://aeur.eu/f/ma0
The Commission will present to ministers the recent so-called ‘European Semester’ package, which recommends country-specific economic budgetary policy measures. They could react to the proposal by the EU institution to grant additional, but limited, flexibility to certain Member States to reduce their dependence on fossil fuels, particularly imported ones (see EUROPE 13880/5), the day after specific discussions within the Eurogroup (see EUROPE 13884/15).
The European Fiscal Board (EFB) is not in favour of this measure which, in its view, sends the wrong signal in favour of increased budgetary spending (see EUROPE 13885/30). France is asking the Commission to engage properly with Member States when considering such measures, and to target emergency budgetary measures.
As part of its recurring discussions on the macroeconomic impact of Russia’s military aggression against Ukraine, the ECOFIN Council will take note of the 21st package of sanctions targeting Russia, presented on Tuesday (see EUROPE 13884/1).
It could discuss the proposal to suspend the adjustment mechanism in the Russian oil price cap until January 2027, and additional sanctions targeting financial institutions active in the cryptocurrency markets. An update may also be given on the implementation of the EU’s various macrofinancial assistance measures for Ukraine
RRF. The ECOFIN Council will approve the revision of the post-Covid-19 recovery plans of Belgium, Spain, Poland, Portugal and Slovakia, without debate.
See the draft Council decisions: https://aeur.eu/f/ma1
Taxation. Lastly, in the tax field, the ECOFIN Council will approve its half-yearly report to the European Council, as well as conclusions on the progress made by the experts of the Code of Conduct Group on business taxation.
While it had been aiming for a unanimous agreement on this file, the Cyprus Presidency was forced to withdraw the revision of tobacco products taxation from the agenda, for lack of sufficient convergence in national positions, whereas a unanimous agreement of the Member States is required (see EUROPE 13881/23). (Original version in French by Nadège Délépine, Bernard Denuit and Mathieu Bion)