Brussels, 07/09/2007 (Agence Europe) - The credit crunch on the international money markets has been added to the agenda of the meeting of EU finance ministers in Porto (Portugal) on Friday 14 and Saturday 15 September. The political decision-makers (finance ministers, European Commissioners and central bank governors) will discuss the credit crisis in an exchange of views regarding financial stability and the general economic situation. France, whose growth forecasts published on Tuesday by the European Commission have been slashed, will present the other twelve countries that are members of Eurogroup (along with Cyprus and Malta as observers) with its updated Stability Programme announced in July by President Nicolas Sarkozy (see EUROPE 9499 and 9465). The document explains how the French government is planning to reduce its deficits and respect its pledge to return to budget equilibrium (a pledge made by all the EU finance ministers in Berlin in May 2007, see EUROPE 9411)
Economic situation. The ministers will share their views on the economic situation in the European Union for the first time since the subprime mortgage crisis in the United States in August 2007 led to huge upheaval in the money markets, leading the European Central Bank (ECB) to keep interest rates on hold earlier this month (see EUROPE 9483 and 9496). Anxious to avoid jumping to conclusions that could undermine investor confidence, they will consider how to respond to the credit crunch and the impact it may have on the EU economy. On Wednesday 12 September, the Portuguese finance minister, Fernando Teixeira dos Santos, said in an interview with Portuguese press agency Lusa that he felt that assessment of the situation facing the economy and the money markets would be one of the issues which would receive particular attention from finance ministers and central bank governors. He added that he hoped that a common position would emerge from the politicians' joint analysis, although it was not certain whether a common position, if reached, would actually take written form. Teixeira dos Santos, acting President of the ECOFIN Council, said he was certain that the meeting would boost confidence in the future evolution of the money markets in a situation where the fundamentals of economic growth remain solid and stable. On Tuesday, the European Commission also stressed the stability of the economic fundamentals (see EUROPE 9499), although it also slightly revised down its economic growth forecasts for 2007 in the EU and has not ruled out the possibility of the impact of the credit gaining momentum in 2008. The value of the Euro reached a new record high against the dollar on Wednesday.
Financial stability. On Saturday, the ministers will discuss ways of improving the effectiveness of financial stability mechanisms. They regularly discuss the issue in informal meetings on the implementation of the 2005 memorandum of understanding on managing crises on the financial markets (see EUROPE 9262 and 8948). Analysis in Porto will focus on 'post-market' operations, namely clearance and settlement of securities based on a special report from the Commission. They will also consider the ECB's Target 2 Securities plan to introduce a single technological platform by 2013 for all payments for securities in the eurozone (see EUROPE 9372).
Quality of public finance. The ECOFIN Council will be returning to the issue of the quality of public finance and the positive impact that effective financial management of the civil service can have on the economic climate. Wilhelm Molterer, Austria's finance minister, will be briefing his colleagues on his country's experience in this domain, and Michael Klein, Vice-President of the World Bank, will look at the question from the comparative analysis angle, a methodology used by the World Bank to draw up its yearly Doing Business reports classifying more than a hundred countries in terms of their business user-friendliness.
IMF. Over dinner on Friday the politicians will discuss the challenges facing the International Monetary Fund (IMF), namely reform of the institution's governance and finding a successor to take over from Spaniard Rodrigo Rato at the IMF's helm. By the end of 2008, the IMF's member countries will have to decide on a vote weighting for each country to ensure greater representation of emerging economies. In September 2006, they agreed on a new vote weighting calculation based on the scale of countries' financial contributions to the IMF's budget and the scale of funding the countries can lay claim to (see EUROPE 9268). In Porto, the ministers will also be briefed on the level of backing from IMF member countries for the candidacy of French national Dominique Strauss-Kahn, the EU's candidate to take over from Rodrigo Rato (see EUROPE 9496 9465).
EuroMed. On Saturday, the EU's finance ministers will meet with their counterparts from the EuroMed zone two years on from their first meeting in Skhirat in Morocco (see EUROPE 8963). Common conclusions will be published after the meeting looking at three topics, namely reform of public finance and its impact on growth and employment; developing highly performing financial markets; and a balance sheet of the implementation of the priorities set out in Skhirat. (mb)