Brussels, 02/12/2008 (Agence Europe) - On Tuesday 2 December, the Ecofin Council adopted conclusions on the response to the economic and financial crisis (ahead of the European Council), approving the principles in the Commission's plan and taking stock of current and future efforts to ensure financial stability. French Finance Minster Christine Lagarde did not rule out convening an exceptional Ecofin Council on 18 December, to be devoted to the implementation of the reforms set out by the G20 and the execution of the recovery plan which will be discussed by heads of state.
Coordinated recovery plan. While ministers accept the figure of 1.5% of GDP for the recovery plan, sharing the Commission's view on the need for a coordinated response to the sudden slow-down in growth, several questions remain on how to finance measures (at Community level) and present them to the public.
National measures are to be temporary, timely, targeted and coordinated, and must comply with the long-term objectives of the Lisbon Strategy. They will be differentiated according to the particular circumstances and challenges of each member state, ministers say. Member states' budgetary impulse (which the Commission hopes will be 1.2% of GDP) should be cautious with regard to medium-term budgetary objectives, say the conclusions, which subscribe to judicious application of the Stability and Growth Pact as recommended by the Commission.
Economic and Monetary Affairs Commissioner Joaquin Almunia noted a “reasonable degree of consensus” among ministers, although he regretted that it was “not total”. Some points are not satisfactory in his opinion, in particular the doubts held by some ministers on how to best use the resources from the European budget which have not been used up. Germany, Austria, the Netherlands and Sweden, and to a certain extend, Poland, wanted the funding of certain Community initiatives, such as broad band infrastructure projects, should be within current ceilings and headings of the financial perspective. In its proposal, the Commission planned to fund the €5 billion for these infrastructure projects by “redistributing” unused money from the agriculture heading in 2009 and 2010. The issue will be discussed again at the European Council, Almunia said.
While the conclusions state that the budgetary impulse should include a range of national and European measures, they ultimately no longer mention certain specific action that member states might consider. Some delegations (including Germany, Spain, Ireland, Greece and Lithuania) did not want such a list which could be understood as standardising best practice. So, then, the following points identified by the Commission have disappeared from the text: targeted public expenditure (transfer to low income families); - guarantees and loan subsidies to compensate for the unusually high current risk premium); - financial incentives for speeding up the adaptation of economies to long-term challenges, including incentives for energy efficiency in the housing and transport sectors; - temporary reductions in the standard rate of VAT.
Financial stability. At this point, national plans to restore financial stability have cost €1800 billion in public bank guarantees and €280 billion in recapitalisation plans. To ensure rapid and coordinated implementation, ministers are pressing the Commission to draw up guidelines on rapid recapitalisation and, as a preventative measure, banks in order to support granting credit to the economy (see related article). The Commission will have to take account of the differences between sound banks and those affected by the financial crisis with regard to the valorisation of these recapitalisations and dividends paid to shareholders, in line with ECB recommendations. The Ecofin Council also calls for discussions to continue on credit rating agencies and the reform of the governance of the IASB which draws up international accounting standards. It wants a progress report on the transparency of the information published by financial institutions by next spring. The Commission will amend the decision setting up the European committees (CEBS, CESR, CEIOPS).
In the opinion of ministers, further efforts beyond what has already been announced will be needed in 2009: - reducing the pro-cyclical nature of some prudential and accounting rules; - updating the Commission recommendations on remuneration systems for top employees to dissuade excessive risk taking; - improving crisis prevention and management (Green Paper from the commission in mid-2009); speeding up work on credit derivatives; - improving European supervision of financial institutions; - stabilising back office infrastructure. Lastly, the Ecofin Council undertook to draw; up proposals by March 2009 which will inform the work begun by the G20 Summit. It calls on the Economic and Financial committee to provide it with a report on the development of the resources and role of the IMF, global supervision of financial institutions and information exchange with non-cooperating courts. (A.B./M.B./transl.rt)