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Ministers of Finance discuss high food and oil prices

For the last time under the Slovenian EU Presidency, the Slovenian Minister of Finance and current President of the Economic and Financial Affairs Council (ECOFIN), Dr Andrej Bajuk, chaired the ECOFIN Council meeting held today in Luxembourg, and wished the future President, French Minister of Finance Christine Lagarde, success in her work.

The ministers focused on the effects of the dramatic increases in food prices witnessed in 2007 and 2008 in the EU and worldwide, which primarily affect the poorest people. The reasons are complex and for the most part originate outside the EU. Agricultural markets are still faced with a demand which exceeds supply, and this entails the risk of further price rises. It was agreed that appropriate measures must be introduced to increase the supply and help reduce pressure on rising food prices in the EU:

  • short-term measures: several short-term measures have been adopted under the common agricultural policy. It was also agreed that measures to mitigate the temporary impact on lowest income households must be short-term and targeted;
  • mid-term and long-term measures: the ministers agreed that the market orientation of agriculture must be increased, the sustainability of the global biofuels policy ensured, and agricultural productivity growth increased. In the Member States, competition in the food-production chain must be strengthened, as national food distribution and retail sale sectors are still segmented and experience market concentration.

The ministers were of opinion that the future will also bring higher oil prices, so they concluded that solutions must be sought for the adaptation of the European economy. In this context, they confirmed the 'Manchester agreement' of 2005, under which the Ministers of Finance undertook to efficiently coordinate responses to rising oil prices and to avoid introducing fiscal or other measures of a distorting nature liable to prevent the necessary adaptation of economic operators. They decided that any measures aimed at relieving the effects of the increased oil prices in respect of the poorest population segments must be short-term and targeted.

The ministers will continue to carefully monitor the development of food  and oil prices; furthermore, these two topics will be on the agenda of the European Council meeting on 19 and 20 June.

Over lunch, the ministers discussed the economic situation and the situation on the financial markets. Reviewing the situation on the financial markets has been a standing priority of the Slovenian Presidency. The EU is currently facing a number of shocks: the prices of raw materials, the impact of the financial turmoil and the exchange rate of the euro. The EU is weathering these challenges well as its economic foundations are sound and there are no major imbalances. Data on growth in the first quarter are better than expected and the forecasts show that, in 2008, growth will be close to potential. Despite positive signals uncertainties on the financial markets are continuing, and Dr Bajuk pointed out that, although the global financial turmoil led to the tightening of credit conditions, there is an appreciable continued high growth of loans to the private sector and non-financial institutions in the EU. With regard to the work of the Slovenian Presidency, he stressed, "The comprehensive working plan adopted last October in response to the financial turmoil is being implemented as planned and will be completed by the end of 2008. We have highlighted the primary role of private-sector solutions and those solutions are currently being evaluated. Some shortcomings that have been identified will be discussed in the context of the planned amendments to the Capital Requirements Directive."

The Slovenian Presidency presented a report on progress in the review of the Solvency II Directive, which will regulate the start-up and operation of insurance and reinsurance businesses. This is the key framework directive in the field of financial services (together with the Capital Requirements Directive for the banking sector). The capital adequacy requirements for insurance companies have been in force since the 1970s. They need to be adapted to the current development of insurance, risk management, modes of financing, international financial reporting and prudential standards. Minister Bajuk commended the successful work of the Slovenian Presidency, "In January we started to discuss the Commission proposal within the Council and we have succeeded in achieving some major milestones on the way to political consensus in the second half of the year, which will strengthen the competitiveness of the European insurance industry while also respecting its diversity. At the end of the Slovenian Presidency, seven of the 313 Articles in the Directive remain unresolved. When consensus on these seven articles has been reached, the Directive may be adopted." The principal open issues remain the calculation of the minimum required capital, group support, supervision and surplus resources.

On the basis of their assessment of the economic situation, the Ministers established that Slovakia meets the required criteria to be able to introduce the euro on 1 January 2009. The necessary legal bases will be adopted at the meeting of Ministers of Finance on 8 July.

At the close of the meeting, the French Minister of Finance, Mrs Christine Lagarde who will take over the presidency of ECOFIN on 1 July, thanked Dr Bajuk and said that he had set an excellent example with his efficient chairmanship and good organisation spiced with a sense of humour. She also complimented the Minister and the whole Presidency team on an excellent Presidency. Dr Bajuk thanked her, underlining that the role of President of ECOFIN was an extraordinary challenge, at the end of which he had found out that, regardless of the lengthy meetings and the relatively slight progress they bring individually, matters are moved forward overall.


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Date: 06.06.2008