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European Council on the provision of stability in international financial markets

The heads of state or government of the EU Member States attending today’s session of the European Council devoted part of their discussion to the recent turmoil in international financial markets, as well as responding to it and preventing such crises in the future. They also addressed the future of sovereign wealth funds.

The European Council stressed that immediate disclosure of risks (of exposures to distressed assets and off-balance sheet vehicles) and losses of banks and other financial institutions is essential to restore confidence in financial markets; it called upon the Economic and Financial Affairs Council (ECOFIN) to focus on the following four areas when taking regulatory and supervisory actions: enhancement of transparency for investors, markets and regulators; improvement of valuation standards, in particular the valuation of illiquid assets; reinforcement of the prudential framework and risk management in the financial sector; and improvement of market functioning, including the role of ratings agencies.

The discussion of the European Council meeting participants was based on the interim report on financial market stability by ECOFIN. The report, among other things, states that despite the less favourable economic situation at the global level, the European economy has solid foundations without significant macroeconomic and financial imbalances, so that the slowdown of the European economy should remain limited this year. The European Council exposed the need for further efforts in implementing reforms, and also urged ECOFIN to identify the factors affecting the raw material and food price increases and to introduce policies which will eliminate eventual supply-side restrictions.

The European Council urged ECOFIN to undertake speedy implementation of the work programme agreed upon in autumn 2007, according to which by spring 2008 progress should be made in the area of financial supervision and the management of cross-border financial crisis situations; it also stressed the need to develop a crisis alert and early warning system. Considering the need to reach a global solution for many of the outstanding issues, close cooperation is required with international standard-setting bodies.

The European Council also addressed the future of sovereign wealth funds. The participants agreed that such funds have proved to be very useful so far; however, there are certain concerns associated with them, particularly as regards new funds with less transparent investment strategies and objectives. The heads of state or government of the EU Member States agreed that a common European approach based on uniform principles should be developed, and supported the agreement on an international voluntary code of conduct for those funds.

On the margins of the European Council, there was also a meeting of financial ministers, who discussed the macroeconomic aspects of investment and human capital, which is one of the priorities of Slovenia’s Presidency. The discussion focused on the importance of human capital in the context of the economic policy strategy and the strategy for growth and jobs.


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Date: 14.03.2008