Check against delivery!
Chairwoman Berès, Ladies and Gentlemen,
It is my privilege to be present at the session of your Committe again and hold an exchange of views with you, honorable members of the European Parilament, on the progress made on major dossiers in the ECOFIN Council over the past six months.
I shall report to you briefly on results achieved under the Slovenian Presidency and on the status of affairs we will hand over to our French colleagues at the beginning of next week.
Let me first reflect on the economic situation, which significantly influenced our work.
The economies of the EU and the euro area in 2008 face a weakening of economic activity, mainly due to the US slowdown, present uncertainties in the financial markets and supply-side price pressures. Overall, Europe is weathering the global slowdown relatively well. Even if output growth is set to be below potential in 2008 and 2009, the forecasts remain close to potential. Financial market conditions have stabilised somewhat in the last few months, but are not yet back to normal. As already mentioned, the main risks to the economic outlook for the EU and other countries include the negative impact from the financial turmoil, inflationary pressures largely driven by increases in food and oil prices, and certain protectionist measures affecting world trade. In addition, falling housing prices and weakening construction activity in some countries may weigh on economic growth. But it is worth noting that today, the EU is in much better shape to face the weakening of economic growth. This is to a great extent the result of the stability offered by the European Monetary Union, implemented budgetary consolidation, improved balance sheets for households and enterprises, and continued structural reforms.All this puts us in a good position to respond to the challenges ahead.
I will now briefly present our view of ECOFIN achievements in:
and then leave you, honourable members of the EP, more time for your comments and questions.
A stable macro-economic environment, sound fiscal policies and a clear focus on continued structural reform are fundamental for the successful economic management of the EU. In this regard:
The Slovenian Presidency has seen through the launching of the second three-year cycle of the Strategy for Growth and Jobs, and the adoption of a new set of Broad Economic Policy Guidelines for 2008–2010. This is an important commitment to continued structural reforms at the EU level, euroarea and individual member states, and we appreciated the active and constructive role that the European Parliament has played in this process.
Public finances improved remarkably in 2007 – the government balance in the EU-27 in 2007 reached -0.6% of GDP so that in the first half of 2008 we were able to abrogate the excessive deficit procedures for the Czech Republic, Italy, Portugal and Slovakia. The Commission has also proposed the closing of the procedure for Poland. At the end of the Slovenian Presidency there is only one member state remaining in the excessive deficit procedure, which points to an exceptional budgetary consolidation in the EU over the last medium term and represents an important contribution to longer-term sustainability of public finances when growth is weakening. Having said this, the general government balance is forecasted to deteriorate somewhat this year against weakening growth forecasts (deficit forecast of 1.0% GDP).
The closure of the excessive deficit procedure was one of the preconditions for considering Slovakia's adoption of the euro. After the positive assessment given by ECOFIN, the European Parliament and the Heads of State and Government earlier this month, everything is in place for the ECOFIN Council to adopt the final legislative acts at its meeting on 8 July and for Slovakia to join the euro area next year. This is a substantial achievement, not only for Slovakia but for the euro area and the EU as a whole. The enlargement by Slovakia once again demonstrates that the euro area is not a closed club, but that its doors are open to any new EU Member State that fulfils the necessary preconditions.
Let me also mention in this context that we had a first exchange of views on the tenth anniversary of the Economic and Monetary Union. The conclusion to be drawn from this is obvious. The euro and the macroeconomic policy framework of the EMU have served well the EU economy as a whole, and contributed strongly to deepen economic and political development and the sense of unity among European citizens. After the first decade of the common currency we can look into the future with justifiable optimism that the euro will continue to be a success story steered by the European Central Bank, in compliance with its price stability mandate.
In the field of strengthening the quality and sustainability of public finances, ECOFIN explored best practices to deliver more efficient, effective and sustainable welfare systems in the European Union.
EU Member States spend between 13% and 33% of their GDP on social expenditures. Indeed, increasing the efficiency and effectiveness of social expenditures will have a crucial impact on improving and securing the quality and long-term fiscal sustainability of the European social model. Modern social, education and labour market policies need to ensure that citizens are equipped with the skills, support and incentives they need to succeed in a globalised world.
Ecofin ministers paid particular attention to the developments in financial markets. We analysed carefully the causes behind the financial turmoil and its impact on European economy and the financial sector. We have particularly maintained that the primary responsibility remains with the private sector. Nevertheless, we also continued our work on the issues of transparency, valuation, risk management, to which I shall return in a minute. We also discussed the issue of sovereign wealth funds and underscored their positiverole in providing capital and liquidity. We called for a common European approach and supported the work taking place in the IMF and OECD on this issue.
The Council (ECOFIN) also carefully examined recent developments in food prices. It identified key structural, cyclical and temporary factors for higher food prices and adequate short and long-term policy responses, on which we reported back to the European Council. Despite the recent fall in wholesale prices for some commodities, such as wheat and certain dairy products, agricultural markets are still tight and the risk of further price increases remains, which is a serious concern. Against this backdrop, we agreed that is important to:
As far as oil prices are concerned, ECOFINconfirmed the agreement reached in Manchester in 2005 that distortionary fiscal and other policy interventions should be avoided, as they prevent the necessary adjustment by economic agents. It is important to let the price signals play their role. Measures which could alleviate the impact of higher oil prices on the poorer sections of the population should remain short-term and targeted. But more importantly, we should setp up our efforts in assuring greater energy efficiency and the use of alternative energy sources to counter our dependence on volatile oil markets.
The Slovenian Presidency devoted special attention to the further integration of financial services markets. The recent financial turmoil has clearly shown just how integrated financial services markets have become. I think I can say that we have achieved significant progress in the implementation of the three roadmaps that the ECOFIN Council agreed on in 2007 and which were consolidated and up-dated at ECOFIN in May.
On the first roadmap, which addresses the strengthening of longer term arrangements for financial stability, we have seen through the signing of a comprehensive EU Memorandum of Understanding on cooperation between the EU Financial Supervisory Authorities, Central Banks and Finance Ministries on cross-border financial stability. The Memorandum was signed by 113 institutions and entered into force on 1 June 2008.
The Memorandum defines procedures and practical arrangements for the involvement of all relevant parties in case of a crisis situation and steps in its management. The arrangements set out in the MoU are now being implemented by its parties, and they will be tested in an EU-wide crisis simulation exercise in 2009.
In regard to the second roadmap, dealing with supervision, a number of significant steps were taken under the Slovenian Presidency to enhance the functioning of the Lamfalussy architecture, especially as regards EU supervisory arrangements. On 14 May the ECOFIN Council agreed on five concrete deliverables to enhance accountability for EU supervisors, namely:
(1)First, we agreed to give a European mandate to national supervisors.
By mid-2009, the Member States will have to ensure that the national supervisors can take into account the European dimension in their work for a more convergent implementation of EU regulations. The Commission intends to introduce these objectives into EU legislation where practical and appropriate.
(2)Second, we agreed to strengthen the functioning of the European Committees of Supervisors and to broaden their role.
The agreed conclusions identify specific tasks to broaden their role, without changing the institutional balance, including to contribute further to supervisory cooperation and to alert on financial stability risks in Europe, and the Commission has been requested to come back to the Council with a proposal by September.
(3) Third, we also reached agreement to re-enforce the cooperation of supervisors within colleges of supervisors to provide for more effective supervison of cross-border financial groups.
Colleges already play a useful role in the present supervisory framework. It was agreed to strengthen and further develop their role in organising cooperation and the sharing of information.
(4)Fourth, we agreed to speed up work on the convergence of regulatory and financial reporting and the systematic sharing of information among supervisors.
We will work towards further enhancing consistency in the supervision of financial groups operating in more than one Member State.
(5) Fifth, we commited to continue working on the issue of burden-sharing in corss-border financial crises. Although primary solutions always come from the private sector, we have to continue developing prinicples and procedures for burden-sharing when public funds would have to be deployed.
The third roadmap addresses the challenges highlighted by the recent financial turmoil. We have yet to see a full evaluation of the impact that this turmoil has had, both on Europe and the world, but clearly it is significant. The roadmap had four key objectives, on which work is well advanced.
(1) As regards the work to enhance transparency, the disclosure on losses by financial institutions is still ongoing. Efforts to enhance disclosures need to be stepped up. To strengthen the transparency of securitisation markets, the industry will come forward with comprehensive and up-to-date data on these markets by end June 2008, as well as guidance on disclosures to make information more comprehensive, complete and comparable.
(2) The work to improve valuation standards is accelerating at the international and European level. Ministers urged supervisors and accounting standards-setters to make progress and ensure that the financial reporting framework functions properly, with clear guidelines on valuation that can be applied consistently across institutions. Initial proposals for such guidelines are expected to be presented in the third quarter of 2008.
(3) To further strengthen the existing prudential framework and risk management in the financial sector, the Commission finalised its consultation on the proposed changes to the Capital Requirements Directive (CRD) just last week. A key objective is in particular to establish colleges of supervisors for all cross-border banks in Europe. The responses to this consultation will provide guidance for the final Commission proposal that is scheduled to be presented at the end of September 2008.
(4) On credit rating agencies (CRAs), the turmoil has clearly demonstrated that the existing framework for the operation of CRAs in the EU needs to be re-inforced, and the Commission will present its proposals before the summer. The objective is to ensure proper treatment of conflicts of interest by CRAs, to improve the quality of ratings and methodologies, and to increase the transparency of the agencies.
As regards financial legislation, we have been working hard on two Commission proposals, Solvency II and a proposal to amend the existing Settlement Finality and Financial Collateral Directives.
Significant progress has been made on Solvency II, which will change the way insurance and reinsurance companies operate, better reflect the true risks they face, and fill in gaps in the current legislation. I am very pleased to report to you that acceptable solutions have been found in almost all areas of the proposal, and some major milestones on the way to political consensus have been achieved. In our estimation only few of the 313 Articles in the Directive remain unresolved, the two main outstanding issues being the prudential supervision of insurance groups and the Commission's proposal for an innovative group support regime across borders.
Several ideas have been put forward to resolve these two problems, and were incorparated in the Presidency compromise proposal, which was also presented to you at yesterday’s trialogue. I am confident that workable solutions exist and will be found imminently, in close cooperation with the European Parliament. In the near future we will no doubt be able to strike the right balance and put a compromise proposal on the table for the remaining points, drawing on the numerous discussions held already.
I would also like to address our work on issues of taxation, which as you know is a difficult topic. The Presidency invested considerable efforts in progressing as much as possible on the proposal for technical amendments to the VAT Directive, on the proposal concerning VAT treatment on insurance and financial services and on the proposal on general arrangements for excise duties. Significant steps were taken, but further technical work will be needed to reach consensus on all aspects of the proposals.
The issue of fighting tax fraud was given high priority during the Slovenian Presidency. Subsequent to the Commission Communication on measures to change the VAT system to fight fraud, Ecofin held a debate on the issue at its March and May meetings. Parallel to the political debate, the Working Party started the examination of the proposals, transmitted by the Commission in March, on conventional measures to combat tax evasion related to intra-Community transactions.
Taking account of recent incidents of tax fraud and evasion, we also actively contributed to an acceleration of the preparation of the discussion on the functioning of the Savings Tax Directive. After two years of negotiations the Council reached an agreement on promotion and furthering of good governance in the tax area with respect to ongoing and future negotiations of relevant agreements to be concluded by the Community and its Member States with third countries and third country groupings.
Let me just single out one particular achievement in the international field which is important for the EU as a whole in terms of legitimacy and effectiveness, i.e. IMF reform. During the Slovenian Presidency an agreement on a common EU position on IMF quotas and voice reform was reached that will achieve a significant shift in the representation of dynamic economies, many of which are emerging market countries, while reinforcing poorer countries’ voice and representation.
In conclusion, allow me to stress that we were able to achieve so much only by maintaining a close relationship with the European Comission and the European Parliament, such as the very constructive Troika meeting we held on 12 February.
Due to other unavoidable comittments as the president of ECOFIN, I was unfortunately not able to attend any of the plenary meetings in Strasbourg or Brussels and participate in the debates, for example on the Lamfalussy process in March or on the Slovak adoption of the euro last week, but we thoroughly followed the debates and took note of the concerns of the directly elected representatives of European citizens.
Please allow me, now, honorable members of the European Parliament, to give the floor to you. I would be happy to receive your comments and reflections on our past work and to answer to any of your questions.
Thank you for your attention.
