ECOFIN Council 7 September 2010 - Main results of the Council

Tuesday, 7 September 2010 |

European Affairs

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The Council endorsed an agreement with the European Parliament on a reform of the EU framework for financial supervision. The reform will establish a new basis for supervision in Europe, eliminating deficiencies that were exposed during the financial crisis. It involves the creation both of a European Systemic Risk Board (ESRB), which will provide macro-prudential oversight of the financial system, and three European authorities for the supervision of the banking, insurance and securities industries. The agreement with the Parliament will enable all of these bodies to be operational as planned as from 1 January 2011. The Council also endorsed changes to the manner in which the EU's stability and growth pact is implemented in order to allow a "European semester" to be introduced as part of a reform of EU provisions on economic policy coordination. This initiative will allow the economic and budgetary policies of the member states to be monitored in parallel during a six-month period every year, starting in 2011, so as to detect any inconsistencies and emerging imbalances. The so-called European semester is one of the first initiatives to emerge from a task force on economic governance set up at the request of the European Council and chaired by its president, Herman Van Rompuy. The Council held an exchange of views on the options regarding financial industry contributions in the wake of the financial crisis. Discussions covered the coordination of levies on banks and other financial institutions and the possible introduction of a financial transaction tax.

ECONOMIC POLICY COORDINATION - EUROPEAN SEMESTER

The Council took note of a modified code of conduct on implementation of the EU's stability and growth pact, enabling a "European semester" to be introduced as from next year as part of a reform of EU provisions on economic policy coordination.

This initiative will allow the economic and budgetary policies of the member states to be monitored in parallel during a six-month period every year, so as to detect any inconsistencies and emerging imbalances. The changes to the code of conduct were prepared by the Economic and Financial Committee, as requested by the Council at its meeting on 13 July.

The so-called European semester is one of the first initiatives to emerge from a task force on economic governance set up at the request of the European Council in March and chaired by the President of the European Council, Herman Van Rompuy. The aim is to boost coordination of the member states' economic policies on the basis of expected results.

The new monitoring cycle will start each year in March when, on the basis of a report from the Commission, the European Council will identify the main economic challenges and give strategic advice on policies. Taking this advice into account, the member states will during April review their medium-term budgetary strategies and at the same time draw up national reform programmes setting out the action they will undertake in areas such as employment and social inclusion. In June and July, the European Council and the Council will provide policy advice before the member states finalise their budgets for the following year.

Under the revised code of conduct, the member states must ensure that the necessary national procedures are in place to apply these provisions as from 2011. Furthermore, with the aim of making the requirements legally binding, the Commission announced its intention to present a proposal for modification of regulation 1466/97 (Regulation 1466/97 on the surveillance of budgetary positions and the surveillance and coordination of economic policies).

FINANCIAL STABILITY AND CRISIS MANAGEMENT - BANK LEVIES

The Council held an exchange of views on the coordination of levies on banks and other financial institutions as part of a new crisis management framework at EU level for the financial industry.

Ministers will further discuss the issue at an informal meeting in Brussels on 30 September and 1 October, and the Commission is expected to present a communication.

In the wake of the financial crisis, a number of countries have introduced levies on banks or are in the process of doing so, though the nature of those levies differs from one country to another. The Commission recommends that the EU adopt a coordinated approach so as to avoid competitive distortions between national markets, overlaps and the multiple imposition of levies on banks that have cross-border activities.

At its meeting on 17 June, the European Council agreed that the member states should introduce systems of levies and taxes on financial institutions; it asked the Council and the Commission to take work forward and to report back in October.

TAX ON FINANCIAL TRANSACTIONS

The Council held an exchange of views on the possible introduction in the EU of a tax on financial transactions.

Ministers will further discuss the issue at an informal meeting in Brussels on 30 September and 1 October.

The idea of a financial transactions tax, which was proposed in the 1970s by economist James Tobin, has re-emerged in political debate in the wake of the financial crisis. Along with bank levies (see page 7), it is one of a number of ideas being discussed as a possible component of a new crisis management framework at EU level.

FINANCIAL SUPERVISION REFORM

The Council endorsed an agreement reached with the European Parliament on 2 September on key elements of a reform of the EU framework for supervision of the financial system.

The reform is aimed at establishing a new basis for supervision in Europe, eliminating deficiencies that were exposed during the financial crisis. It involves the creation both of a European Systemic Risk Board (ESRB), which will provide macro-prudential oversight of the financial system, and three supervisory authorities: a European Banking Authority (EBA); a European Insurance and Occupational Pensions Authority and a European Securities and Markets Authority.

The agreement with the Parliament, which focuses on draft regulations establishing the ESRB and the EBA, will enable all of these bodies to be operational as planned as from 1 January 2011.

The Parliament is expected to adopt the texts in first reading during its plenary session starting on 20 September. The Council will formally adopt them at a subsequent meeting without further discussion.

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Submitted by Peter Lindmark on Tuesday, 7 September 2010.

EU agrees new financial supervision framework

BBC Comments: European Union finance ministers have agreed to establish a new framework for financial supervision, designed to help prevent future financial crises. The measures include a European Systemic Risk Board to oversee the health of Europe's economy. Ministers also approved a second instalment of emergency loans to Greece worth 9bn euros ($11.4bn; £7.5bn). They were unable, however, to agree a new Europe-wide bank levy or bank transaction tax.

Continued uncertainty

Other supervisory bodies that will oversee banking, financial markets, insurance and pensions were also agreed by the ministers. They include the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority. These bodies will have the power to intervene in the affairs of individual coutntries if EU members agree that the domestic regulator is failing in its duties. They will not, however, be able to sanction measures that involve spending taxpayers' money - they cannot order any bail-outs, for example. The Council of the European Union said the European Parliament "is expected" to ratify these bodies later this month. They will then become "operational as planned" from 1 January next year. The framework had already been agreed in principle earlier this month. EU Economic and Monetary Affairs Commissioner Olli Rehn said the new framework was necessary in light of the continued economic uncertainty in Europe. "I think it is important to underline that while we have stabilised the situation in the spring and during the summer concerning financial stability in the euro area, we are not out of the woods yet." Europe's move follows the sweeping Wall Street reforms that President Barack Obama signed into law in July.

Bank tax

France, Germany and the UK have already committed to introducing a bank levy, designed to cover the costs of any future financial crises. Following the multi-billion-dollar bail-outs made by governments across the world in the wake of the financial crisis in 2008, the leaders of Europe's three biggest economies have argued strongly that taxpayers should not be expected to foot the bill for any future crises. However, the ministers were unable to agree to a Europe-wide levy. They were also unable to agree to a tax on individual financial transactions. UK Chancellor of the Exchequer George Osborne said: "It is very difficult to see how in practice you could make a transaction tax operate in a world in which capital markets and financial activity can move very quickly to jurisdictions outside the European Union." German Finance Minister Wolfgang Schaeuble did not, however, dismiss the tax altogether: "My view remains that there is no certainty on this, but there is a chance [it will be introduced]". Ministers said they would discuss both the bank levy and transaction tax again at an informal meeting in Brussels on 30 September and 1 October.