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EU/ECOFIN COUNCIL: Member states stand ready to recapitalise banks further to stress tests

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EU economy and finance ministers found common ground in Brussels on Tuesday 13 July concerning the arrangements for the publication, on 23 July, of stress tests currently conducted on 91 main European banks. The exercise is to show the resistance of banking establishments under extreme conditions, such as the depreciation of debt securities held by them. Also, all countries are ready to take the measures needed to consolidate the situation of a financial institution in need. The Economic and Financial Committee (EFC) of the EU was entrusted with the task of follow-up after publication of the results of stress tests.

Didier Reynders, Belgian Finance Minister and President-in-Office of the Ecofin Council, explained that the results of the tests would be published in a coordinated manner throughout the EU. Banks will publish the results and, of course, results will then be taken up by the various national oversight bodies.

The Committee of European Banking Supervisors (CEBS) will organise coordination and publication. The consolidated results of the stress tests for banks will be published. Then, there may be an (optional) publication breaking down results, especially in the countries that host a number of institutions that make up a group, Reynders said. The maximum time limit for giving such information is two weeks. This was a request made by quite a few member states that host establishments that are branches of a parent company established in another European country.

The aim is to publish results in the most transparent way possible by bringing to light the situation of different institutions with regard to sovereign debts, the president-in-office of the Council said. The objective is to have a presentation that gives the largest guarantees of credibility to all institutions, he added.

The countries have undertaken to take the necessary measures, if needs be, in order to consolidate the situation of a number of institutions still further, especially in terms of capital, Reynders said.

Stress tests are essential for restoring confidence in the European economy, it was underlined by Olli Rehn, European Commissioner for Economic and Monetary Affairs. "In my view, the European banking sector is resisting pretty well. However, at the same time, when we publish the results of the stress tests, it will be necessary to steel ourselves for finding a few pockets of vulnerability", he said on Monday 12 July after the Eurogroup meeting. The Commission is ready to grant the necessary derogations to Community rules on state aid, should this prove necessary in the wake of crisis scenarios, Rehn said.

Last year, tests were only carried out on 22 institutions, and only general tendencies had been made public. Europeans have this time decided to reveal the results of the banks, as markets are concerned about the health of some of them, in particular Spain, which is facing a serious budgetary crisis. They also wish to ensure that they will not leave to one side the banks that could "pass" the tests successfully. Guy Verhofstadt, who heads the Liberals at the European Parliament, called on the European Union, on Monday, to stand ready for banking recapitalisation.

Belgian Presidency is determined to swiftly reach compromise on reform of financial system

On Tuesday 13 July in Brussels, the Ecofin Council of EU member state economy and finance ministers, agreed on the compromise proposals presented by the Belgian EU Presidency with a view to facilitating talks and a compromise with the European Parliament on reform of the financial system. The Ecofin Council strengthened the mandate given to the Presidency to negotiate, while granting it the necessary amount of flexibility regarding the wording of the texts. The amended texts contain a number of the EP's main demands, including the ban on certain toxic substances, or the role of the authorities in emergency situations, which points to the hope of a comprehensive agreement being close to hand.

Didier Reynders, Finance Minister of Belgium, said the Belgian EU Presidency will seek to bring talks on reform of the financial system to a successful conclusion during July. A trilogue (Commission, Council and EP) will be held on Wednesday 14 July and discussions will continue within Coreper. Reynders thus hopes the EP will vote in second reading on these texts in September (session on Monday 6 and Thursday 9 September). An extraordinary Ecofin Council is scheduled for 7 September.

Michel Barnier, European Commissioner, underlined that, in the Presidency's compromise proposals, there are "important elements, improvements made by the European Parliament". "We are moving forward step by step. It is on setting up these three independent European authorities, supported by national overseers, and on the Systemic Risk Council, that the effectiveness of many other measures depends", he explained.

The proposals presented by the Commission in autumn 2009 consist above all of: - proposals for regulations on macro-prudential surveillance of the financial system and the creation of a European Systemic Risks Committee; - draft regulations aimed at establishing a European banking authority, a European insurance and professional pensions authority and a European financial markets authority. Negotiations with the Parliament aim at their adoption during first reading, so that the European Systemic Risk Council and the three new surveillance authorities may be up and running on 1 January 2011. There is considerable consensus between the two institutions, but the European Parliament, which called for the texts to be improved, has not concluded its first reading of 8 July. It has deferred voting until September to allow the Belgian EU Presidency time to negotiate a more moderate stance from member states.

Michel Barnier pointed out that they were in codecision and that one should take into account the "useful and intelligent" suggestions made by EP rapporteurs. The text of the Presidency compromise is composed of elements from the EP, for example, the ban on certain toxic substances, or the role of the authorities in crisis management and emergency situations. The United Kingdom has agreed to the principle whereby the new European regulatory authorities could address an establishment directly without having to go through national regulators, in emergency situations. London has nonetheless demanded that emergency situations be defined by the Ecofin Council.

Other priorities of the Belgian Presidency. Didier Reynders presented the Belgian Presidency programme of work. On economic and budgetary matters, "complementary measures will be necessary" to ensure financial stability and raise the major challenges, he said. The Presidency will ensure there is the necessary monitoring of work by the "taskforce" for ensuring economic coordination and greater rigour in terms of budgetary policy. "We have planned to come back to this during an Ecofin Council on 7 September, when we shall mainly deal with the follow-up to be given to the elements for amending the Stability and Growth Pact", the Belgian minister said. Ministers will also discuss how to organise economic growth in EU 2020 strategy and problems of competitiveness on the internal market (see Mario Monti's report on this subject).

"The debate that we have had on stress tests shows the need to heighten the credibility of institutions that have been particularly shaken up over recent years", Reynders went on to say. Also, he said, the Council will be returning to the directive on alternative investment fund managers in line with the commitments taken by the G20, and will hold a debate on rating agencies.

On the subject of taxation, the Ecofin Council of 7 September will discuss the possibility of introducing taxation on financial transactions and a tax on banks. Ministers will also discuss savings income, the code of conduct on corporate taxation and other themes related to indirect taxation (for combating fraud in the VAT sector). As far as green or environmental tax is concerned, the energy directive will have to be looked at again. Finally, on the EU's external role, an agreement is expected on the external mandates of the European Investment Bank (EIB).

Special meeting on 7 September. Jean-Claude Juncker has convened an informal Eurogroup meeting for 7 September, when a permanent crisis management mechanism will be discussed.

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