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New financial supervisory infrastructure will be the key

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EU finance ministers met in Brussels on Tuesday, with the Swedish Presidency strongly emphasising the significance of achieving a new financial supervisory infrastructure in December, as a prerequisite to financial stability and to further progress on exit strategies.

“We can talk all we want about the details of financial exit, but success will depend on putting in place a new financial supervisory architecture, which must be achieved in December. The lack of a decision would show that Europe has been unable to draw the correct lessons from the financial crisis and would leave us in a very problematic situation,” said Swedish Minister for Finance Anders Borg.

Ministers also discussed the capital requirements directive, the sustainability of public finances, exit from financial market support measures, and a proposal on tobacco taxation.

Capital Requirements Directive

The Council has adopted a general approach on the Capital Requirements Directive III, a very important directive on bank regulation in the area of financial markets. Negotiations with the European Parliament will now take place to finalise legislation. A key part of the directive is the rules for sound bonus behaviour.

”I am very pleased that we have been able to agree on a stringent new framework in this regard. Today's agreement shows the strong commitment within the EU to honour its global commitments and stop the excessive bonus culture,” stated Anders Borg.

Conclusions on sustainability of public finances

The ECOFIN Council agreed on conclusions concerning the Commission’s recently published report on the sustainability of public finances in the EU. The report states that the crisis has worsened long-term sustainability, adding to the costs of an ageing population. Ministers underlined that Member States need to act to reduce deficits and debts, increase employment rates and reform social protection systems, in line with the strategy created at the 2001 European Council in Stockholm.

Finance ministers also agreed on the need to return to sustainable fiscal positions, starting with the implementation of the agreed principles for the fiscal exit strategy, initially discussed in Göteborg and formally endorsed by the Council on 20 October, and subsequently moving towards the Medium Term Objectives.

”Public finances are currently on an unsustainable path. Addressing this situation and developing comprehensive exit strategies is therefore a top policy priority,” commented Anders Borg.

At the ECOFIN meeting on 20 October, finance ministers decided that the fiscal consolidation in the EU should start at the latest in 2011, provided that the Commission forecasts confirm that the recovery continues to gain strength and is becoming self-sustaining. The Commission’s Autumn Forecast provides support for the conclusion that the macroeconomic conditions will be such that 2011 is a plausible start date for consolidation in countries that have not already begun consolidating.

Preparing for exit from support measures for the financial sector

EU finance ministers had a first discussion on the need to begin preparing an exit from financial market support measures, which were introduced to prevent a meltdown of the financial markets during the crisis. While it is in many cases still premature to withdraw these support measures, there is a need to start considering principles for how to do so once financial stability is restored. A coordinated strategy is necessary in order to avoid negative spillovers and ensure well functioning credit channels. Ministers agreed that the EFC should continue its work in developing principles for withdrawal of the support measures. The Council will return to this issue at future meetings.

”We need to make serious and substantial progress in this area during the coming months, and I am confident that we will do so,” said Anders Borg.

Agreement on taxation proposal improving health prospects

The Council agreed on a proposal on tobacco taxation regarding quantitative limits and minimum duty. This agreement improves the Member States’ ability to achieve national health targets.

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