At the informal ECOFIN meeting which took place in Brussels on 30 September and 1 October, EU finance ministers had fruitful exchanges and discussions on a number of topics: EU economic governance and structural reforms, economic perspective and financial markets outlook and financial sector regulation.
These were the main points on the agenda:
- EU economic governance and structural reforms: the right mix between fiscal stability, reinforced macroeconomic surveillance and support to growth-enhancing reforms
- Economic perspectives and financial markets outlook: the uncertainty is still prevailing in terms of growth scenario and financial sector outlook, despite positive signs of economic recovery in the EU
- Regulation of the financial sector: how to achieve responsible and growth-enhancing behaviour of the financial sector, combined with a move in the direction of a more accountable financial sector.
Regulation of the financial sector: how to achieve responsible and growth enhancing behaviour of the financial sector…
Ministers and governors had an exchange of views with representatives of credit rating agencies and of the European association of credit agencies. This dialogue was part of on-going discussions on the new regulatory and supervisory framework for rating agencies on which the Commission has made a first proposal in June of this year, and on which it intends to come up with a new proposal during the first semester of 2011. It was acknowledged that efforts should continued to be made to address a number of issues related to credit rating activities, including the risk of over-reliance on credit ratings, the pro-cyclicality of rating agencies’ assessments and the risk of conflict of interests stemming from the remuneration model of rating agencies.
Commissioner Barnier delivered a presentation on recent developments on financial regulation in the United States and in other G20 countries. The US reforms have been significant notably with the adoption of the Dodd-Frank Act. Clear convergence between the US and EU approaches should therefore pave the way to a more even level playing field. Further efforts should be pursued at the global level to provide stability and predictability integrating other G20 jurisdictions even if their financial system might have been less impacted by the crisis.
The Belgian finance minister stressed that the new supervisory framework for Europe’s banks and financial services, which has been recently adopted by the European Parliament, should be implemented without any delay. Commissioner Barnier was invited to present the further works required to ensure that the new EU framework for supervision of the financial system will be truly effective on 1 January 2011.
Ministers also had an exchange of views on the recent agreement reached by the Basel Committee to strengthen the quality and quantity of regulatory capital held by banks and to create a global liquidity standard for the banking sector. There was a broad consensus to underline the need to preserve a global level paying field and to have a well-calibrated transition period to preserve access to credit for companies.
This transition period should not lead to the emergence of a new shadow banking system giving rise to systemic risks. Ministers called the Commission to properly assess the impact of the new rules in terms of transitional period but also of calibration of standards.
The recent evolution in the regulation of financial markets to make financial institutions more resilient was considered as a major achievement. The possibility of obtaining agreement at global level on raising capital requirements and defining liquidity standards should be now implemented in a consistent way across countries.
…combined with a move in the direction of a more accountable financial sector
The informal Ecofin offered the opportunity to pursue the discussion on bank levies and financial transactions tax already initiated during the last Ecofin on 7 September.
There was a broad consensus for dealing with the need for the financial sector to make a fair and substantial contribution towards supporting part of the burdens associated with government interventions. Ministers had two separate discussions on the question of bank levies and financial transactions tax.
Various Member states have been proactive in implementing their own system of levies. Ministers emphasized the need to ensure sufficient coordination between the different initiatives and to maintain a level playing field to avoid double taxation, to reduce the risks from the financial system and ensure a regular flow of credit. It was stressed that an appropriate mix should be achieved in making the financial sector more responsible while avoiding overburdening measures. Bank levies should be a component of a credible and robust financial crisis resolution framework based on a set of common accepted rules, creating the synergies with existing deposit guarantee schemes and avoiding moral hazard behaviour. On that basis, further reflections will be pursued by the EFC in the perspective of the October European Council.
The discussion continued on the financial transactions tax, a field where more diverging opinions emerged on the practicality of such an approach. Concerns were expressed about the risks in terms of tax incidence and displacement of activities if this issue is not addressed at a global level. The taxation group of the Council will further investigate the technicality of the financial transactions tax (e.g. tax base, level of implementation). This should provide the ingredients for an appropriate coordinated line of actions to be presented in international forum such as the G20.
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