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ECOFIN discussed the capital requirements of banks, structural reforms within the Lisbon Strategy, and the Czech Presidency work programme.
Presidency priorities
the President of the ECOFIN Council presented the priorities and objectives of the Czech Presidency. The Presidency will strive to reinforce financial stability and to restore normal functioning on the financial markets. Priority will be given to the reform of the international financial architecture and the preparation of the EU position at the G20 summit in April.
A key prerequisite for reversing the unfavourable economic development is to restore the normal functioning of the financial sector, where the crisis started. An important task at hand is the unlocking of lending channels.
Czech presidency press release
Main results of the Council
In the light of new economic forecasts from the Commission, which suggest that the economic downturn will continue throughout the first half of 2009, the Council took stock of measures taken with the aim of restoring confidence and return to growth.
While actions taken by EU governments have contributed to the stabilisation of financial markets, the Council highlighted the importance of restoring the proper functioning of credit channels. The economic recovery plan approved by the European Council in December to support demand and employment through timely, targeted and temporary stimulus measures is being implemented. The Council emphasised the need to accompany these measures with structural reforms to improve the resilience and growth potential of European economies.
The Council approved a EUR 3.1 billion loan to Latvia, as part of a package of assistance provided by the IMF, the World Bank, the EBRD and individual European countries, in order to alleviate pressure on its capital and financial markets by supporting its balance of payments in the medium term.
It also adopted conclusions on bank capital and on an investment framework established last year for the Western Balkans.
Council Conclusions on Bank Capital
The Council confirmed that the provision of capital to the banking sector is not intended to create new, higher statutory capital requirements for the banking sector. The capital requirements of banks should continue to be assessed on a case-by-case basis, in line with existing EU regulation, based on their individual risk-profile and rigorous stress-testing. It should be recognised that capital provides a buffer both to withstand the challenging economic conditions and to maintain lending to creditworthy borrowers.
The Council supports calls to modify the international regulation of capital and accounting rules in future to ensure that excessive pro-cyclical consequences are mitigated, ECOFIN says.
Member States continue to remain committed to taking all necessary steps, including on capital, liquidity and lending, working together wherever possible. The Council will continue to monitor the implementation of the rescue packages over the coming months and invites the Commission to make recommendations on how to enhance their effectiveness."
Council conclusions on Bank Capital
Budgetary policy
The ECB initiatives and the national measures undertaken by member states will be accompanied by structural reforms within the Lisbon Strategy, ECOFIN states. “No radical overhauls of reform strategies are warranted and backtracking should be avoided. Furthermore, when implementing national measures, distortions of the single market should be avoided by adherence to competition and state aid rules”, Finance Ministers agreed.
However, ministers also noted that budget deficits will increase in many Member States in the short run, and a number of Member States will temporarily exceed the deficit reference value.
ECOFIN Economic and budgetary policy messages for 2009