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Financial Markets
The European Council will discuss the economic situation and progress in ongoing work on financial market stability, on the basis of an interim report from the Economic and Financial Affairs (Ecofin) Council, and in the light of the sustained volatility on global financial markets since last August.
The European Council will highlight the need to avoid complacency and to sustain reform efforts. In order ensure greater stability of financial markets, action is required to strengthen their transparency and functioning and to further improve the supervisory and regulatory environment at national, EU and global level.
The European Council will acknowledge that recent significant increases in food and energy prices have contributed to inflationary pressures. It will recall the need to avoid distortionary policies that prevent the necessary adjustments by economic agents. It will invite the Council to identify the driving forces behind developments of commodity and food prices, and to pursue policies which remove possible supply limitations.
Ongoing work on financial stability
The European Council will underscore the need for prompt and full disclosure of exposures to distressed assets and off-balance sheet vehicles and/or of losses by banks and other financial institutions. Improvements are needed to the prudential framework and the risk management of individual institutions.
Policy action will focus on the four areas identified by the Ecofin Council. The European Council will call on the Council, the European Parliament and the Commission strive for agreement by April 2009 on amendments to the directive on the capital requirements of financial institutions. As regards market functioning and incentive structures, including the role of credit rating agencies, it will confirm the readiness of the EU to consider regulatory alternatives if market participants do not rapidly address the issues.
Financial services regulation and financial supervision
The European Council will call on the Ecofin Council to swiftly implement its work programme, making further progress during the spring. Main issues include improvements to and the convergence of key supervisory rules and standards, convergence of regulatory/financial reporting clarification of the relationship between home-host authorities, the role of colleges of supervisors, and improvements to the functioning of supervisory committees, as well as consideration on inclusion of an EU dimension in the mandates of national supervisors.
Arrangements in the event of a financial crisis
The European Council will call on the Ecofin Council to swiftly implement the work programme it agreed in October, making further progress during the spring. Tools and procedures should be enhanced and, as a first step, a new memorandum of understanding on cross-border cooperation between the relevant authorities is expected to be signed in the spring2. On the basis of further work by mid-2008, the Council should also scrutinise the functioning of deposit guarantee schemes.
In addition, early warning systems at EU and international level should be enhanced, including by strengthening the role of the IMF in oversight of macro-financial stability. On financial stability issues, the EU should work in close cooperation with its international partners in the relevant fora.
Sovereign wealth funds
The European Council will emphasise the useful role played by sovereign wealth funds as capital and liquidity providers with a long-term investment perspective. However, it will acknowledge concerns related to the potential non-commercial practices of new players with limited transparency regarding their investment strategy and objectives.
The European Council will confirm the need for a common European approach, taking into account national prerogatives, in line with five principles proposed by the Commission, namely:
- commitment to an open investment environment;
- support to ongoing work in the IMF and the OECD;
- use of national and EU instruments if necessary;
- respect of EC treaty obligations and international commitments;
- proportionality and transparency.
The European Council will endorse the aim of agreeing on a code of conduct for sovereign wealth funds and defining principles for recipient countries at international level.
Follow-up
The European Council will invite the Ecofin Council to continue to give high priority to these issues in the coming months, with a major review of progress in April, and to monitor closely the situation so as to react swiftly to any possible adverse developments. The European Council will come back to these issues as appropriate and at the latest in autumn 2008.
Unlocking the business potential, especially of SMEs
The European Council will welcome progress made during 2007 on better regulation and consider that further efforts are needed in order to deliver crucial improvements to the competitiveness of EU business, in particular SMEs.
The European Council will identify actions of immediate importance in order to reinforce the EU's policy on SMEs and to allow them to operate more effectively in the single market, so as to allow business, in particular SMEs, and consumers to make full use of its potential.
These include swift examination by the Council of the upcoming small business act initiative and the introduction, where justified and following screening of the acquis communautaire, of exemptions for SMEs from the administrative requirements of EU legislation.
These include an effective follow-up to the Commission's single market review on a yearly basis, with a focus on actions needed to boost growth and jobs by removing remaining barriers to the four freedoms of the treaty, including, where appropriate, through harmonisation or mutual recognition.Market developments should be monitored in order to prioritise action in markets where there are genuine and significant barriers to market functioning and competition.
As regards the external dimension of the renewed