Eurogroep bijeen over groeimogelijkheden langere termijn (en)

MEMO/09/425

Brussels, 30 September 2009

Preparation of Eurogroup and Informal Economic and Finance Ministers Council, Göteborg (Sweden), 1 and 2 October 2009

EUROGROUP (AT)

Eurogroup ministers will meet at 8:30 hrs on Thursday 1 October. Joaquín Almunia, Commissioner responsible for Economic and Monetary Affairs will attend as will European Central Bank Governor Jean-Claude Trichet. A press conference is scheduled to take place after the meeting.

Ministers are expected to be de-briefed on last week's G20 meeting as well as to prepare the IMF /WB annual meetings on 3-4 October, in Istanbul. For the Pittsburgh G20 Summit see the final statement on www.pittsburghsummit.gov .

Ministers are also set to continue discussions, started in July, on the effect of the crisis on potential growth at country level. Pre-crisis projections predicted a fall in EU potential growth from 2% to just over 1% a year from 2020, due to ageing populations. With the financial crisis - which has weakened investment opportunities as demand falls and credit becomes more expensive - the growth potential is estimated to have dipped below 1% already in 2009 and 2010 and to recover to only around 1½ % in subsequent years. The situation, and the necessary policy responses, can vary a lot from country to country because not all countries have the same fiscal position and sustainability problems and many also need to address external imbalances and/or competitiveness problems. For recent analysis on the effects of the crisis, including on potential growth see the 2009 edition of the EU Economy Review on:

http://ec.europa.eu/economy_finance/thematic_articles/article15893_en.htm

Eurogroup ministers will also discuss 'exit strateg ies' from the present crisis, ahead of the Informal Ecofin Council (see below).

E COFIN COUNCIL

The Informal Council of Economics and Finance Ministers will start around 12:30 hrs with a working lunch on Thursday 1 October. The afternoon session will start at 15:45 hrs. and should run to 19:00 hrs. The meeting will continue the following morning, Friday 2 October from 9:00 hrs to 12:30 hrs. The European Commission will be represented by Commissioner Joaquín Almunia and Internal Market Commissioner Charlie McCreevy. A press conference is expected to take place at the end of the meeting.

Exit strategies (AT)

Over lunch, Ministers will discuss exit strategies, with a particular focus on fiscal policy and the need for coordination of a comprehensive strategy going beyond a return of policies to normality. The aim of the strategy would be to sustain the recovery, rebuild a stable and viable financial sector able to sustain lending without state support, ensure fiscal sustainability and strengthen potential growth including through enhancing the quality of public finances and tackling macro-economic imbalances.

They are also expected to discuss the results of the G20 Summit in Pittsburgh on this and other related points on the agenda.

Economic and financial situation (AT)

The EU economy seems to be at a turning point , as could be seen from the recently published interim forecasts. Signs of improvement in the economic situation have become increasingly apparent since the start of the autumn and fears of a prolonged, deep recession are fading. The important policy interventions have succeeded in achieving some stabilisation in the financial system and in providing support to economic activity. Indeed over the last month, the situation in the financial markets has improved further on the back of encouraging macroeconomic data and better than expected results released by US and European companies, notably banks. Moreover, data for the second quarter indicate a significant easing in the pace of contraction of EU GDP. The question is whether this positive surprise reflects mostly one-off factors – or whether it is the start of a sustained recovery.

Looking ahead, however, uncertainty is rife. There are reasons to believe that the recovery could prove volatile and sub-par. The full impact of the economic crisis on labour markets and public finances is, at least partly, still to be faced. Notwithstanding the improvement in many financial market indicators, financial markets and the banking sector remain fragile. The financial crisis could also have long-lasting adverse effects on potential growth. On the other hand, policy measures could prove more effective in restoring financial health, thereby supporting economic activity, and in improving the functioning of the economy. Summing up, the strength of the recovery could surprise on the upside in the near term, but its sustainability is yet to be tested.

See interim forecasts including press release IP/09/1309 on http://ec.europa.eu/economy_finance/thematic_articles/article15857_en.htm and presentation by Commissioner Almunia on EbS.

Financial supervision issues (AT / OD)

The Commission on 23 September 2009 adopted an important package of draft legislation to significantly strengthen the supervision of the financial sector in Europe. The aim of these enhanced cooperative arrangements is to sustainably reinforce financial stability throughout the EU; to ensure that the same basic technical rules are applied and enforced consistently; to identify risks in the system at an early stage; and to be able to act together far more effectively in emergency situations and in resolving disagreements among supervisors. The legislation will create a new European Systemic Risk Board (ESRB) to detect risks to the financial system as a whole with a critical function to issue early risk warnings to be rapidly acted on. It will also set up a European System of Financial Supervisors (ESFS), composed of national supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational pensions sectors. The proposals will go a long way towards tackling the imbalances in our financial systems and solving the weaknesses in financial supervision system that are at least partly to blame for the financial crisis (see IP/09/1347 – MEMO/09/404 and MEMO/09/405 ).

Ministers are expected to have a first discussion on the draft legislation that EU leaders want to see agreed swiftly to come into force in 2010. A great deal of discussion and work has already gone into the subject both after the report of the High Level Group created by the Commission and chaired by former IMF Managing Director Jacques de Larosière and after the Commission Communication, in May, that outlined the broad principles of the a new financial supervision architecture for Europe.

Climate change / international financing for climate action (AT / BH /MA)

Ministers will again discuss the topic of climate change in the lead-up to the United Nations conference on climate change in Copenhagen this December. The aim there will be to achieve agreement on ambitious reductions in global greenhouse gas emissions to avert the risk of dangerous climate change.

At its June meeting, the European Council stated its readiness “to take the appropriate decisions on all aspects of financing at its October meeting.” Ministers’ discussions on climate change at their informal meeting this Friday will thus focus on developing the EU position on scaling up financial flows to developing countries to support an ambitious agreement in Copenhagen.

These discussions will feed into the Ecofin meeting on October 20. On that occasion, as input to the European Council decisions one week later, Ecofin should agree conclusions setting out a detailed blueprint for the EU position on climate finance. This should include “fast start” finance to enable the rapid implementation of the Copenhagen agreement; the amount of financial support the EU would be willing to provide to support an ambitious agreement in Copenhagen; and arrangements for the effective governance of these increased amounts of financial support.

During this session Commissio ner Kovács will also intervene on cost-efficient use of economic instruments, such as taxation, in climate policy and international financing for climate action.

Employment (AT / KvS)

Ministers will have an exchange of views on labour market prospects and on short-term policy measures undertaken for mitigating the impact of the crisis on jobs. The debate will feed into the wider debate on defining appropriate and coordinated exit strategies from the short-term policy response to the crisis.

While fears of a prolonged, deep recession are fading, there is still a high degree of uncertainty about the sustainability of the recovery and the impact of the crisis on labour markets and public finances is still unfolding.

As the deterioration in economic growth bottoms out and fiscal space diminishes, the emphasis in labour market policy agendas needs to gradually switch from containing labour shedding in the short-run, to resuming structural reforms aimed at returning to a sustained employment growth and avoiding persistent unemployment.

Preparation of the IMF/WB meeting (AT)

Ministers will hold their traditional discussions to prepare for the forthcoming IMF/WB meetings that will take place in Istanbul on 3-4 October.

The IMF meeting will focus on the appropriate policy mix countries should follow in the coming years as well as on the IMF's governance reform and its future role. European Member States have made a financial pledge of up to € 125billion to bolster the IMF's resources, which is by far the largest financial contribution coming from IMF member countries. Ministers will discuss the forthcoming quota and voice review, which envisages an increase in the voice and representation of under-represented emerging market and developing countries.

The ECOFIN is also expected to discuss the World Bank governance reform, which is to be concluded in spring 2010. Important element in this reform is the rebalancing of voting power which needs to provide developing and emerging economies with more voice in the governing bodies.

Another important issue is the discussion on adequate capital resources for multilateral development banks which have a vital countercyclical role to play in the current crisis while continuing to fulfil their development mandate. The Asian Development Bank has already received additional resources but others have to conclude their capital review process before their needs can be fully assessed. These review processes are planned to be finalized in the first half of 2010.