At the informal ECOFIN meeting in Göteborg on 1-2 October, EU finance ministers had useful discussions on a number of topics: fiscal exit strategies, financial stability and supervision, measures against climate change, and the employment situation in Europe.
Photographer: Gunnar Seijbold/Regeringskansliet
“We need to deal with difficult issues in difficult times. There is broad consensus that we must make swift progress on all these items”, noted Swedish Minister for Finance Anders Borg, who was very satisfied with the outcome of the meeting.
Fiscal exit strategies: necessary to design now, even if implementation will have to wait
Ministers observed that while there are signs of a tentative recovery sustained by expansionary policies, it is too early to withdraw the stimulus measures. Ministers emphasised that the extraordinary support should remain in place until recovery is secured.
In order to anchor expectations and reinforce confidence, it is necessary to start designing and communicating credible exit strategies, even if implementation will have to wait. We have now had a first discussion on how such credible exit strategies could be designed,” commented Anders Borg.
Comprehensive strategies within the framework of the Stability and Growth Pact
Ministers underlined that fiscal exit strategies should be designed and implemented within the framework of the Stability and Growth Pact.
There was agreement that strategies should be comprehensive and encompass the following elements: 1) a timely withdrawal of the extraordinary measures; 2) further structural fiscal consolidation of more than 0.5 per cent of GDP per year; 3) comprehensive structural reforms aimed at strengthening structural employment and potential growth, including labour market reforms and long term investments; and 4) strengthened national budgetary frameworks.
It was also noted that stability and convergence programmes will be instrumental in developing and implementing the strategy at Member State level.
Further work will be carried out under the Swedish Presidency in order to further detail the strategy and ensure a consistent set of recommendations to countries subject to the Excessive Deficit Procedure.”.
Financial stability and supervision: swift progress is crucial
Ministers and governors of central banks emphasised that the agreements reached atthe G20 summit in Pittsburgh will now be implemented, in particular regarding restrictions on bonuses and compensation in the financial sector.
“The ghosts of greed cannot easily be chained down, but bankers should not underestimate the political commitment to putting a stop to the harmful practices of banks,” remarked Anders Borg.
A tentative recovery is under way
On the economic and financial situation, ministers and governors discussed the emerging signs that the economic and financial crisis has started to bottom out and that a tentative recovery is under way. However, the global financial system is still fragile and economic activity remains weak. Ministers and governors were also given a presentation of the EU-wide stress test and welcomed that banks in the EU are broadly able to withstand the crisis, but emphasised that banks need to continue to strengthen their financial positions. See the separate statement on this issue.
Steps to enhance EU financial stability arrangements
Ministers and governors also discussed the strengthening of EU cross-border stability arrangements, and how to move forward on these issues. Stability in the financial system rests on a coherent approach to crisis prevention, management and resolution. In this regard ministers broadly supported a range of measures to be taken in the next 6-12 month period based on a road map presented by the EFC. This work will continue along two closely interrelated strands. One is to enhance the coordination arrangements among governments and other relevant parties. The other is more efficient regulation as regards, in particular, early intervention and bank resolution. The ECOFIN will return to this issue at their meeting in October.
The new EU financial supervisory structure is a key priority
A key item at Thursday’s session was the Commission’s proposals on a new structure for financial supervision. There was broad support for dealing with this very urgent issue in a swift manner, based on the conclusions of the European Council on 18-19 June 2009, with the ambition of reaching a general approach regarding the European Systemic Risk Board (ESRB) in October. This will therefore be on the agenda at the ECOFIN meeting on 20 October and reported to the 29-30 October European Council.
In parallel, the negotiations on the European System of Financial Supervision (ESFS) will aim to reach a general approach at the December ECOFIN. Both work streams will be reported to the December European Council under the Swedish Presidency.
“It is our intention to report an agreement for the whole financial supervision package to the European Council in December, which will send a strong signal to our global partners that the EU has now taken its responsibility to strengthen the European supervisory framework,” emphasised Anders Borg.
Climate - the EU is willing to contribute its fair share of financing
Ministers underlined the key role of economic instruments in achieving necessary reductions in greenhouse gas emissions. A number of ministers also welcomed the idea of introducing a CO2 tax to reduce emissions from sectors outside the EU Emission Trading Scheme. Swedish Minister for Finance Anders Borg noted that there had been a constructive exchange of views and that the Commission was encouraged to propose a necessary revision of the current Energy Taxation Directive.
On the topic of financing action on climate change, ministers had an active and constructive discussion. They reiterated the EU’s commitment to reaching a global, ambitious and comprehensive agreement in Copenhagen in December. They also recognised that financial resources for climate action will need to be scaled up urgently and substantially, and that work will proceed both within the EU and in cooperation with our international partners.
“The ECOFIN Council will further discuss this topic at the next meeting on 20 October, in preparation for the 29-30 October European Council. Our discussions showed a strong EU, which will drive this issue forward and play an important role in preparing for the G20 meeting in St Andrews on 7-8 November. But we need the help of others, especially the United States,” concluded Anders Borg.
Employment – the importance of maintaining labour market attachment
Ministers expressed concern regarding the dramatic increase in unemployment across Europe, and the associated risk of unemployment becoming entrenched at a high level. Ministers therefore underlined that expansionary fiscal policies must be maintained in order to dampen the increase in unemployment. They also agreed on the importance of sound macroeconomic frameworks as a crucial element of well-functioning labour markets.
To mitigate the risk of unemployment persistence and to avoid repeating mistakes of the past, ministers emphasised the importance of maintaining labour market attachment for those hit by unemployment. The best way to achieve this is to use active labour market policies such as matching, education and training, and intensified job searching.
“Unemployment will be a difficult political, social and economic challenge over the coming years, and labour market policies will hence be crucial, as we seek to reduce the risk of persistence,” stated Anders Borg.
Ministers agreed that structural reforms must be accelerated, with longer-term measures needed to increase labour supply. In this context, tax and benefit systems should be designed to make work pay. Continued structural reforms will play a significant role in the future strategy on growth and jobs.
“Increasing labour supply is also crucial in achieving sustainable public finances,” added Anders Borg.