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Preparation of Economic and Finance Ministers Council, Luxembourg 20 June

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photo_1371871351603-2-HDThe EU's Council of Economic and Finance (ECOFIN) Ministers will take place in Luxembourg on 20 June at 10h. The European Commission will be represented by Vice President for Economic and Monetary Affairs Olli Rehn, Internal Market Commissioner Michel Barnier, Taxation and Customs Union, Audit and Anti-fraud Commissioner Algirdas Šemeta and  Financial Programming and Budget Commissioner Janusz Lewandowski. A press conference is expected to take place after the meeting.

Draft General Budget for 2015 (PF)

Commissioner Lewandowski will present the draft 2015 budget for the EU (IP/14/665), adopted by the Commission on 12 June 2014. The draft budget focusses on projects that make Europe economically stronger and takes into account the financial implications of member states' recent political decisions in areas such as energy or Ukraine. Payments in areas supporting Europe's economic growth and jobs, such as science and research, energy or youth employment, increase by +29.5%.

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The share of the functioning cost of the EU remains stable at around 4.8% of the total budget. Its increase is around the expected rate of inflation; therefore it does not increase in real terms. The draft budget also includes the third 1% staff reduction in three years.

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Closing loopholes in company taxation (ET)

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The Council is expected to reach political agreement on closing an important loophole in the Parent-Subsidiary Directive which has been used by some companies to escape taxation.

In November 2013, the Commission proposed amendments to the Parent-Subsidiary Directive, which included preventing specific tax planning arrangements (hybrid loan arrangements) from benefiting from tax exemptions (IP/13/1149). With this amendment, companies will no longer be able to exploit differences in the way member states tax intra-group profit distributions, in order to avoid paying any tax at all. The result will be that the Parent-Subsidiary Directive can continue to ensure a level-playing field for businesses in the Single Market, without opening opportunities for aggressive tax planning. This proposal was one of the actions announced by the Commission in its Action Plan to fight tax fraud and evasion (IP/12/1325).

Bank contributions under the Bank Recovery and Resolution Directive/Single Resolution Mechanism (SRM) Regulation – state of play (CH)

The European Union has agreed new resolution rules for all EU banks (MEMO/14/294). It is now essential to make the national resolution funds established by the Bank Recovery and Resolution Directive (BRRD) (MEMO/14/297) and the Single Resolution Fund (SRF) established by the Single Resolution Mechanism Regulation (MEMO/14/295) a reality.

The European Commission is empowered to adopt a delegated act on banks’ contributions to the national resolution funds under BRRD and a proposal for a Council implementing act on banks’ contributions to the Single Resolution Fund under the Single Resolution Mechanism Regulation (SRM). Both acts will clarify how and how much individual banks will pay towards the Funds in order to meet the target levels set by the legislation.

The Commission services are now working on these texts, and discuss with experts appointed by member states and the European Parliament in regular meetings of the Expert Group on Banking, Payments and Insurance. This work will be complemented by a public consultation of all interested stakeholders. The Commission intends to adopt both acts by September 2014 to ensure consistency and an efficient adoption process.

Commissioner Barnier will inform the Council of the state of play of those discussions. He looks forward to the constructive co-operation of member states. In particular the work of the Commission depends on high quality data that member states have been invited to provide on their respective banking sectors.

Code of Conduct on Business Taxation (ET)

The Council is expected to adopt conclusions on the report of the Code of Conduct Group on Business Taxation. The Code of Conduct Group reports to the Council on progress achieved by the end of each Presidency. The main issues in the current report are:

Patent Boxes: (Patent boxes are a form of tax incentive to encourage research and development). In December 2013, the Council invited the Group to analyse the criteria to determine economic substance by the end of June 2014 and assess all patent boxes in the EU by the end of 2014. Patent boxes are the member states covered by the assessment process are Belgium, Cyprus, Spain, France, Hungary, Luxembourg, Malta, The Netherlands, Portugal, and United Kingdom.

The Group was due to report back to the Council with its analysis of the substance criterion, but has not yet been able to reach consensus on this point. Nonetheless, in order to meet the December deadline, the Group has asked the Commission to prepare draft assessments of all Patent Boxes, apart from elements related to the substance criterion. These draft assessments will then be completed once consensus has been reached on the substance question.

Dialogue with Switzerland: In 2011, the Group identified five Swiss company tax measures which it regarded as harmful. Through a dialogue between the Commission and Switzerland, it became clear that Switzerland was ready to abolish the five harmful measures, as part of a reform of its company tax rules. In June 2014, the dialogue was concluded. All member states have agreed to a joint statement with Switzerland.

Contribution to 26-27 June European Council - European Semester 2014 (SOC)

The Council is expected to endorse the Country-Specific Recommendations (CSRs), which the Commission proposed on 2 June for each member States (except the programme countries) under the European Semester (IP/14/623) (MEMO/14/388). These recommendations cover a wide range of public finance and structural reform issues, including areas such as taxation, pensions, public administration, services and labour markets. Tailored to address the specific challenges of each country, the Country-Specific-Recommendations are intended to underpin the return to sustainable growth and jobs. They include in particular measures to combat youth unemployment.

As Vice President Rehn said: "The Commission's task is to present credible, realistic and realisable policy initiatives, and that's what [our] recommendations are about. They provide policy recommendations to the member states and also to the eurozone in its entirety on what is needed to boost sustainable growth, to boost investment, create sustainable jobs and ensure sound public finances."

Greece and Cyprus did not receive any Country-Specific-Recommendations as both countries are subject to more regular and separate monitoring under their respective macroeconomic adjustment programmes, which aim to restore financial stability, boost competitiveness and create the conditions for sustainable growth and job creation.

EU heads of state or government are expected to endorse these recommendations at the European Council on 26-27 June. The recommendations will then be formally adopted by the Council on 8 July. It will be up to member states to implement the recommendations when drafting their national budgets and other relevant policies. The Commission will thoroughly monitor this implementation.

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The Council is also expected to approve the European Commission recommendation on the implementation of the broad guidelines for the economic policies of the member states whose currency is the euro.

The economic and financial crisis has clearly exposed the close interrelationship in the eurozone. The eurozone broad guidelines highlight the policy action at both member state and eurozone levels necessary to improve the functioning of the eurozone as a whole. This specifically concerns the areas of structural reform policy, fiscal policy, financial market policy and the deepening of the Economic and Monetary Union (EMU).

EU Heads of State or Government are expected to endorse the recommendation at the European Council on 26-27 June. The recommendation will be formally adopted by the Council on 8 July. It will then be up to the eurozone member states, notably in the context of policy co-ordination at the Eurogroup level, to implement these guidelines.

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Implementation of Stability and Growth Pact (SOC)

After discussion, the Council is expected to decide on the European Commission recommendations (MEMO/14/382) as to the abrogation of the Excessive Deficit Procedure (EDP) for some member states. As Rehn said on 2 June: "We are recommending to the Council the closure of the Excessive Deficit Procedure for six member states: Belgium, the Czech Republic, Denmark, the Netherlands, Austria and Slovakia. These countries have all brought their deficits sustainably below 3% of GDP and I want to congratulate them for this achievement."

Currently there are 17 EU member states (i.e. all member states except Bulgaria, Germany, Estonia, Italy, Hungary, Latvia, Lithuania, Luxembourg, Romania, Finland and Sweden) subject to an EDP, whereas there were 24 member states in this situation in 2011. If the Council follows the Commission's Recommendations and adopts the decisions to end the EDP for the six countries concerned, the number of countries in Excessive Deficit Procedure will drop to 11.

"This shows that the Stability and Growth Pact is working, and Europe’s public finances are being repaired,"Vice President Rehn added.

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Convergence Reports and enlargement of the eurozone (SOC)

On the 4 June, the European Commission released its 2014 Convergence Report, which assesses eight member states' readiness to join the single currency on the basis of the convergence criteria defined in the Treaty. (IP/14/627)(MEMO/14/391)

As Vice President Rehn said: "The countries we have looked at – Bulgaria, Croatia, the Czech Republic, Hungary, Lithuania, Poland, Romania and Sweden – have made uneven progress towards this goal."

Lithuania stands out from this group as it now fulfils all convergence criteria. As Vice President Rehn said "Lithuania credibly meets the five Maastricht criteria for euro adoption: inflation is well below the reference value; the fiscal deficit and public debt are both on a sustainable path; the exchange rate has remained stable vis-à-vis the euro without any signs of tension; and long-term interest rates have converged to low levels. Moreover, the legal framework has been brought fully in line with the Treaty requirements."

The European Commission has therefore proposed that the EU Council of Ministers decides that Lithuania can adopt the euro on 1 January 2015.

The Council will exchange views on the Convergence Reports published respectively by the European Commission and the European Central Bank (ECB). Further, the members of the Council representing eurozone member states are expected to adopt a recommendation on euro introduction in Lithuania.

The General Affairs Council is expected to adopt the formal decision on the matter on 23 July, after EU heads of state and government have discussed the subject on 26-27 June, and after the European Parliament has given its opinion.

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The 2014 Convergence Report
ECB Convergence Report

Energy taxation (ET)

The Council is due to adopt, without discussion, a progress report on the Energy Taxation Directive, which the European Commission proposed on 13 April 2011.

This proposal aims to overhaul the taxation of energy products in the European Union and restructure the way energy products are taxed to remove current imbalances. The proposed energy tax would be split into two taxes – on CO2 emissions and on general energy consumption, (see IP/11/468).

Under the Greek Presidency of the Council, many amendments to the Commission proposal were tabled and discussed. Despite the intense negotiations, unanimous support was not received for these amendments and as yet there is no sign of a political compromise on this file. The upcoming Italian Presidency has signalled its intention to continue the work on the file.

Economy

Issuance of green bonds will strengthen the international role of the euro

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Eurogroup ministers discussed the international role of the euro (15 February), following the publication of the European Commission's communication of (19 January), ‘The European economic and financial system: fostering strength and resilience’.

President of the Eurogroup, Paschal Donohoe said: “The aim is to reduce our dependence on other currencies, and to strengthen our autonomy in various situations. At the same time, increased international use of our currency also implies potential trade-offs, which we will continue to monitor. During the discussion, ministers emphasized the potential of green bond issuance to enhance the use of the euro by the markets while also contributing to achieving our climate transition objective.”

The Eurogroup has discussed the issue several times in recent years since the December 2018 Euro Summit. Klaus Regling, the managing director of the European Stability Mechanism said that overreliance on the dollar contained risks, giving Latin America and the Asian crisis of the 90s as examples. He also referred obliquely to “more recent episodes” where the dollar’s dominance meant that EU companies could not continue to work with Iran in the face of US sanctions. Regling believes that the international monetary system is slowly moving towards a multi-polar system where three or four currencies will be important, including the dollar, euro and renminbi. 

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European Commissioner for the Economy, Paolo Gentiloni, agreed that the euro’s role could be strengthened through the issuance of green bonds enhancing the use of the euro by the markets while also contributing to achieving our climate objectives of the Next Generation EU funds.

Ministers agreed that broad action to support the international role of the euro, encompassing progress on amongst other things, Economic and Monetary Union, Banking Union and Capital Markets Union were needed to secure the euros international role.

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EU

European human rights court backs Germany over Kunduz airstrike case

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An investigation by Germany into a deadly 2009 airstrike near the Afghan city of Kunduz that was ordered by a German commander complied with its right-to-life obligations, the European Court of Human Rights ruled on Tuesday (16 February), writes .

The ruling by the Strasbourg-based court rejects a complaint by Afghan citizen Abdul Hanan, who lost two sons in the attack, that Germany did not fulfil its obligation to effectively investigate the incident.

In September 2009, the German commander of NATO troops in Kunduz called in a U.S. fighter jet to strike two fuel trucks near the city which NATO believed had been hijacked by Taliban insurgents.

The Afghan government said at the time 99 people, including 30 civilians, were killed. Independent rights groups estimated between 60 and 70 civilians were killed.

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The death toll shocked Germans and ultimately forced its defence minister to resign over accusations of covering up the number of civilian casualties in the run-up to Germany’s 2009 election.

Germany’s federal prosecutor general had found that the commander did not incur criminal liability, mainly because he was convinced when he ordered the airstrike that no civilians were present.

For him to be liable under international law, he would have had to be found to have acted with intent to cause excessive civilian casualties.

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The European Court of Human Rights considered the effectiveness of Germany’s investigation, including whether it established a justification for lethal use of force. It did not consider the legality of the airstrike.

Of 9,600 NATO troops in Afghanistan, Germany has the second-largest contingent behind the United States.

A 2020 peace agreement between the Taliban and Washington calls for foreign troops to withdraw by May 1, but U.S. President Joe Biden’s administration is reviewing the deal after a deterioration in the security situation in Afghanistan.

Germany is preparing to extend the mandate for its military mission in Afghanistan from March 31 until the end of this year, with troop levels remaining at up to 1,300, according to a draft document seen by Reuters.

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EU

Digitalization of EU justice systems: Commission launches public consultation on cross-border judicial co-operation

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On 16 February, the European Commission launched a public consultation on the modernization of EU justice systems. The EU aims to support member states in their efforts to adapt their justice systems to the digital age and improve EU cross-border judicial co-operation. Justice Commissioner Didier Reynders (pictured) said: “The COVID-19 pandemic has further highlighted the importance of digitalization, including in the field of justice. Judges and lawyers need digital tools to be able to work together faster and more efficiently.

At the same time, citizens and businesses need online tools for an easier and more transparent access to justice at a lower cost. The Commission strives to push this process forward and support member states in their efforts, including as regards facilitating their cooperation in cross-border judicial procedures by using digital channels.” In December 2020, the Commission adopted a communication outlining the actions and initiatives intended to advance the digitalization of justice systems across the EU.

The public consultation will gather views on the digitalization of EU cross-border civil, commercial and criminal procedures. The results of the public consultation, in which a broad range of groups and individuals can participate and which is available here until 8 May 2021, will feed into an initiative on digitalisation of cross-border judicial cooperation expected at the end of this year as announced in the 2021 Commission's Work Programme.

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