Economic and Financial Affairs (ECOFIN)

The establishment of the Internal Market in 1993 and later the completion of the Economic and Monetary Union in 1999 were important milestones of the economic unification of Europe, in which the Economic and Financial Affairs Council – one of the oldest and most influential Council formations, often referred to with the English acronym ECOFIN – plays a main role. It has an especially wide mandate: among others it is involved in coordinating Member States’ economic policies, monitoring Member States’ budgetary policies and public finances, and it deals with issues related to taxation, the Euro, the financial markets and economic ties with third countries. ECOFIN, together with the European Parliament approves the EU budget every year.

The Economic and Financial Affairs Council consists of the Finance Ministers of Member States, who normally meet once a month. When budgetary issues are on the agenda, usually twice a year in July and November, it also meets in a formation that the Budget Ministers attend. The meetings of the Council are always preceded by a meeting of the Eurogroup, which gathers Member States which have already introduced the common currency. It decides mainly by qualified majority, in codecision with the European Parliament, with the exception of fiscal matters which are decided by unanimity.

With the introduction of the Euro on 1^st January 1999, countries that participated in the so-called third phase of the Economic and Monetary Union mandated the European Central Bank to manage fiscal policy. The latter, together with the Central Banks of Member States forms the European System of Central Banks, the primary mission of which is to maintain price stability in the euro-area. At its meeting in Amsterdam in June 1997, the European Council approved the Stability and Growth Pact with the objective of allowing Member States to pursue rational fiscal policies based on firm foundations and to eliminate the risk of excessive budgetary deficits. The Pact obliges all EU Member States to seek to ensure a long-term budgetary position close to balance or in surplus. To achieve this, countries in the euro-area have to submit annual stability and growth programmes, whereas countries outside of the area have to prepare a convergence programme every year.

A comprehensive reform of the Stability and Growth Pact

The Stability and Growth Pact incorporates a preventive and a corrective mechanism. In the framework of multilateral monitoring, euro-area Member States have to present annual stability programmes setting out their medium-term budgetary objectives. Thus, the Council may formulate recommendations to the Member States in case of overspending. Excessive deficit procedures are initiated when a Member State exceeds the threshold deficit of 3% of its GDP. In such cases the Council issues recommendations to correct the situation and in case needed, may also impose sanctions. At its March 2005 meeting, the European Council reformed the Stability and Growth Pact. This allowed Member States short-term and small scale deficits larger than 3% and also made it possible for budgetary corrections to better take into account the specific characteristics of the different countries, namely the level of their debt, as well as the implementation of economic and structural reforms.

The economic and financial crisis, just as the sovereign debt crisis of the euro-area, has shed light on the serious shortfalls of the current system of economic governance, the fundamental contradiction that in contrast with common fiscal policy, budgetary policy remained a national competence. Therefore the Commission proposed the introduction of new regulations in September 2010 which have aimed to execute the most serious reinforcement of economic governance since the birth of the EMU. The proposals set forth a comprehensive reform of the Stability and Growth Pact and aim to provide timely detection and efficient correction of imbalances in the EU and the euro-area.

New and extended coordination procedures

The new and extended coordination procedures will be included in a comprehensive economic policy framework, the so-called European Semester. When deciding on an excessive deficit procedure, more attention will be given to indebtedness and this will be considered together with the evolution of the budgetary deficit. A directive will define the minimum budgetary requirements which Member States will have to respect. Beyond this, different economic indicators will be used to regularly assess imbalance risks. Infringement mechanisms will also be introduced against non-compliant Member States.

The economic and financial crisis has also shown how important it is to strengthen EU-level financial supervision. Therefore a European Systemic Risk Board and a European System of Financial Supervisors were established upon the recommendation of the Commission.

PRIORITIES OF THE HUNGARIAN PRESIDENCY

As a result of the global financial-economic crisis and its impact, the Economic and Financial Affairs Council will be dealing with numerous issues of great significance during the first half of 2011. Besides this, the Hungarian Presidency wishes to have the Council assume a horizontal, coordinative role in respect of issues related to the implementation of the Europe 2020 strategy.

Reinforcing economic policy coordination

Reinforcing economic policy coordination is a key issue during the period of recovery from the crisis. In this respect, the Commission has submitted six legislative proposals; managing their debate in the Council will be one of the main priorities of the Hungarian Presidency. One of the most important elements of economic policy coordination is the improvement of budget discipline which consists in the introduction of stricter sanctions in the Stability and Growth Pact system and an increased consideration of state debt in excessive deficit procedures. The other priority issue is the introduction of an excessive imbalance procedure – along the lines of the excessive deficit procedures – for the timely management of competitiveness and balance problems. The work on establishing a crisis management mechanism for the euro–area will commence during the Hungarian Presidency, which will also require an amendment on the EU Treaty.

European Semester

One of the defining novelties in economic policy coordination will be the introduction of an annual European Semester from 2011, that is from the start of the Hungarian Presidency. During the course of the European Semester, stability and convergence programmes on macroeconomic-budgetary plans will be coordinated with the national reform programmes, which set out the means of achieving the objectives set forth by the Europe 2020 strategy. In accordance with this, during the first half of every year, the Council of the Heads of State and Government will define the main guidelines on the basis of an assessment prepared by the Commission; guidelines which must be taken into account when drafting the Member State budgets. All this fundamentally modifies economic policy cooperation within the Union; therefore the Hungarian Presidency will do its utmost to ensure successful application in practice of the European Semester.

Roadmap for Financial Services

The issue of the Roadmap for Financial Services has gathered significant impetus as a result of the global banking, capital market and the sovereign debt crisis. During the term of the Hungarian Presidency numerous dossiers related to financial services will be opened or the debate on them continued. The most important one is taking further the Reform of Financial Supervision, during the framework of which a new European system of supervision will be launched from 1^st January 2011. In order to prevent future financial crises, it is important to increase capital market transparency. The Hungarian Presidency will endeavour to have a general approach developed on yet unregulated financial markets and transaction types threatening market stability.

Framework system for crisis prevention and management

Establishing a framework system for crisis prevention and management is indispensable to stable financial market operation, which in case of a crisis can also contribute to burden sharing. The first legislative proposals in this field are to appear during the first half of 2011; the debate on them will be launched by the Hungarian Presidency. There is also a necessity to reregulate bank capital requirements in order to improve the crisis tolerance capabilities of the banking sector. The most recent amendments in regulation will come into effect during the Hungarian Presidency; however further steps will be necessary in this field. A new Commission proposal is to appear on capital requirement rules in early 2011 and the Council debate on them will start. The Hungarian Presidency attaches great importance to the consequences on the functioning of the banking sector and to the global nature of the topic.

Taxation and budget

Taxation has a direct impact on the fiscal sovereignty of Member States. It is indispensable to resolve issues related to taxation in order to allow the further development of EU policies. Therefore the Hungarian Presidency would like to see progress on the issue of the common consolidated corporate tax base and the taxation of the financial sector.  

In the budgetary area, the tasks of the Hungarian Presidency include the 2009 Final Accounts, the review of the so-called Budget Regulation, which regulates the execution of the EU budget, and the preparation of the discussions on the 2012 European Union budget.