Sunday, September 27, 2009

Topics for discussion at the upcoming Informal Ecofin meeting in Gothenburg

During the Informal meeting with the Ministers for Finance four different topics will be discussed:

* fiscal exit
* financial stability arrangements and supervision
* avoiding unemployment becoming entrenched
* financing climate change.

Fiscal exit

The economic crisis and the unprecedented fiscal measures taken has put public finances under extraordinary stress. Budget deficits are set to more than double in the EU and almost all EU countries will breach the deficit and debt reference values of the Stability and Growth Pact.

In addition, the EU economies are facing a demographic challenge. The working-age population will drop by more than 10 percentage points on average until 2060. There will thus be a sharp rise in age-related public expenditures which will put further pressure on public finances, emphasising the need for a normalisation of financial, fiscal and monetary policies – in other words, a comprehensive exit strategy.

One of the main issues for the Finance Ministers at Informal Ecofin will be to discuss and agree upon some fundamental principles for fiscal exit strategies. A key challenge will be to maximise the stabilisation effects of policies, while minimising the negative repercussions on longer term growth potential, fiscal sustainability and inflation prospects.
Financial stability arrangements and supervision

EU-wide stability arrangements - a key policy objective
Enhancing EU wide arrangements for financial stability is a key financial policy objective. Ministers and Governors will discuss measures to be taken in order to further develop a coherent approach to crisis prevention, management and resolution.

The purpose of the work within the EU is on the one hand to create a more adequate policy coordination framework and on the other to enhance the regulatory framework to adequately handle and resolve cross-border financial crises. The measures needed to enhance stability arrangements will be set out in an extended roadmap for financial stability.

Financial supervision: New arrangements a key policy objective
Improving financial supervision is another key policy objective. The overarching issues are to improve and align regulatory and supervisory standards throughout the EU and to create a new institutional infrastructure for efficient cross-border supervision and cooperation between relevant national authorities.

During the working session Ministers and Governors will present their views on the process going forward. The ambition is to agree on a new European supervisory structure under the Swedish Presidency. The structure comprises a European Systemic Risk Board (ESRB) to monitor macro-financial risks and three European supervisory authorities in the banking, securities and insurance sectors.
Avoiding unemployment from becoming entrenched

Member States are now facing the serious challenge of the rapidly increasing unemployment remaining at higher levels. History suggests that an increase in actual unemployment may be partly transmitted into higher structural unemployment. European countries seem to be especially vulnerable to this phenomenon. Earlier experience might provide important policy lessons to be learned. For example, maintaining labour market attachment through active labour market policies has proved to be key for those hit by unemployment.

The objective of the working session is for Ministers to have an informal exchange of views on how to mitigate the risk of unemployment getting stuck at high levels.
Financing climate change

An important element in the climate discussions is how to reach the set targets. Well-functioning tools are needed in order to ensure that the targets are reached in a cost-effective way. Another essential element is how to ensure that international financing will be available for climate action.

Cost-efficient economic instruments
The first part of the session will deal with cost-efficient economic instruments. One essential tool to accomplish the necessary mitigation is to assign a price on carbon emissions. Taxation is one way to address the CO2 emissions and the aim of the discussion is to exchange views on prospects and obstacles for Member States to introduce a CO2 tax in sectors not covered by the EU Emissions Trading Scheme.

International financing for climate action
An effective climate agreement in Copenhagen requires ambitious cuts by all developed countries, appropriate mitigation actions by developing countries, and an effective global architecture to give the right incentives for investments into a low carbon economy.

Financial resources will need to be scaled up urgently and substantially to enable a reduction of global greenhouse gas emissions and an adaptation to the unavoidable effects of global warming.

In order to pave the way for a successful accomplishment of a climate agreement in Copenhagen, the specifics of the EU contribution to international public financing for climate action need to be discussed more in depth with a view to the establishment of a common ground for how the financial contribution eventually should be decided.