1. Brussels, 6 July 2012
BACKGROU D1
ECO OMIC and FI A CIAL AFFAIRS COU CIL
Tuesday 10 July in Brussels
A meeting of the Eurogroup will be held on Monday 9 July, starting at 17.00.
Proceedings on Tuesday will commence at 9.00 with a breakfast meeting to discuss the economic
situation, as well as bank recapitalisation.
Starting at 10.00, the Council will discuss - in the light of the position taken by the European
Parliament - two proposals aimed at further improving economic governance in the euro area.
It will hold a preliminary debate on a proposal establishing a framework for bank recovery and
resolution.
The Council will also be briefed on negotiations with the European Parliament on proposals
amending the EU's rules on bank capital requirements.
Amongst the other items on its agenda, the Council will adopt country-specific recommendations
to the member states on their economic and fiscal policies.
Press conferences:
• after the Eurogroup meeting (Monday evening);
• at the end of the Council (Tuesday, before lunch).
Press conferences and public events by video streaming: http://video.consilium.europa.eu/
Video coverage in broadcast quality (MPEG4): http://tvnewsroom.consilium.europa.eu
Photographic library on www.consilium.europa.eu/photo for photos in high resolution.
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This note has been drawn up under the responsibility of the press office
Council of the European Union
General Secretariat - press office
press.office@consilium.europa.eu
Tel.: +32 (0)2 281 63 19
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2. Economic governance - Second package
The presidency will inform the Council of the process to be followed with a view to reaching an
agreement with the European Parliament on two draft regulations on economic governance, namely:
o a regulation for enhanced monitoring and assessment of draft budgetary plans of euro area
member states, especially those subject to an excessive deficit procedure (doc. 17231/11);
o a regulation on enhanced surveillance of euro area member states that are experiencing
severe financial disturbance or request financial assistance (doc. 17230/11).
This second package of proposals was presented by the Commission in November 2011 following
adoption of the so-called "six-pack" of economic governance proposals2. The Council agreed a
general approach on the proposals at its meeting on 21 February; the Parliament established its
negotiating position in June.
The two draft regulations introduce provisions for enhanced monitoring of countries' budgetary
policies. Member states would be required to submit annually to the Council and the Commission
their draft budgetary plans for the next year by 15 October. Closer monitoring would apply to
member states in excessive deficit procedure in order to enable the Commission to better assess
whether a risk of non-compliance with the deadline to correct the excessive deficit exists. Member
states experiencing severe difficulties with regard to their financial stability or receiving financial
assistance on a precautionary basis would be subject to even tighter monitoring than member states
in excessive deficit procedure.
Based on article 136 of the Treaty on the Functioning of the European Union, the regulations
require a qualified majority of delegations from the 17 countries of the euro area for adoption by the
Council, following consultation of the Parliament.
Bank capital requirements
The presidency will inform the Council of progress in negotiations with the European Parliament on
two proposals amending the EU's rules on capital requirements for banks and investment firms
("CRD 4").
The Council agreed a general approach on 15 May. The proposals set out to amend and replace the
existing capital requirement directives3 and divide them into two new legislative instruments: a
regulation establishing prudential requirements that institutions need to respect and a directive
governing access to deposit-taking activities.
They are aimed at transposing into EU law an international agreement approved by the G-20 in
November 2010. The so-called Basel 3 agreement, concluded by the Basel Committee on Banking
Supervision, strengthens bank capital requirements, introduces a mandatory capital conservation
buffer and a discretionary countercyclical buffer, and sets new regulatory requirements for bank
liquidity and bank leverage.
2
For details, see press release 16446/11.
3
Directives 2006/48/EC and 2006/49/EC
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3. The negotiations with the Parliament are aimed at adoption of the regulation and directive at first
reading. Outstanding issues include a proposed flexibility package4, bankers' remuneration, crisis
management, sanctions, the balance of power between authorities of "home" and "host" countries,
corporate governance, and powers to be given to the European Banking Authority (EBA).
The regulation would be directly applicable in order to prevent divergences in implementation at
national level. The Council's text sets capital requirements and introduces initial liquidity
requirements from 2013 in accordance with national provisions, and a fully calibrated EU liquidity
requirement from 20155. To address longer term funding issues, it calls on the Commission to
submit by 31 December 2016 a report6 and, if appropriate, a legislative proposal for a stable funding
requirement.
The Council's text also provides for the introduction of a leverage ratio from 1 January 2018, on the
basis of a report to be presented by the Commission in 2016.
The draft regulation would require banks and investment firms to hold common equity tier 1
(CET 1) capital of 4.5% of risk weighted assets, up from 2% applicable under current rules
(CRD 2). The total capital requirement remains unchanged at 8%. The Council's draft defines
CET 1 capital instruments using 14 criteria, already set out by Basel 3, and mandates the EBA to
monitor the quality of instruments issued by institutions.
The draft directive introduces additional requirements for a capital conservation buffer of 2.5%
CET 1 identical for all banks in the EU, and an institution-specific countercyclical capital buffer7,
as well as the possibility for member states to introduce a systemic risk buffer for the banking sector
or one or more subsets of it.
The CRD 4 proposals also strengthen governance and supervision requirements, provide for
supervisors to apply sanctions if EU rules are breached and seek to reduce reliance by credit
institutions on external credit ratings by encouraging internal ratings based approaches or internal
models.
Based respectively on articles 114 and 53(1) of the Treaty on the Functioning of the European
Union, the regulation and the directive will require for their adoption a qualified majority in the
Council and a majority in the Parliament (ordinary legislative procedure).
Bank recovery and resolution
The Commission will present its proposal for a directive establishing a framework for the recovery
and resolution of credit institutions and investment firms (doc. 11066/12). The Council may hold a
preliminary exchange of views.
4
Flexibility for member states to impose additional measures, such as higher capital requirements.
5
To be introduced by delegated act, on the basis of a recommendation by the Basel committee.
6
On the basis of an evaluation by the EBA.
7
National authorities would be responsible for setting countercyclical buffer rates within their
jurisdictions, while financial institutions would have to set their buffer according on their credit
exposure to the various jurisdictions.
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4. The proposal, issued by the Commission on 6 June, is aimed at providing supervisory authorities
with common tools and powers to tackle bank crises pre-emptively and to resolve any financial
institution in an orderly manner in the event of insolvency, whilst minimising taxpayers' exposure to
losses.
The directive would establish a range of instruments that supervisory authorities could use:
preparatory and preventative measures, early intervention, and resolution tools and powers. The
main resolution measures would include:
- the sale of (a part of) business;
- establishment of a bridge institution (the temporary transfer of good bank assets to a publicly
controlled entity);
- asset separation (the transfer of impaired assets to an asset management vehicle)
- bail-in measures (the imposition of losses, in order of seniority, on shareholders and
unsecured creditors).
The proposal is aimed at transposing into EU law commitments made at the G-20 Washington
summit in November 2008, when leaders called for a review of resolution regimes and bankruptcy
laws "to ensure that they permit an orderly wind-down of large complex cross-border financial
institutions."
Based on article 114 of the Treaty on the Functioning of the European Union, the directive will
require for its adoption a qualified majority in the Council and a majority in the European
Parliament (ordinary legislative procedure).
The presidency's aim is for the Council to agree a general approach by December, subsequent to
which negotiations with the Parliament will start, with a view to adoption of the directive at first
reading.
Presidency work programme
– Public debate
The Cyprus presidency will present a work programme on economic and financial matters for the
duration of its term of office, which runs from July to December 2012 (doc. 11754/12). The Council
will hold an exchange of views.
The Cyprus presidency intends to focus on effective implementation of recently adopted initiatives
for improving economic governance, ensuring fiscal consolidation, strengthening the European
financial services framework and accelerating structural reforms, with a view to enhancing growth
potential and social cohesion in the EU. The presidency will also give priority to further work on
taxation issues. It will further aim for effective coordination within the EU with a view to ensuring
appropriate representation of EU positions within international fora, such as G20 meetings, and
securing European interests overall.
This item will be the subject of a public debate which may be followed on the Council's website:
http://video.consilium.europa.eu/.
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5. Follow-up to the June European Council
The Council will discuss the follow-up to be given to the European Council's meeting on 28 and
29 June as regards economic policy, in particular the process to be followed in establishing a single
European banking supervisor.
European Semester – Recommendations on economic and fiscal policies
The Council will discuss, on the basis of a note from the Economic and Financial Committee, the
process followed for the European Semester monitoring exercise.
Whilst the outcome of this year's exercise is overall considered as satisfactory, the Council will
examine possible improvements. A comprehensive review of implementation is scheduled for
October.
Without further discussion the Council is moreover due to issue, under this year's European
Semester:
- recommendations to each member state on the economic policies set out in their national
reform programmes;
- opinions on the fiscal policies set out in the member states' stability and convergence
programmes; and
- a specific recommendation on the economic policies of the member states of the eurozone.
The Council will also issue explanations in cases where its recommendations or opinions do not
comply with those proposed by the Commission, in accordance with the "comply or explain"
principle established last year under the EU's "six-pack" of economic governance legislation.
The European Semester involves simultaneous monitoring of economic and fiscal policies, in
accordance with common rules, during a six-month period every year. Member states present
annually in April:
o national reform programmes, containing a macroeconomic scenario for the medium term,
national targets for implementing the "Europe 2020" strategy for jobs and growth,
identification of the main obstacles to growth, and measures for concentrating growth-
enhancing initiatives in an early period;
o stability or convergence programmes8, setting out medium-term budgetary objectives, the
main assumptions about expected economic developments, a description of budgetary and
other economic policy measures, and an analysis of how changes in assumptions will affect
their fiscal and debt positions.
Adoption of the texts, following their endorsement by the European Council, will conclude this
year's European Semester.
Based respectively on articles 121(2) and 148(4) of the Treaty on the Functioning of the European
Union, the recommendations and opinions require for their adoption a qualified majority in the
Council.
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8
Eurozone member states present stability programmes, those member states that don't use the euro
present convergence programmes.
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