The Economic and Financial Affairs Council was held in Brussels on 17 May 2011. The following items were discussed:

Economic governance

The Council took note of a report from the presidency on progress in negotiations with the European Parliament on a package of legislative proposals on economic governance. The presidency took on board the views of member states and agreed to take these forward during further negotiations with the European Parliament, which are ongoing, with a view to finalising legislation by the end of June.

Short selling regulation

The Council agreed a general approach on the draft regulation on short selling and credit default swaps. The intention of the regulation is to harmonise short selling requirements across the European Union and harmonise the powers that regulators may use in exceptional situations where there is a serious threat to financial stability or market confidence. I ensured that the Commission and the Council, thanks to a written statement, would work during the trialogues to find a solution taking into account the concerns expressed by member states in the ECOFIN Council regarding the powers of ESMA in article 24.

Savings taxation directive

The Council held an orientation debate on how to proceed with a proposal aimed at strengthening the provisions of the EU’s directive on the taxation of savings interest. The Council agreed to continue working on reaching agreement.

Financial sector taxation

The Commission updated the Council with an interim report of financial sector tax and regulation. The Council also received a report from the Economic and Financial Committee, providing a factual overview of financial levies and taxes. Ministers took note of the reports. The Commission was asked to produce an impact assessment on various options of financial sector taxation. The high-level working party on tax will continue work on this subject and report back as appropriate.

Nomination of the President of the European Central Bank

The euro area member states, in Council, adopted a recommendation on the nomination of Mario Draghi (Italy) as President of the European Central Bank, to succeed Jean-Claude Trichet, whose term of office expires on 31 October 2011. The Council’s recommendation will be submitted to the European Council, which will consult the European Parliament and the ECB, with a view to adopting a final decision at its meeting on 23-24 June 2011.

Financial back-stops

The Council approved a draft statement on guiding principles on financial backstops, for financial institutions which are shown to be vulnerable by this year’s EU-wide stress tests. The presidency confirmed that bank stress test results will be published later this year.

Review of economic adjustment programme for Ireland

Finance Ministers adopted a decision to modify the conditions underpinning financial assistance to Ireland under the European Financial Stability Mechanism (EFSM), in order to prepare the disbursement of a second loan instalment. This follows a review by the IMF and the Commission, liaising with the European Central Bank, of progress made by Ireland in implementing its economic adjustment programme, which was approved last November.

Financial support to Portugal

The Council adopted a decision allowing for €26 billion of financial assistance to Portugal under the European Financial Stability Mechanism (EFSM), part of an overall €78 billion package of assistance. This will also comprise €26 billion of loans under the euro area-only European Financial Stability Facility and €26 billion from the IMF under its Extended Fund Facility. The EFSM loan will have a maximum average maturity of 7.5 years and a margin of 215 basis points on top of the EU’s cost of funding. The aid will be provided on the basis of a three-year policy programme for the period up to mid-2014, which was negotiated with the Portuguese authorities by the Commission and the IMF, in liaison with the European Central Bank.

The economic and financial adjustment programme includes;

structural reforms to boost potential growth, create jobs, and improve competitiveness;

a fiscal consolidation strategy, supported by structural fiscal measures and better fiscal control over public-private-partnerships and state-owned enterprises, aimed at putting the gross public debt-to-GDP ratio on a firm downward path in the medium-term and reducing the deficit below 3% of GDP by 2013;

a financial sector strategy based on recapitalisation and deleveraging, with efforts to safeguard the financial sector against disorderly deleveraging through market-based mechanisms supported by backstop facilities.

Financing climate change

The Council adopted conclusions on climate finance. These conclusions outline the key issues and next steps in international climate finance. The Government welcome these conclusions.

Information on the Informal ECOFIN meeting

Ministers received a summary from the presidency on the issues that were discussed at the Informal ECOFIN which took place in Budapest on 7-8 April 2011.

Draft general budget for 2012

The Commission presented its proposed general budget for 2012 to the Council, which included a 4.9% increase in payments. I made it clear that this proposal was completely unacceptable. In line with the agreement made between the UK, France, Germany, the Netherlands and Finland in December 2010, the Government’s opinion is that growth in the EU’s annual budget must be curbed, in order to reflect difficult economic conditions and tough measures taken by national Governments to cut spending.

Dialogue with EU candidate countries

Ministers held an informal meeting with their counterparts from the EU candidate countries: Turkey, Croatia, the Former Yugoslav Republic of Macedonia, Montenegro and Iceland. The meeting focused on the candidate countries’ economic policies.

AOB: Purple File

This item was added to the agenda at the request of Poland. They raised their concerns with the Purple File, which sets out procedures to follow when a member state seeks a flexible credit line from the IMF. The UK believes that the procedure needs to be identical for both euro and non-euro area countries, whereby the Economic and Financial Committee is informed of, and given the opportunity to discuss, any request for financial assistance by any EU member state.

European Stability Mechanism

In an inter-governmental meeting preceding ECOFIN, it was agreed that member states could forward a draft of the inter-governmental treaty (between euro area member states only) creating the new, permanent European stability mechanism to national parliaments. I will write to the chairs of the European Scrutiny Committees with the draft text.