After long and tough negotiations, there is the news – the required number of countries willing to introduce a Financial Transaction Tax (FTT) in the form of enhanced cooperation is in place. So far seven countries have expressed their desire in formal letters to the European Commission - Germany, France, Austria, Portugal, Belgium, Slovenia and Greece. Four more - Spain, Italy, Estonia and Slovakia have expressed their willingness, but at this stage only orally, though they are expected to send soon written assurances to the EC. So the number of countries will reach 11, with a minimum threshold of 9 countries to establish enhanced cooperation.
During the meeting of the Council of Finance Ministers (ECOFIN) the Slovak representative announced the country had decided to join the enhanced cooperation, while still having many reservations. "This was not an easy decision for us, as we have introduced recently a bank levy and this is an additional burden on the banking system in Slovakia," he admitted, adding that the country had still some hesitation whether to support for the tax. However, Slovakia believes that the EU enters into a new phase of integration based on solidarity and respecting rules, of which FTT is an important element, the Slovak representative explained. As euinside wrote, after the Social Democrats came to power Slovakia abruptly changed its position from firmly against to solid support for the FTT.
Poland, which is trying to trade its participation in the enhanced cooperation for bonuses on other issues, such as the next EU budget and the banking union, as EurActiv reported, came up with a counter proposal. In his typical highly diplomatic style, Finance Minister Jacek Rostowski said that without being against the enhanced cooperation Poland wanted an analysis to be presented of the impact of FTT introduction on the remaining countries: "Obviously, we are not conditioning our acceptance on that kind of an analysis but I think it would be useful to have it." In Poland's view, however, if we were going to collect money from the financial sector, it was better instead of imposing FTT to introduce a levy to finance the future bank resolution fund, which would be needed as part of the banking union. We believe this is a better approach, but each country decides for itself, Rostowski concluded.
London supported the Polish position on the need for further analysis in terms of the scope of the tax, as well as its impact on the economy, which according to the initial analysis of the Commission it is expected to be negative. EU Tax Commissioner Algirdas Semeta said that according to a more recent analysis, if tax revenues were invested in an intelligent way the negative effect on the economy would be smaller. The Commissioner explained that once the EC received from member states their letters, defining the scope and objectives of the enhanced cooperation, it would formally submit to the Council a proposal for the introduction of an FTT via enhanced cooperation. Authorisation to proceed with the enhanced cooperation can be granted by the Council, via qualified majority vote, after obtaining the consent of the European Parliament. The substance of the enhanced cooperation must be agreed unanimously by the participating member states. According to Commissioner Semeta if the countries submit formal letters by mid-October, the European Commission will be ready with its proposal to the Council in November.
However, the Commissioner did not answer the very interesting question what would happen to the FTT revenue. Initially, along with the proposal for introduction of FTT, the European Commission proposed part of the revenues to be used as own resource in the EU budget, but then the idea was the tax to be introduced at EU27 level. The idea met harsh resistance from both the countries opposing the tax in general, and those willing to introduce it while collecting the revenues in their national coffins. Asked how would the FTT revenue be used, given that the tax would be introduced by only a group of countries, Mr Semeta said that the introduction of the tax and the decision on the own resources were two completely separate issues.
It is possible the countries to agree on the FTT, but not on using it as own resource in the EU budget, while the opposite case is not possible, Semeta said, making it clear that the decision depended on the member states themselves. He did not comment on whether it was possible at all to use the revenue as own resource, given that it was only about 11 countries, which would hypothetically mean them transfer part of the FTT revenues to the EU budget, along with smaller national contributions, and the rest of the countries to work under the old system. According to unofficial information, at the forthcoming European Council later this month Germany is expected to propose the FTT revenues to be used to finance a separate budget of the eurozone. The idea appeared in a working paper by European Council President Herman Van Rompuy in the course of the debates on the reform of the eurozone and is lately a very topical issue in Brussels.
During the meeting, the finance ministers approved the Eurogroup's Monday decision Portugal to be given an extra year (until 2014) to reduce its excessive deficit. Portugal will also receive the next 2 billion euro tranche of its bailout. At the end of the month, the IMF is expected to decide on its share amounting to 1.5 billion euro, but the Fund's Managing Director Christine Lagarde said she would recommend the board to disburse the funds. The Eurogroup expressed satisfaction with the implementation of the Portuguese adjustment programme and the successful efforts of Lisbon in its preparation to return to the financial markets in early 2013.
The Greek issue is still among the most discussed and yet - the most unclear. The answer to all questions still is only ‘we expect the Troika report.’ However, the tone is hardening, as partners expect from Greece by 18 October at the latest to demonstrate a commitment to fully implement the rescue programme. These are the so called prior actions that Greece needs to take before the release of the tranche or at least to start taking them, because, as Christine Lagarde said, "acting means acting, not just speaking." However, an increasing number of international media and analysts share the view that whatever the Troika report shows, Greece will receive the next tranche of its loan, and possibly more time to implement the painful reforms - a forecast made by euinside already in August.
The good news from the finance ministers' meeting was the official launch of the permanent bailout fund for the eurozone - the European Stability Mechanism (ESM). Eurogroup President Jean-Claude Juncker was elected Chairman of the board of governors and EFSF chief Klaus Regling became ESM's Managing Director. The ESM is now fully operational with lending capacity of 200 billion euro, which will grow up to 500 billion euro during the next 18 months. In addition to that, we have 192 billion euro in the EFSF which is committed to the adjustment programmes of Ireland, Portugal and Greece, Regling said. Unlike its predecessor, the ESM was given the highest AAA rating by the credit rating agencies.
A single issue darkened the good mood on the occasion of the ESM launch and it is the ‘legacy issue’ - whether the fund can finance old bank debt. Germany, the Netherlands and Finland have already issued a strong statement on the matter, stating that the fund would not deal with any obligations acquired prior to the creation of the single banking supervision. However, already in June, when it was decided to allow the rescue fund to directly recapitalise banks, European leaders signalled that Ireland could also benefit from the new opportunity. At this stage, however, all official comments are limited to 'we are working on it, we are looking for options'. Prior to the Eurogroup meeting, Irish Finance Minister Michael Noonan said it was premature to comment on this issue because the condition for direct recapitalisation was the entry into force of the single supervisory mechanism for banks. However, this is still not agreed and negotiations seem problematic, although EU Commissioner for Internal Market and Services Michel Barnier once again expressed confidence that an agreement would be reached by the end of the year.