27 January 2017 ECOFIN Chair Faces Questions from ECON Committee

The Weekly Report from Brussels, provided by the European Affairs team at the City of London, provides an update on key developments relating to financial services in the EU. 27 January 2017 Welcome to the Weekly Report, prepared by the City of London European Affairs team. This week includes: ECOFIN Chair faces questions from ECON Committee Meeting of the Eurogroup PANA Committee In other news Upcoming EU Institutions events and consultations More information about the work of the City of London European Affairs team can be found here. ECOFIN Chair faces questions from ECON Committee On 25 January, the Economic and Monetary Affairs (ECON) Committee held a structured dialogue with Edward Scicluna, ECOFIN chair in his capacity as Minister for Finance of Malta. Whilst the dialogue covered a range of topics on the priorities of the Maltese Presidency in economic and financial affairs, Mr Scicluna received a number of critical questions regarding Malta’s corporation tax arrangements, with some MEPs going so far as to describe Malta as a ‘tax haven’. Background: Malta took over the rotating Presidency of the Council of the European Union at the beginning of this month, and has set out a list of economic and financial affairs priorities on which it will focus during its Presidency. One item listed is to carry forward a number of ongoing taxation files, including the amendment to the Anti-Tax Avoidance Directive (ATAD) and the re-launch of the Common Consolidated Corporate Tax Base (CCCTB). However, concerns have been raised as to whether Malta has the political will to push these agendas forward in the ECOFIN Council due to its corporation tax regime, which in 2015 the European Commission determined offers generous refunds to companies that are based in the country. Additionally, Joseph Muscat, Prime Minister of Malta, received criticism last year when a cabinet minister in his government and his chief of staff were both named in the Panama Papers. Latest Developments: Mr Scicluna told MEPs that Malta is assuming the Council’s Presidency during the EU’s fourth year of recovery, but is aware that short-term resilience in the economy is no guarantee of long term, stable growth. Because of this, the Maltese Presidency will work to support the recovery by promoting initiatives which can improve access to finance for small and medium-sized enterprises (SMEs) and improve growth and job creation. The Maltese Finance Minister also remarked that one particular challenge which is holding back growth in the EU is the current uncertainty surrounding the process of the UK leaving the EU. He argues that as the specifics of the UK’s exit become clear, this will reduce the uncertainty for the remaining Member States and should accelerate the recovery in Europe. Regarding investment, the Maltese Presidency will conduct a mid-term review of external lending mandate with the European Investment Bank (EIB). Turning to fiscal policy, Mr Scicluna announced that in discussion on the Council’s recommendations on the European Semester for 2017, the Maltese Presidency intends to promote sound fiscal policy, investment and structural reform. He also said that that the Presidency will support the Council’s work in economic policy coordination in order to further unlock the productive capacity of EU. He also stated that, whilst the Presidency will continue to support fiscal consolidation policies in the EU, it should be ensured that such policies don’t hinder growth. Burkhard Balz MEP (EPP, Germany) and Anneliese Dodds MEP (S&D, UK) both asked Mr Scicluna about the likely approach that the Presidency will take as regards the negotiations on the UK’s withdrawal from the EU. Additionally, Mr Balz queried whether, given Malta’s historic links to the UK through the Commonwealth, Malta would give undue favour to the UK in the negotiations. Mr Scicluna responded that said Malta wanted to be seen as an honest broker in the negotiations, and did not think it would be in the interests of either side to have the other ‘humiliated’ in the negotiations. He also said that it was premature to predict how the negotiations will go, although expressed an interest in having the negotiations led in as centralised an arrangement as possible. Pierkko Ruohonen-Lerner (ECR, Finland) asked whether Malta could reasonably oversee the tax avoidance discussions during its Presidency, because of its corporation tax regime and questioned whether Malta would pass the EU’s tax haven test. Mr Scicluna responded that Malta has been subjected to many unfair criticisms regarding its tax arrangements. He argued that Malta was fully compliant with international technical standards on money laundering and tax avoidance and has also integrated European anti-money laundering legislation into national law. He also remarked that one criticism made against Malta is that it practices banking secrecy, whereas in reality Malta removed these practices in 1994. Petr Jezek (ALDE, Czech Republic) also questioned Malta’s suitability to lead the revision of the EU’s Anti-Money Laundering Directive (AMLD), noting the implication of two senior figures in the Maltese Government in the Panama Papers. Mr Scicluna admitted the Panama Papers fallout did raise uncomfortable questions for Malta, but argued that MEPs will see in the first few weeks of the Maltese Presidency that these concerns are unfounded. Mr Scicluna was also questioned on the level of transparency for the Central Registry of Companies' Beneficial Owners under AMLD, with the Maltese Government offering support for the information to be made available to the tax authorities of other Member States, but not to the general public. Mr Scicluna insisted that it was necessary for information to be shared between tax authorities, but that transparency also had to be balanced against data protection concerns. Meeting of the Eurogroup Eurogroup Ministers met in Brussels on 26 January where they heard the initial findings of an International Monetary Fund (IMF) assessment of the economic outlook for the eurozone. In addition, the Eurogroup discussed the Council’s recommended economic policy for eurozone Member States in 2017 and received an update on the Greek government’s progress in institutional reforms as part of their Economic Adjustment Programme. Latest Developments: IMF eurozone assessment The IMF regularly monitors the economies of countries and regions in order to identify weaknesses that are causing or could lead to financial or economic instability, and to ensure that IMF members are pursuing policies that are conducive to orderly economic growth. The IMF's monitoring of the eurozone economy is known as an Article IV Consultation. The IMF updated the Eurogroup on the main findings of the interim mission of its IMF Article IV consultation, which took place at the end of 2016. Ministers were informed that whilst growth in the eurozone is consistent and, for the first time since the financial crisis, all eurozone Member States are expected to see growth in 2017, there are significant policy challenges that the eurozone faces, including from uncertainties regarding the UK’s withdrawal from the EU and the policies of the new US administration. One of the key recommendations of the IMF was that it advocated a neutral fiscal stance for the eurozone, instead of introducing a fiscal stimulus as was Error! Hyperlink reference not valid. by the Commission in November 2016. In particular, the IMF argued that a stimulus policy would not be appropriate for all Member States of the eurozone as it would not be consistent with the rules set out in the stability and growth pact. The IMF also argued that the existing rules of the Stability and Growth Pact consist of too many targets, proposing that the rules could be reinforced by making access to central funds conditional on compliance. Further information about the IMF’s Article IV consultation can be found here. European Semester The Eurogroup discussed the Council’s draft recommendations on the economic policy of the EU in 2017. The Council’s recommendations set out to maintain the economic recovery of the EU, whilst addressing the differences in employment and social outcomes across Member States. Ministers agreed with the recommendations for 2017, and argued that economic policy for the EU should focus on growth and job creation, sound fiscal policies and the completion of the banking union. Other priorities include relaunching investment, pursuing structural reforms and ensuring responsible public finances, showing policy continuity and focussing on reinforced implementation. Full details of the Council’s European Semester for 2017 can be found here. Greek Economic Adjustment Programme Ministers were updated on the findings of the second review of the Greek Economic Adjustment Programme, following their review mission to Athens in December. As part of the review, negotiations are ongoing to reach agreement on the necessary reforms that need to be made to the labour and product markets, the energy sector and other areas. Ministers were also given further information on the decision by the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) to implement a set of short-term debt relief measures for Greece. The measures, which exchange some of the country’s debt from floating to fixed interest rates and ease the repayment burden, are designed to stabilise Greek interest rates. Negotiations on an agreement for the medium-term fiscal policies that Greece should follow from 2018 onwards are ongoing. An agreement is expected to be reached before the next meeting of Eurogroup ministers. Next Steps: Following the meeting, Jeroen Dijsselbloem, President of the Eurogroup, held a press conference to discuss the main issues raised. He highlighted that the recovery in the eurozone is ongoing and it was important reaffirm the EU’s continued support for global free trade and the deepening of the single market.

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