11 March Ecofin Council

Date: 14/03/1996

FINANCE ministers agreed that the European economy was going through a “growth pause” and not a recession, according to Lamberto Dini, Italy's acting prime minister. Dini said this conclusion had been supported by presentations from European Monetary Institute President Alexandre Lamfalussy and Monetary Committee President Sir Nigel Wicks. All present concluded that the “classical indications” of a recession were not detectable.

LAMFALUSSY told the meeting that the scope for lowering interest rates further had been reduced. Ministers agreed with the view that rates should be kept around current levels and not increased. They should remain stable even if short-term interest rates are increased in America following news last week that US jobs are being created more quickly than anticipated.

EUROPEAN Commission President Jacques Santer's plan to help end the growth pause by raising 1.7 billion ecu in extra spending ran into trouble with ministers. Santer's proposal to take unspent cash from the farm budget and use it to plug gaps in funding for Trans-European Networks (TENs) and research and development was opposed by six ministers. Led by Dutch Finance Minister Gerrit Zalm, ministers from the UK, France, Germany, Austria and Sweden gave the proposal a thumbs down. Belgium, Greece and Italy supported it in principle.

A SPANISH threat to block a balance of payments loan to Moldova unless European Investment Bank lending was boosted in Latin America was defused. The 15-million-ecu loan was approved and a review of the EU's regime of guaranteeing EIB loans will be conducted towards the end of the year. This review will include lending to Asia and Latin America, as well as to Central and Eastern Europe and Mediterranean countries.

DINI urged a flexible interpretation of the Maastricht criterion which specifies that a country wishing to join monetary union should have been in the Exchange Rate Mechanism without serious tension for two years. He said that around two years of “relative exchange rate stability” could be enough to satisfy this rule. Economics Commissioner Yves-Thibault de Silguy refused to support or contradict Dini, but referred interested parties to Article 109j(1) of the treaty.

NO decisive conclusion was agreed over whether to double the European Bank for Reconstruction and Development's capital base to 20 billion ecu, as has been requested by the now profit-making bank. Ministers agreed instead that they would take a final position on this question in time for the EBRD's annual meeting in Sofia in April.

THE Commission's proposal to set up an audio-visual fund to help attract private finance to the EU's film industry was opposed by the UK, Dutch and German governments. UK Chancellor of the Exchequer Kenneth Clarke asked for the question of the 200-million-ecu guarantee fund to be raised at the Ecofin meeting before it is discussed by culture ministers in June.

MINISTERS sent the question of an EU-wide tax on energy back to the Commission as the idea again failed to make headway in the Council. Dini placed a new compromise position on the table which would have allowed the use of approximated excise duties to establish a harmonised energy tax.