12 October Ecofin

Date: 15/10/1998

FOLLOW-UP measures to bolster the rules governing the crisis-hit world financial system should take shape in the next few weeks, French Finance Minister Dominique Strauss-Kahn told his EU counterparts. Particular attention will focus on an expected report by Bundesbank president Hans Tietmeyer on the prudential standards of financial institutions, measures to improve the surveillance of the financial system and reform of the international monetary regime. UK Finance Minister Gordon Brown called for EU ministers to back a three-point programme consisting of crisis prevention, crisis resolution and better supervision of the world financial system. More openness in the operations of hedge funds, changes to International Monetary Fund (IMF) procedures and speeding up world trade negotiations are the key elements of Brown's proposals.

MINISTERS rejected a 0suggestion that the European Investment Bank (EIB) should be allowed to lend money to Russia. The conditions for such a step have not yet been met, said Austrian Finance Minister Rudolf Edlinger, who chaired the meeting. He added that some future funding of specific infrastructure projects might be possible, but the general situation in Russia did not allow this at the moment.

ECONOMICS Commissioner Yves-Thibault de Silguy said there was no need to revise his officials' prediction of 2.8&percent; economic growth across the EU as a whole in 1998, but refused to comment on expectations for next year ahead of publication of the Commission's autumn economic forecasts next Wednesday (21 October). In March, the Commission predicted a 3.0&percent; EU growth rate in 1999.

GREECE's programme to bring its economic performance in line with the EU's best performers was given a cautious welcome by ministers. The growth targets underlying the programme were described as “ambitious but not unrealistic” by De Silguy. The Greek convergence programme for 1998-2001 is aimed at allowing the country to meet the conditions for membership of the single currency zone from January 2001. It is based on economic forecasts predicting strong investment-led real growth combined with falling prices and low wage increases.

FINANCE ministers cautioned, however, that a combination of high growth and disinflation would require a good performance from Greece's supply side since bottlenecks in the economy could endanger both goals. They said that the country's national wage agreement should be implemented rigorously. They also warned that overall levels of government debt were still very high and said there should be more emphasis on cutting this, adding that greater use should be made of privatisation proceeds to cut debt. Greece expects to run a current account deficit of 0.8&percent; of gross domestic product in 2001, well within the single currency demands for the deficit not to exceed 3&percent; of gross domestic product.

FINLAND's upbeat economic prospects were noted with satisfaction by ministers. The Finnish programme for 1998 to 2002 is expected to deliver a current account surplus this year, which will rise to above 2&percent; of GDP between 1999 and 2002. Finland's programme assumes that current buoyant growth will slow down rapidly. It plans to reduce government spending, which is predicted to reach 48&percent; of GDP by the end of 2002, down from 56&percent; in 1997, and at the same time ease the tax burden. Ministers said that government targets for spending between 2000 and 2002, which are at present non-binding guidelines, should be translated into firm commitments as soon as possible.

MEASURES to exempt trade in investment gold from value added tax from January 2000 were approved by ministers.

The new law irons out inconsistencies in the current treatment of gold by Union countries, some of which tax gold transactions and some of which do not. The definition of trading includes gold represented by certificates, gold loans or swaps, and futures and forward contracts. The UK won clauses in the final text to protect the London Bullion Market's operations.