14 October Ecofin

Date: 17/10/1996

FINANCE ministers finally laid to rest the proposal from Commission President Jacques Santer for extra funding for five high-speed rail Trans-European networks (TENs). After an acrimonious debate, the Irish presidency reiterated the conclusions of a working group of ministers' personal representatives that no majority could be found to approve a revision of the EU's 1998-99 financial perspectives. Belgium and Luxembourg came to the support of Santer, while the Netherlands stuck to its view that extra money for TENs could be found within the existing budget but not from expanding it. A solid group of ministers led by the Netherlands, Germany, France, the UK and Italy would not agree to revise the financial perspectives in any circumstances whatsoever, so Santer's proposal was shelved.

INTERNAL Market Commissioner Mario Monti gave ministers a formal presentation of his plans for a definitive regime for value added tax from January 1999. He told them that the new regime would ensure that VAT was charged in the member state in which the goods or services originated and not where they were sold. To prevent an unfair imbalance in revenues, he proposed the creation of a clearing system to redistribute overall receipts among national treasuries. Since he recognised that these proposals would be controversial, Monti suggested that a second transitional regime for 1997-98 should be established including a minimum 15&percent; rate and a 25&percent; ceiling. Ministers listened, but did not respond. Irish Finance Minister Ruairi Quinn asked Monti to circulate the proposals in writing and called for a debate at a subsequent meeting of the Council.

MOST ministers claimed to have reached a 'pre-accord' regarding a long-running dispute over how to protect the Union's budget from default on external loans. However, Spain continued to block a deal for a revised system to guarantee loans made by the European Investment Bank overseas. At the moment, the EIB benefits from 100&percent; 'global' guarantees for default on repayment of loans worth more than 2 billion ecu a year to non-EU countries. The 'pre-accord' would reduce the global guarantee to 65-75&percent; of the loan and share the risk between the EIB and the EU depending on whether the risk was commercial or political. Spanish Finance Minister Rodrigo Rato continued to oppose an agreement until the size of the EIB's programme for lending to Latin America, and the political risk covered by the EU budget, are finalised.

MINISTERS welcomed the entry of the Finnish markka into the Exchange Rate Mechanism. The decision had been taken by the EU's monetary committee during the weekend. Finnish Finance Minister Sauli Niinistö told the meeting that it had become clear that ERM membership was required if his country were to be allowed into a single currency zone. Sweden's Erik Asbrink took a different view, reiterating his government's position that it was currency stability - whether the krone was inside the ERM or not - which would matter most when assessments of a country's readiness for monetary union membership came to be made. The Italian government wants the lira to join the ERM as soon as possible, but French Finance Minister Jean Arthuis made it clear that he would oppose an over-hasty return for the Italian currency.

A JOINT communiqué was issued by the Irish presidency and that of the European Free Trade Association after a combined meeting of ministers on the question of unemployment. EFTA and EU ministers agreed that the main reasons for persistently high joblessness in Europe were insufficient growth, inefficient product markets and a lack of skills in the labour market. They decided that a sustainable macroeconomic framework, including sound public finances and price stability, were essential to promote jobs. In addition, active measures were necessary to reintegrate the long-term un-employed into the labour market.