9 March Ecofin

Date: 12/03/1998

BERNHARD Friedmann, president of the Court of Auditors, presented his annual report on the running of the EU's budget to finance ministers. A short discussion followed. UK Finance Minister Gordon Brown, who was chairing the meeting, asked his colleagues to report back on how Union funds were spent in their countries.

MINISTERS gave the go-ahead to the creation of a committee to monitor the implementation of December's agreement to crack down on 'unfair' corporate tax breaks. Luxembourg Prime Minister Jean-Claude Juncker and Irish Finance Minister Charlie McCreevy reiterated their view that the chairmanship of the monitoring group should rotate in line with the six-month presidency of the EU itself. All other ministers disagreed. The group was formally established and it was decided that the members would elect a president for a two-year term at its first meeting.

FORMAL approval was given to changes to the EU's rules governing how much capital financial institutions should keep as a guarantee against their lending. The measures were uncontentious as they simply brought Union legislation into line with the international requirements of the Basle committee on banking supervision. The changes included an updated capital adequacy directive, to be known as CAD II, which extends the scope of the laws on market risk in some traded commodities and allows banks to use their own computer-generated models to assess their risk and the capital they need to offset it. London-based commodity brokers will have until 2006 to implement the changes while Swedish banks can continue treating over-the-counter derivatives in the same way as exchange-traded products for the purposes of capital adequacy.

THE meeting ended at lunch-time, with officials stressing that it had only taken place to give a formal hearing to the Court of Auditors' report.

OVER lunch, discussion focused on key policy issues: how Italy and Belgium with their high levels of public debt should be treated when the short-list of EMU members is drawn up at the end of the month, the impact of the Asian financial crisis on Europe, and how soon euro-zone finance ministers should start meeting separately.

ITALIAN Treasury Minister Carlo Azeglio Ciampi made it clear that Italy was not interested in receiving special treatment as an EMU member. “We have subscribed to the stability pact,” he said afterwards. “There must not be special conditions for Italy. We are ready to respect the commitments we have taken.” Some Italian media reports had claimed that the first draft of a European Monetary Institute report on the suitability of EU candidates for EMU membership called on Ciampi and his fellow ministers to cut Italy's public debt level to 60&percent; of gross domestic product within ten years of the beginning of EMU. Italy's public debt is now worth 121.6&percent; of GDP. Economics Commissioner Yves-Thibault de Silguy reported back to ministers on his recent visits to Rome, Madrid and Lisbon and told them Italy's 1997 results were “better than expected”. Dutch Finance Minister Gerrit Zalm said Ciampi's debt reduction proposals had “made a very good impression with his colleagues”.

FRENCH Finance Minister Dominique Strauss-Kahn said he wanted the first meeting of Euro-X, the grouping of euro-zone ministers, to be held just before the 'informal' full ministerial session in York on 19 March. Agreement in York on who should head the European Central Bank was, however, unlikely, said Juncker.