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4 30 May 2013 NEWS BUSINESS IN BRIEF Data-roaming takeover The European Commission yesterday (29 May) approved the acquisition of Mach, a data-connection company based in Luxembourg, by American company Syniverse. Both firms provide mobile roaming services. The approval is conditional upon the divestiture of Mach’s data-clearing and roaming data-exchange services in the European Economic Area. Chip deal wrapped up Canadian food company McCain was cleared yesterday to acquire Belgian potato processor Lutosa. Lutosa’s branded frozen-chip business in the EEA must be divested. EIB lending The European Commission last week (23 May) adopted a proposal to increase lending by the European Investment Bank outside the EU. The proposal would focus resources on tackling climate change and supporting the pre-accession partners and the EU’s southern and eastern neighbours. The new legislation covers the period 2014-20 and is expected to be adopted in the coming year. Labelling merger Swedish label and processingpaper company Munksjö was cleared to merge with Finnish company Ahlstrom by the European Commission on Friday (24 May). Both operate in the specialty paper industry. Ahlstrom must divest its abrasive paper backings and pre-impregnated paper business in Germany. Electronics projects The Commission announced yesterday (29 May) that it will spend €100 million on the first five projects of the European Electronics Strategy, launched last week. The projects focus on microchips, aiming to link European manufacturers with technology companies, chip designers, researchers, and universities at the earliest stages of product development. Funding will rise to a total of €700m once member state and industry contributions are added. FINANCE Long-term budget New momentum in budget talks Focus shifts to specific areas of diagreement Latest negotiations have been “constructive” Toby Vogel tobyvogel@economist.com Dave Keating davekeating@economist.com Industry and business ministers have given a cool reception to European Commission attempts to impose obligations on companies to rotate their auditors. At a meeting of the EU’s competitiveness council in Brussels yesterday (29 May), ministers cast doubt on the Commission’s proposal to revise the audit directive. The proposal, put forward at the end of 2011, would require companies with public interest implications, such as financial institutions, to change auditors every six years. The EU would also draw up a blacklist of non-audit services that auditors would be forbidden to provide. Most ministers said that while they could support a blacklist, the Commission’s proposal would exclude too many services. “We agree EAMON GILMORE Ireland’s deputy prime minister. EC Negotiations between the European Union’s institutions on the EU’s budget for 2014- 20 turned for the first time this week to the substantive areas of disagreement. Up to now, the talks between the European Parliament, the Council of Ministers, represented by Ireland, and the European Commission have been largely procedural. But Eamon Gilmore, Ireland’s deputy prime minister, who chaired three and a half hours of negotiations on Tuesday (28 May), said that there had been “new momentum” in the talks. “We made real progress,” he said. Officials described the atmosphere as “constructive”. “Differences of views remain but I can also see the scope for agreement,” Gilmore said. “I remain convinced that we can reach an agreement over the coming weeks.” The negotiators have set themselves a deadline of the end of June for reaching an agreement. Ireland and the MEPs asked Janusz Lewandowski, the European commissioner for financial programming and budget, to draft compromise texts on four elements of the €960 billion multi-annual financial framework for 2014-20 that are at the heart of the negotiations. The four areas of disagreement are the flexibility of the EU budget, a revision clause, the future of the EU’s own resources, and the unity of the EU budget. Concessions In all these areas, the MEPs had demanded concessions when in March they rejected a deal struck between the national governments at February’s meeting of the European Council. The Council and the MEPs asked Lewandowski to produce the compromise texts in time for the next round of political negotiations, which is scheduled to take place next Tuesday (4 June). Technical meetings to propose Tuesday’s talks are scheduled for today (30 May). The Parliament’s budget committee will discuss the state of the negotiations today. An official said that the meeting produced “the best we could hope for”. “Now we are past the stage when you are asking yourself whether with the principle, but the list currently drafted would prohibit almost all non-audit services,” said Stephen Green, UK minister for investment. “We need to thin out the number of measures on the list,” agreed Philipp Rösler, German economy minister. Several ministers said they doubted that rotation would improve audit quality. The European parliament’s legal affairs committee voted last month to extend the maximum permitted period without rotation to 14 years. Ministers were evenly split on whether the EU should give oversight of auditing to the EU’s European Securities and Markets Authority, as proposed by the Commission. Many ministers support an alternative proposal from Germany to expand the remit of the existing decentralised network of national oversight bodies. “We support the alternative lighttouch approach,” said Green. you are negotiating or not,” the official said. “Now we are down to business.” MEPs are also linking their backing for the longterm budget to member states’ agreement to meet shortfalls in the annual budgets, whether carried over from last year or emerging in 2013. Lewandowski at the end of March asked for €11.2bn in additional contributions from the member states to finance the deficit; the member states earlier this month agreed in principle to pay €7.3bn up front and come back to the remainder later this year. Lewandowski has delayed submitting a draft annual budget for 2014 – the first of the next multi-annual cycle – to the college of commissioners. The college was initially scheduled to adopt the draft budget yesterday (29 May). Under the EU’s budget procedure, the draft annual budget has to be presented by the Commission by 1 July. Ministers wary of strict auditor rules But Michel Barnier, the European commissioner for the internal market, said a centralised authority was needed. “It would be in all of our interests to save costs by pooling resources and using ESMA,” he told the ministers. “I am happy to work on the contents of the blacklist,” he said. Ministers also discussed state aid reforms and recommendations for EU copyright law. The council will today discuss space industrial policy and the space surveillance programme. On Tuesday (28 May) the Commission released its annual report on EU competition policy. It showed the Commission’s action in 2012 focused on financial services, key network industries such as energy, telecoms and postal services, and knowledgeintensive markets such as smartphones, e-books and pharmaceuticals. NEWS SPECIAL Member states given more time to cut deficits Commission recommends economic reforms France and Spain win budget reprieve Peter O’Donnell peterodonnell@economist.com The European Commission yesterday (May 29) issued recommendations of economic reform for 23 of the European Union’s member states, but eased its demands of various struggling countries. The recommendations, which will become the basis for discussion at next month’s European Council, confirm the fragility of economic recovery in the eurozone. The country-specific recommendations are made on a review of each member state’s economic and social performance. They concentrate on what should be achieved in the next 12-18 months. The Commission does not make recommendations for the countries that are receiving EU bail-outs – Greece, Portugal, Ireland and Cyprus – because they are already subject to recommendations made as a condition of the loans. The deluge of material released yesterday contains a sombre diagnosis of the economic situation in most member states. But it also contains numerous attempts to balance the picture with optimistic assessments of progress. The recommendations suggest that the Commission is weakening in its commitment to austerity. Extra time is to be allowed for Spain, France, the Netherlands, Poland, Portugal and Slovenia to correct their excessive deficits, while Belgium has been spared sanctions for backsliding. The Commission offers a justification for its indulgence: “Fiscal consolidation and growth are not mutually exclusive, and the EU has been consistently recommending fiscal ways to boost growth, including by improving the efficiency of public expenditure and increasing the fairness and effectiveness of tax systems.” It warns the six countries that are being granted a delay: “This is not a chance to relax reform efforts – on the contrary, this breathing space should be used to intensify reforms, continue reducing debt and pave the way for a sustainable recovery.” The recommendations cover public finances, with a focus on reforms of taxation, pension and health systems, and the labour market, selected as holding out hopes of improving competitiveness and reducing high unemployment. The EU “is tackling the serious structural problems that built up over the last decade”, says the Commission, “and
NEWS SPECIAL 30 May 2013 5 Mind your language8 MEPs criticised for requesting, but not using, interpretation services. NEWS 6 ECONOMICS LESSON José Manuel Barroso and (right) Olli Rehn deliver the Commission’s economic recommendations. REUTERS adjustment is particularly noticeable in the more vulnerable member states”. It notes “major changes in employment law” in Spain and Italy, and French measures to reduce taxes on labour. And it says “public deficits have fallen by almost half since their 2009 peak”. But there are plenty of admissions of continuing problems. The repair of the banking sector is “slow to bear fruit”, and is not delivering lower interest rates and the restoration of normal lending to the economy. A major challenge is rising unemployment, especially youth unemployment, it says. The Commission is “very concerned by the rise in poverty, particularly child poverty”. In addition, “the lack of the right skills, products and services poses a serious threat to Europe’s future growth”. Taxation On tax, the Commission urges a shift in the tax base from labour to consumption and to recurrent property or environmental taxation, which it says will encourage growth by increasing incentives to work and hire, cutting labour costs, deterring housing bubbles and stimulating the development of green technologies. It also recommends elimination of tax exemptions, allowances, reduced rates and loopholes, and tougher action to improve tax compliance and fight fraud. For the eurozone, the Commission’s assessment is that “the intensity of self-fulfilling and destructive confidence spirals has dissipated”. “However, significant market fragmentation remains”, says the Commission. “The risk of further financial-market fragmentation and financial turmoil illustrates the importance for the euro area of rapidly moving ahead with the creation of the banking union while avoiding ad hoc approaches to bank resolution.” Country by country recommendations Belgium “Credible implementation of ambitious structural reforms” to boost growth and achieve durable correction of fiscal imbalances must be presented by October. No effective action has been taken to put an end to the excessive deficit (but a one-year extension is granted). France Put an end to the excessive deficit by 2015 (a two-year extension), and attain a headline deficit of 3.9% of gross domestic product (GDP) in 2013, 3.6% in 2014, and 2.8% in 2015. Pursue structural adjustments so as to reach by 2016 the medium-term objective of a balanced budget in structural terms (in line with the treaty on stability, co-ordination and governance – also known as the ‘fiscal compact treaty’). Take measures by the end of 2013 to bring the pension system into balance in a sustainable manner no later than 2020. Germany Preserve a sound fiscal position that ensures compliance with the mediumterm objective. Pursue a growth-friendly fiscal policy through additional efforts to enhance the costeffectiveness of public spending on healthcare. Improve the efficiency of the tax system. Italy Action under the excessive deficit procedure should be dropped. Ensure that the deficit remains below 3% of GDP in 2013 by fully implementing adopted measures. Pursue structural adjustment through growth-friendly fiscal consolidation so as to achieve and maintain the mediumterm objective as from 2014. Achieve the planned structural primary surpluses in order to put the high debt-to-GDP ratio (forecast to be 132.2% of GDP in 2014) on a steadily declining path. Netherlands Put an end to the present excessive deficit situation by 2014 – a one-year extension. Reach a headline deficit target of 3.6% in 2013 and 2.8% of GDP in 2014. Spain Ensure correction of the excessive deficit by 2016. Reach a headline deficit target of 6.5% of GDP in 2013, 5.8% of GDP in 2014, 4.2% of GDP in 2015, and 2.8% of GDP in 2016 – a two-year extension. Implement the measures adopted in the 2013 budget plans at all levels of government, reinforce the medium-term budgetary strategy with sufficiently specified structural measures for the years 2014-16. UK Implement a reinforced budgetary strategy, supported by sufficiently specified measures, for the year 2013-14 and beyond. Ensure the correction of the excessive deficit in a sustainable manner by 2014- 15, and set the high public debt ratio on a sustained downward path. Eurozone Co-ordinate the major economic reform plans of members of the eurozone, and monitor the implementation of structural reforms, notably in the labour and product markets. Explore ways of overcoming national differences in lending rates, especially to smaller firms. Action under the excessive deficit procedure should be dropped for Hungary, Latvia,Lithuania, Poland, Portugal and Romania. But for Malta, an excessive deficit procedure should be opened. The process Country-specific recommendations were issued for all member states except the four programme countries – Greece, Portugal, Ireland and Cyprus – which are already subject to more intensive monitoring to restore macro-financial stability, growth and competitiveness. The recommendations are Austria Belgium Bulgaria Czech Republic Denmark Estonia Finland France Germany Hungary Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Romania Slovakia Slovenia Spain Sweden UK = Commission recommendation = no recommendation based on a Commission assessment of the economic, employment and budgetary situation in each country, and on the adequacy of the policy plans they have submitted. The Irish presidency of the Council of Ministers has scheduled meetings among member state experts to discuss the recommendations before they are presented to employment ministers on 20 June, finance ministers on 21 June, and general affairs ministers on 25 June. The decisions of ministers will then be endorsed at the European Council on 27-28 June, before final Public finances Sound public finances Pension and healthcare systems adoption during July. Member states at the Council can amend the recommendations, but the Commission cautions that if they “were to be substantially softened, the process would lose credibility”. Member states are expected to implement the recommendations in drafting their national budgets later this year, and formal assessment of each member state’s performance will happen in May- June 2014, when the Commission presents next year’s country-specific recommendations and accompanying analysis. Fiscal framework Taxation Cyprus, Greece, Ireland and Portugal should implement commitments under EU/IMF financial assistance programmes Source: European Commission
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