The Luxembourg Presidency of the Council of the European Union 2005

The Luxembourg Presidency of the Council of the European Union 2005

URL (Internet address) : http://www.eu2005.lu/en/presidence/domaines_politiques/affaires_economiques/

Back to the origin page

Economic and Financial Affairs

The Economic and Financial Affairs Council comprises the finance ministers of the 25 Member States of the European Union. The Economic and Financial Affairs Council meets formally once a month in Brussels or Luxembourg and informally once every six months in the country holding the Presidency.

The debates of the Economic and Financial Affairs Council relate to:

- Economic and Monetary Union
- Coordinating economic policy
- Improving the economic structures of the Member States
- Cooperation in tax matters
- EU budget and budget control

Cooperation aims to enable Member States to contribute towards the common objectives of price stability, economic growth and a reduction in unemployment. The finance ministers of the Member States of the Economic and Monetary Union (EMU) meet within the informal framework of the Eurogroup before each Economic and Financial Affairs Council meeting. The Eurogroup is presided over by Jean-Claude Juncker, Luxembourg’s Prime and Finance Minister.

Economic and Monetary Union

The Economic and Monetary Union comprises 12 EU Member States. The United Kingdom, Sweden and Denmark, although Member States of the European Union, have remained outside the EMU. Ever since its creation in the 1950s, the European Economic Community has sought to better integrate the economies of Member States. The introduction of the euro as a common currency has unquestionably been a great success and a real step forward. Today, 12 of the 25 Member States use the euro and the European Central Bank decides on the "Euro zone’s" monetary strategy. The countries which joined the EU on the 1 May 2004 will in time also be able to introduce the euro, but they first need to satisfy the convergence criteria.

Coordinating economic policy

The Member States of the European Union, and particularly the countries of the EMU, need to coordinate their economic policies, because of the growing interdependence of national economies and in order to guard against any resulting undesirable effects.

The two main instruments for monitoring the economic policies of the Member States are the:

  • general guidelines on economic policy;
  • stability and convergence programmes.

Each year, these major economic policy guidelines are adopted by the Economic and Financial Affairs Council, at the instigation of the European Commission. These guidelines define a framework for the entire EU, as well as for each Member State. They specify the medium- and long-term structural reforms required to increase the competitiveness of the EU countries. For many countries, the guidelines highlight the need to allow market mechanisms to function more effectively: more market will make the economy more flexible, favour growth and speed up the transition towards a knowledge-based economy.

In 2003, the Union adopted for the first time coherent guidelines to steer the economic policy of the Union and its Member States for the following three years in order to better coordinate economic policy. They comprise the BEPGs (Broad Economic Policy Guidelines), guidelines for employment and the internal market strategy.

Each year, the Member States forward detailed information on their budgetary policies and economic trends for the next three years to the Commission. After examining this information, the Commission formulates recommendations for each Member State, intended for the Economic and Financial Affairs Council. The measures concerning budgetary discipline are gathered in the Stability and Growth Pact.

Improving the economic structures of the Member States

Structural reforms are vital for the national labour, production and capital markets in order to stimulate international competition. The European approach should allow both national objectives and common long-term objectives to be attained.

Cooperation in tax matters

European cooperation in tax matters helps the internal market function more effectively and supports the fight against unfair competition.

Governments bear responsibility for direct taxation, for example, income tax. EU tax policy is based on indirect taxes, as with VAT and excise duties. These taxes have a direct impact on the internal market. The policies pursued also ensure that tax regulations do not hinder the free circulation of capital within the EU, and that this liberty does not facilitate tax evasion and fraud. Furthermore, European policies are aimed at harmonising tax regulations which may limit the rights of European citizens to settle anywhere within the EU for the purposes of work.

The European Union rarely intervenes in matters relating to personal income tax, except to a) guarantee the collection of reasonable taxes to enable pensions to be granted to everyone and b) ensure that governments get a reasonable share of the taxes due on capital yields (interest).

EU budget

During each budgetary exercise, all the expenses and revenues of the Union are estimated and listed in the Community budget. Each year, the expenses of the Union represent around one hundred billion euro.

EU expenditure is financed by the contributions of the Member States. These make up the revenue of the Union, and permit its expenditures. As concerns the expenditure, it is split:

  • the Common Agricultural Policy;
  • structural and cohesion funds;
  • internal affairs;
  • foreign affairs;
  • aid to applicant countries;
  • other expenditure.

A different system is applied to the Common Foreign and Security Policy (CFSP) and to expenditure relating to cooperation in terms of Justice and Home Affairs (JHA), which correspond to the second and third pillars. Some of this expenditure may be drawn from the EU budget, but some actions may also be financed directly by the Member States. The financing of military activities within the framework of European cooperation is the exclusive responsibility of the Member States.



Last update of this page on : 29-12-2004