The European semester=a large scale budgetary reform for Bulgaria
Adelina Marini, Ralitsa Kovacheva, July 4, 2010
Although with a lot of conditionality and interests EU leaders have managed to agree, at their summit in Brussels in June, on several important issues: publishing the results of banks stress tests, on the introduction of a bank levy on a national level as part of the stabilisation funds network, and on budgetary discipline. Of course, these topics as well as some others, are yet to be debated and additional decisions will be needed.
However, this does not prevent any Member State to have an opinion and a position, especially now when the decisions for the October European Council are being prepared, when it is expected the economic governance of the Union to be finally agreed. This is why euinside asked the Bulgarian Ministry of Finance about its position on what had been agreed in Brussels. Here are the answers we received and we publish them without any editorial intervention:
1. At the European Council on June 17 it has been agreed the results of all banks stress tests in the European Union to be published by the second half of July. What is the situation for Bulgaria, have there any stress tests been conducted and of which banks? And what is the situation with the trans border banks, operating in Bulgaria?
MF: At the European Council on June 17 it has been agreed the results of the stress tests to be publicly announced by the second half of July at the latest. At this stage these results concern 26 large banking groups which operate on EU's territory. The agreed measure for public announcement of the results is aimed at restoring European financial system's stability and at ensuring the sustainability and transparency of the banking sector.
As a follow-up measure it has been agreed the range of the stress tests to be broadened in the future, covering not only large financial institutions but middle as well and probably more Member States in order a significant share of EU institutions to be tested. Therefore, the European Bank Supervisors Committee has been given a mandate in close cooperation with the ECB (European Central Bank) to continue the assessment of banking system's soundness, based on specific indicators. A concrete methodology will be introduced aimed at better assessing banks' resilience to sovereign risk increases which is especially important in the current situation in the EU.
Aside from the above mentioned stress tests, the competent bodies and the central banks traditionally hold their own stress tests, following their own scenarios. The Bulgarian National Bank also has a long practice in this field and the information from the stress tests is being used in the analysis of the situation of the bank sector.
2. At this same Council it has been agreed a bank levy to be introduced on a national level as part of the stabilisation bank funds network, proposed by the European Commission. The Czech Republic for example reserved the right not to introduce such a levy. What is the Bulgarian position on the matter? If there is work going on on the introduction of such a tax is there clarity about the basis on which it will be imposed and about specific parameters? And with regard to the taxes, what is the situation with the subsidiary offices of trans border banks, operating in Bulgaria?
MF: At the June European Council a support has been expressed in general for the creation of "systems of bank fees and taxes on financial institutions" to ensure a fair sharing of spending and the introduction of stimuli for restrictions of systemic risk in reasonable limits. Although Member States fully agree that the financial sector should pay for possible systemic crises in the future, there are still a lot of differences in terms of the right approach. There are a lot of issues that are yet to be negotiated - whether the fees and taxes should cover all banks or other financial institutions as well, whether all banks should be included, the trans border banks or only systemically important banks.
It is also not clear how the mechanisms will be financed - whether according to the size of a bank's debt, whether based upon assets, the amount of the profit or bonuses received; whether the risk profile of a bank should be taken into account or not. It is still not clear to what extent the collected funds could be used independently from the governments or they could be part of their budgets. The conditions for spending these funds will depend on a tool box, which will be available for crises prevention and management.
A European level coordination is necessary for this initiative, defined as a key one for the success of the reform of Europe's financial system, moreover - some Member States have already established such funds and fees or are in a process of doing so. Among them are Sweden, France, Germany, Britain, Hungary. Although a wide range of elements still needs to be settled, the most important message has already been sent - the financial sector has to bear the burden of financial crises spending.
3. Have these issues been discussed with representatives of the financial sector and what is their opinion?
MF: Currently the European Commission is still working on a specific framework related to crises prevention and management, and it is expected the Commission to propose a Communication in this area in October. The preparation of an overall and specific framework for crises prevention, management and solution is part of the proposed legislative initiatives of the European Commission, published on June 2. They have to be completed and finalized by the end of 2011. The future proposals will be related to financial sector regulation to achieve sustainable growth. In this regard and because of the lack of concrete and clearly defined proposals, the discussion on proposed changes will happen after the Commission would publish its Communication in October.
4. How is Bulgaria going to proceed with regard to the formulations in the June Council's conclusions about the "european semester" and does the country think that such a practice could register ad hoc measures like, for example, the update of the budget which is being realised right now?
MF: Bulgaria had always expressed a position in principle in support of the idea for a "european semester", because this would mean better economic policy coordination on a European level. For us it means a large scale budgetary reform and such a reform cannot be realised neither quickly nor easily. Although we have been trying for several years to introduce the first principles of multiannual budgeteering, this has not happened yet. Work on the commitments basis will also make the planning process harder. Therefore we have informally asked the European Commission for technical assistance.