Council of Ministers: Economic and Financial Affairs 

Dear Delegates,

It is my pleasure to welcome you to YMGE and the Economic and Financial Affairs Council of the European Union! My name is Andrew Sady-Kennedy and I am humbled by this opportunity to serve as your Committee Director. I cannot wait to hear the exciting discussion, debate, and compromise that will make our committee so dynamic and inspiring, as well as the intricate solutions that will be proposed to address the European crises.

First, I’d like to share a little bit about myself. Originally from Ladera Ranch, California, I’m a sophomore in Ezra Stiles College at Yale. I joined the Yale International Relations Association (YIRA) during my freshman year at Yale, and since then, have chaired many conferences, both on campus and abroad. In addition to serving as a Director for YMGE, I have served on the Secretariats for YMGE and Yale Model United Nations, as well as a Crisis Director for the Security Council Simulation at Yale. Outside of YIRA, I am on the Division I Yale Bulldogs Men’s Soccer team, an active member of the Club of Argentine Students at Yale –culturally, my paternal Argentine heritage has played a vital role in my life– as well as being enrolled in Yale’s Directed Studies, a scholarly humanities program designed to challenge and expand the minds of each student by exposing us to the seminal texts of Western civilization. After completion of this program, I will pursue the Global Affairs major.

My past Model UN experience consists of being a chair, a member of the Secretariat, and last, but not least, a delegate. I have participated in conferences since my sophomore year of high school and understand that each new experience brings about a different challenge. I hope you are ready to engage in an adventure full of excitement, confusion, and collaboration because YMGE will encompass all of these emotions and feelings into one platform based on crisis. Much will be asked of you when dealing with these crises, but you can be assured that I will be there to help you address any concerns that may arise in the search to find a solution to the issues taking place within the Economic and Financial Affairs Council of the European Union. I consider my role especially important in helping all of you understand and continue to grow within your knowledge in international relations, diplomacy, and working together in an efficient manner to solve crises. To achieve this, it is of vital importance for you to come to the committee ready to engage in the fast-paced debate, embrace the unforeseen challenges, and develop your skills as a public speaker. By the end of the conference, I hope all of you will emerge with new knowledge on the issues of economics, finance, Europe in general, and a foundation in critical thinking skills that will help you attack issues all over the world in the future.

I’m excited to meet all of you this November and encourage you to utilize this topic guide and reach out to me if you have any questions about the committee, the topic, the conference itself, Yale, or anything else that you would like to know. Please don’t hesitate to contact me before the conference at tyler.sady-kennedy@yale.edu.

Sincerely,

Andrew Sady-Kennedy

Introduction

This committee is one of the oldest in the European Union and a subsidiary of the European Council; it is responsible for EU policy in three main areas: economic policy, taxation, and the regulation of financial services. Please take note that this is the Economic and Financial Affairs Committee of the Council of the European Union (Ecofin). It is not the Economic and Financial Committee, nor is it a part of the European Council. Such important duties require representation from all member states. Each nation sends an economics and finance minister to monthly meetings. The committee, unlike most, meets monthly, due to the extreme importance of its duties and its impact upon the entire world. Each meeting varies quite a bit in attendance, since certain meetings require more than just the Economics and Finance Ministers to be present. For example, budgetary meetings require the presence of Budget Ministers.

The Council also has several specific duties within its three main areas of concentration. The Council is responsible for the generation of taxation laws, managing financial markets and capital movements within the EU, and economic relations between European nations and other international nations. The Council prides itself upon is its responsibility to manage the financial aspects of international negotiations on measures to reduce the negative effects of climate change. Its most crucial project every year, however, is the preparation of the EU’s annual 100 billion Euro budget, done in cooperation with the European Parliament. Through this budget, the committee plays a significant role in the allocation of the budget to the the various subsidiaries of the EU. Ecofin also handles the legal and practical aspects of the single currency in the Eurozone: The euro.

Within Europe, Ecofin coordinates the economic policies of all member states, strengthens the convergence of their economic performance, and monitors their budgetary policies. Internationally, Ecofin coordinates EU positions for international meetings, such as the G20, the International Monetary Fund, and the World Bank. To accomplish all of these duties, Ecofin works closely with other important agencies throughout Europe. Some examples include the European Commissioner for Economic and Financial Affairs, currently Valdis Dombrovskis of Latvia, and the President of the European Central Bank, Mario Draghi of Italy.

Voting in the Council operates on a system of a qualified majority, indicating that a certain number of votes, up for negotiation, counts as long as it remains above 50%. These decisions are often carried out in tandem with consultation or codesion with the Parliament. On fiscal issues the Council requires a majority. When dealing with issues of the Euro, member states that are not part of the Eurozone do not participate in voting.

Ecofin is one of the most important and far-reaching divisions of the Council of Ministers in the European Union. Its wide range of powers and ability to use coercive measures when necessary gives Ministers the freedom to know that they are usually able to deal with most issues in an efficient manner. For the purposes of our committee, when representing your individual Minister, please remember that while Ministers can be extraordinarily effective working alone, they can accomplish much more when working together.

Ecofin is made up of Finance and Economics Ministers from the 28 EU member states. This image details the Council’s main objectives and powers in general, but also during the Netherlands Presidency from January to June of 2016.

Jurisdiction and Powers

The European Union is divided into several branches—most notably the European Council, the European Parliament, the European Commission, and the Council of European Union (Please note that this is different from the European Council). The European Council, under President Donald Tusk of Poland, has no legislative power but instead is composed of the heads of the member states who work to set the agenda and political direction of the EU. The European Parliament is composed of 750 MEPs, elected by the citizens of each member state. These MEPs are directly responsible to their constituents and are led by Parliament President Antonio Tajani of Italy. The European Commission is composed of members, or commissioners, from each member state, with one being chosen as President—the current Commission President is Jean-Claude Juncker of Luxembourg. Lastly, there is Ecofin’s home, the Council of the European Union, whose presidency switches every six months to a different state. Currently, Malta holds the presidency, from January to June of 2017. The Council is composed of ministers from all member countries, based on the need per meeting. Those present will often not be the same ministers. Ecofin tends to be one of the most busy Councils in the European Union.

The European Parliament, European Commission, and the Council of the European Union form the legislative branch of the EU. The European Commission usually drafts and presents new legislature, while the European Parliament and the Council of the European Union vote separately on the legislation to evaluate if it should become a law. It is important to note that the ministers in the Council have the individual power to represent their nation and commit their countries to the agreements they sign as individuals.

Ecofin began with the 1957 Treaty of Rome, as part of the European Coal and Steel Community, the precursor to the EU. Although Ecofin was created 60 years ago, its format continually changes over the years. In its original structure, Ecofin was solely an advisory committee to the one and only Council at the time. As time passed by, subsequent treaties, new countries, and more organization, led to the growth of power in Ecofin. Currently, Ecofin is considered third in the implicit hierarchy of the Council, directly after the General Affairs Council and the Foreign Affairs Council.

Question to Consider: Does Econfin’s growth in power suggest that it has more authority over individual nations, the Eurozone as a whole, or other European institutions?

Along with the growth in power, voting has become a major issue of debate within Ecofin. In the past, individual member nations had the power to veto resolutions issued by the Council, including Ecofin. As the powers of the EU grew, and thus, Ecofin’s powers, the 1986 Single European Act dramatically reduced the veto power of individual nations. In its place, Qualified Majority Voting (QVM) was established. In this system, which has experienced minor changes to get to the current voting system, a vote needs 55% to pass, simultaneously representing 65% of the Union population. This means that if 15 member states were to approve a piece of draft legislation, but their combined populations did not account for 65% of the EU population, the vote fails. Similarly, if states with over 65% of the EU population approve, but do not amount to 55% of the number of states, the vote also fails.

Above, please find an image of the European Parliament in session during the resolution of the abolition of visas for residents of Georgia. The 750 MEPs in the Parliament vote on legislation proposed by the European Commission.

Inside the Council of the European Union

As mentioned above, the main duties of the councilors of Ecofin fall under: economic policy, taxation, regulation of financial services, economic relations with non-member nations of the EU, and the euro.

Taxation

In terms of Ecofin’s jurisdiction within taxation, it does not have the power to write tax policy for individual nations. However, it may oversee the tax law implementation throughout the EU to ensure that member states enact laws consistent with EU policy. Ecofin plays an important role in reviewing taxes and deciding whether action should be taken. This can be done by approving a law or creating a resolution. Ecofin generally wants to promote economic growth and stimulate the job industry. They also want to solidify the single market of the EU through the free flow of goods throughout Europe. When doing this, it is important for Ecofin to ensure that no one country has an advantage over the other.

What exactly are some of the tax policies that Ecofin looks to uphold? For company and income taxes “the EU's main role is to ensure that principles such as non-discrimination and free movement in the single market are followed.” Furthermore, they will often work together to eliminate tax evasion and fraud.

Ecofin also possesses the right to coercive power. In clause 22 of November 2011, in Regulation No. 1176/2011, the European Union ruled that: “If severe macroeconomic imbalances are identified, including imbalances that jeopardise the proper functioning of the economic and monetary union, an excessive imbalance procedure should be initiated that may include issuing recommendations to the Member State, enhanced surveillance and monitoring requirements and, in respect of Member States whose currency is the euro, the possibility of enforcement in accordance with Regulation (EU) No 1174/2011 of the European Parliament and of the Council of 16 November 2011 on enforcement measures to correct excessive macroeconomic imbalances in the euro area (2) in the event of sustained failure to take corrective action.” This Regulation, alongside Regulation No. 1174/2011, passed in tandem with the former, established Econfin’s larger presence within Europe. Please note that these are only for Eurogroup members.

Case Study: Economic Policy in Financial Crisis of 2008/09

In order to truly understand how the Council works, especially the creation of its economic policy, a case study is extremely helpful. Please find below some of Ecofin’s released statements during the 2008 housing bubble and corresponding stock crash.

“In the current troubled situation in the financial sector, and building on our Heads of State and Governments' declaration of 6 October, we agree that the priority is to restore confidence and proper functioning of the financial sector. We have agreed to support systemic financial institutions. We all commit to take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers. EU authorities and Member States will remain in daily contact through the EFC in order to share information and ensure a comprehensive and coordinated response to the current situation and our continued effort to work on our common principles, ahead of the European Council. We welcome the actions taken by the ECB and the national central banks since the beginning of the turmoil.”

Each European nation was involved in a different manner, but collectively their efforts led to this enormous housing bubble that can be seen above. For the majority of Europe, the crisis bursted in the beginning of 2009. Particularly, Greece, not pictured here, was experiencing one of the worst debt crises in Europe.

Ecofin’s most common job, as noted above, is to advise EU nations on the best course of action, but not to enforce any certain economic policy. Since the Ministers are all economic experts, their primary goal is to provide economic guidelines to the European community. By providing a vision and simultaneously praising actions that have already been taken by nations or banks in Europe, Ecofin promotes the agenda of the Council. Resolutions often advise European nations on how working together is possible in certain situations. This could refer to long-term economic recovery jobs or short-term crisis resolution, as seen in the example above.

In 13930/08 (Presse 284) 2 EN, Ecofin states:

We agree on EU common principles so as to guide our action: – Interventions should be timely and the support should in principle be temporary; – we will be watchful regarding the interests of taxpayers; – existing shareholders should bear the due consequences of the intervention; – the government should be in a position to bring about a change of management; – the management should not retain undue benefits – governments may have inter alia the power to intervene in remuneration; – legitimate interest of competitors must be protected, in particular through the state aids rules; – negative spillover effects should be avoided. We will ensure rapid cooperation within the EU, with reference to the Memorandum of Understanding, in particular as regards cross-border financial institutions. We underline the necessity of avoiding any distortion of treatment between US and European banks due to differences in accounting rules.

For current Ecofin members, it is important to remember that Ecofin did not have the explicit coercive power it has now during the financial crisis in 2008/09. In fact, it is largely due to the crisis of 2008/09 that they have such explicit coercive power. However, when looking at Ecofin’s statements, its strong authority seems to have already existed before the emergence of explicit coercive power: “Ecofin strongly recommends that supervisors and auditors in the EU apply this new guidance immediately… We agreed that all Member States would, for an initial period of at least one year, provide deposit guarantee protection for individuals for an amount of at least 50 000 euros, acknowledging that many Member States determine to raise their minimum to 100 000 euros…. This short term strategy is fully consistent with the framework established by the Ecofin since October 2007, which aims at fostering transparency and responsibility within the financial sector, in coordination with our partners, notably within the FSF (Financial Stability Forum).”

Key Points

- Ecofin’s prerogatives include economic policy, taxation, and all financial regulation across the Eurozone

- Through taxation and the 2008/09 crisis, Ecofin has developed much more explicit coercive power in its authority in Europe

- Ecofin’s power lays more in advising European nations what they should and should not do financially, but these suggestions are becoming more powerful today

Crisis Brief

Austerity Backlash

Should crises arise that are aimed around austerity, Ecofin will probably be the most important body involved. While it is a mixture of European heads and negotiations with the ECB, the IMF, and the individual nations that have led to austerity, Ecofin Minister’s must find potential changes to the issues. In the past, Ecofin has not given much thought to austerity—it has always been the practical solution for them. If a Eurozone nation overspends its budget for several years and gets into crippling debt, changes to this type of spending must be enacted before receiving aid. For example, superfluous state jobs should be cut, pensions should be lower, excesses could be trimmed down. Austerity has been the status quo for Europe since the financial crash of 2008-09. It has been imposed in Ireland, Spain, Greece, and Italy. For this reason, nations in debt are finding it more difficult to receive help from the EU.

Political Unrest

In some situations, Ecofin possesses many implications for what happens in the political setting. For instance, if political unrest is caused by Ecofin actions or policies, then the protocol will be similar the Austerity section. If several nations erupt in riots, Ecofin would need to act quickly. It would be wise to contact several other committees before proceeding, such as but not limited to, Justice and Home Affairs, Transportation, and Foreign Affairs. The conservative dominance of Ecofin currently allows it to rely more upon austerity. This balance between conservatism and liberalism plays out well in Ecofin because it allows for legislation to represent both modes of thought, meaning either increased scrutiny in economic matters or more economic leniency.

Economic Instability

Any situation in which the economy may be failing, Ecofin must handle the situation, as it is their prominent jurisdiction. When solving economic situations, the ECB will always be a part of the discussion. Immediate legislation and regulations would be in order. The Council should debate the best possible way to both stop the trend towards instability and rebuild towards strength. This could require changing tax incentives and re-interpreting tax decisions.

Questions to Consider: What states should be involved? Does everyone contribute equally? Does this/should this affect taxes? What should our economic policy look like? Does it require dramatic change, or just a small tweak?

Terrorism

If incidences of terrorism occur in the area of the EU, Ecofin does not have direct responsibility to address the situation. However, in the long-term, lower socio-economic living conditions are correlated with increased violence, perhaps not terrorism, but the Council must always attempt to improve economic standards throughout Europe. Regardless of the scenario, comprehensive plans to address terrorism usually require significant funding. Member states look towards Ecofin to figure out ways to raise or appropriate the funds necessary.

Question to Consider: If a European nation not receiving funding from the EU were angry, and decided to commit a violent action or act of terrorism, how would Ecofin be involved and what could potential financial solutions be to the situation?

Key Points

- No matter what situation occurs across Europe, Ecofin must be involved in some manner to distribute funds or deal with finances

- Ecofin’s responses vary depending on the situation (austerity, political unrest, economic instability, or terrorism); they have a strong influence regardless

- Although Ecofin may not have direct responsibility for many different occurrences, long-term results are maintained by the financial advice of this Council

Please continue your research on the Economic and Financial Affairs Council by looking into the official website of the European Union. This link includes details on how Ecofin works, but it also gives current details on the priorities of Ecofin under the Maltese Presidency from January to June of 2017. It would also be a good idea to check out EuroNet, a page that shows how business in the EU works. In addition, the European Commission portion of the official website of the EU has a multitude of helpful links in terms of economic publications, the euro, growth, and performance of the Eurozone economy. Furthermore, the Government of the Netherlands has lots of resources on their website about what occurred during their Presidency of the Council in 2016 as well as extensive amounts of current new on the Maltese Presidency. The Government of Luxembourg website can also give you a different perspective of a smaller European nation. One last resource to use in your research would be the EU Monitor website, which gives extensive current details on the agenda and news of Ecofin.

It might also be a good idea to keep updated with current news sources, such as Reuters and the Guardian. This will give you a good idea of the type of financial programs that your Minister has been encouraging in the past couple months. When writing your position papers, please be conscious of your Minister’s position on crucial topics. What does he or she consider to be the most vital areas of concern within Europe? For example, is the banking crisis in Italy considered a priority for him or her? Does he or she believe that austerity is more important than providing funding and aid to Eurozone nations that are experiencing a major debt crisis? How would he or she react to a terrorist attack in the Eurozone? What would an instance of political unrest or violence mean for the Council as a whole and your Minister in particular? These are the questions you must consider and fully understand when taking your Minister’s position, as it will be vital to represent each Minister according to their true position. Again, if you have any questions at all about the topic guide or your further research, please feel free to reach out to me. I wish you all the best in this process!