Our #EuroABC provides easy-to-understand explanations of key terms in the sometimes complicated world of EU finances, along with the fiscal policy priorities of the German Presidency – all from A to Z.
The EU has adopted five anti-money laundering directives, which contain provisions on countering money laundering and the financing of terrorism. The member states of the EU must implement these directives in national law. In Germany, the EU provisions are implemented by the Money Laundering Act (Geldwäschegesetz).
The banking union was established in response to the global financial crisis. Its main components are the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), and a single rulebook for statutory deposit guarantees. The SSM directly supervises the largest and most important banks in the euro area. The role of the SRM is to ensure the orderly resolution of failing banks, with minimal costs to taxpayers and the real economy. This guarantees fair competition in all member states to the benefit of consumers and businesses.
Short for the United Kingdom’s withdrawal from the EU. People in the UK voted on continued EU membership in a referendum held in 2016, with leave voters winning by a narrow margin. A Withdrawal Agreement was signed in early 2020. The future relations between the UK and the EU will need to be renegotiated by the end of 2020.
Advancing the capital markets union shall improve access to finance via the capital market as well as capital intake for small and medium enterprises. The goal is for the EU to remain attractive for investors, to promote economic growth and to create jobs. These measures will support economic recovery and therefore match the interests of investors, consumers and companies alike.
Before introducing the euro as its currency, an EU member state must first fulfil the so-called convergence criteria: price stability, sound public finances, exchange-rate stability and an independent central bank. These criteria are intended to ensure balanced economic development within the Economic and Monetary Union, without friction between the member states (i.e. to guarantee “convergence”). The convergence criteria were set down in the Maastricht Treaty of 1992, which is why they are also called “Maastricht criteria”.
The Coronavirus Response Investment Initiative (CRII and, building on that, CRII+) allows structural funds to be put towards dealing with the economic fallout of the Covid-19 pandemic at short notice. CRII+ is intended to facilitate a rapid drawdown of structural funds by member states.
The Council of the European Union is one of the EU’s central institutions. It is also simply called “the Council” and is comprised of government ministers from each EU member state. There are no fixed members of the Council. Rather, Council meetings are attended by the member state government ministers who are responsible for the specific policy area being discussed. For example, finance ministers meet within the framework of the Economic and Financial Affairs Council (ECOFIN).
Customs duties are taxes that are levied on goods imported into the EU by third countries. The EU itself is a customs union, which means that no duties are charged on movements of goods between member states. The responsibility for administering and collecting customs duties lies with the EU countries themselves. However, the revenue from customs duties goes to the EU. Annual customs revenue for 2019 totalled around €5 billion in Germany. Joint customs duties are a central instrument of the EU’s common commercial policy and serve to protect the European economy.
In a customs union, several countries join forces to create a single customs territory. The members do not collect duties on goods that they trade with each other, and they charge uniform external tariffs on goods coming from third countries. The European customs union, which has existed since 1968, is of crucial importance today, especially for the orderly functioning of the single market.
If a bank becomes insolvent, deposit guarantee schemes protect customers from losing the money they have deposited with that bank. The third pillar of the European banking union stipulates that every EU country must have a national deposit guarantee scheme that covers up to €100,000 per person and per bank.
The aim of a European digital financial market union is to turn Europe into a modern, secure and innovative financial market union, also for tokenised financial services, and to support the review of the Payment Services Directive as well as increasing cyber security and resilience of the European financial market.
The ECOFIN Council (long form: Economic and Financial Affairs configuration) is attached to the EU Council and deals with economic and financial affairs. It is made up of the finance ministers (or, in some countries, the economic affairs ministers) of all member states. Meetings generally take place once a month. During Germany’s Presidency of the Council of the EU, the German Finance Minister acts as the chair of the ECOFIN Council and presides over all meetings.
The Economic and Financial Committee is an advisory body of the Council of the European Union. It is made up of senior officials from national administrations and central banks, the European Central Bank and the Commission. Its purpose is to promote coordination among member states’ policies, with a focus on fiscal policy and financial market policy.
The Economic Policy Committee (EPC) is a body where all 27 of the EU’s member states, the Commission and the ECB discuss the EU’s economic policy. This includes: the European Semester, the macroeconomic imbalance procedure, the macroeconomic dialogue with social partners as well as questions regarding trends in investments, wages and productivity.
When countries integrate their economies, coordinate their economic policies and agree on freedoms with respect to trade, services, monetary transactions and the labour market, they create a single market. This is how countries create an economic union that transcends national borders.
The Emergency Support Instrument (ESI) serves to finance all kinds of immediate assistance measures to provide humanitarian aid in the EU. The ESI is to be financed with €2.7 billion from the EU budget.
The annual EU budget sets out in detail the EU’s expenditure and revenues for a fiscal year. Currently the EU has around €160 billion per year at its disposal, for example for investments in major European projects such as transport and energy networks or education programmes like Erasmus.
The European Union’s Solidarity Fund provides financial assistance in the event of natural catastrophes, and now also covers large-scale public health emergencies. There are currently still €722 million left in the fund for 2020.
The Eurogroup is an informal EU committee that discusses and coordinates questions arising in connection with the euro and the European monetary union. The Eurogroup meets once a month. It is made up of the euro country ministers responsible for fiscal policy. Increasingly, the Eurogroup’s sessions are also attended by the relevant Commissioners and the President of the European Central Bank (ECB). It is headed by a president who is elected for a term of 2.5 years.
The European Central Bank (ECB) was founded on 1 June 1998 as part of the European Economic and Monetary Union. It is responsible for the monetary policy for Europe’s single currency and for maintaining price stability in the euro area. Within the framework of the banking union, the ECB also supervises banks classified as “significant”. The ECB has its headquarters in Frankfurt am Main, Germany.
The European Commission is the EU’s executive body. It drafts proposals for legislation that applies throughout the EU. These proposals require approval by the Council of the EU and the European Parliament. The European Commission then ensures that the legislation is implemented. The current President of the European Commission is Ursula von der Leyen, who is German.
The European Council is made up of the heads of state and government of the EU countries. They set the EU’s policy agenda and goals. They are also responsible for the EU’s common foreign and security policy. The European Council meets at least twice within a six-month period.
The European Investment Bank (EIB) has been the European Union’s bank for long-term financing since 1958. It grants loans to the public and private sectors to finance investment projects that are in the interest of the EU. This includes loans to finance measures focusing on climate change and environmental protection as well as innovation and infrastructure, for example.
The EU’s roughly 513 million citizens have a voice in the EU thanks to the European Parliament, which they have been able to elect by direct universal suffrage since 1979. The European Parliament counts 705 members, with MEP numbers allotted in proportion to each EU country’s population size. Its functions include legislative and budgetary powers as well as rights of political control over other EU bodies. The current President of the European Parliament is David Sassoli, who is Italian.
Goods that are made available to the public at the EU level and that create added value equally for all Europeans are referred to as “European public goods”. EU finances must place a central focus on these public goods, which include key priorities such as climate action, digital transformation, research and innovation.
The European Semester has helped EU countries supervise and coordinate their economic, employment and fiscal policies since 2011. Every year the European Commission conducts an in-depth analysis of the economic and financial situation of the EU countries within the framework of the Stability and Growth Pact and the procedure to prevent and correct macroeconomic imbalances. The EU countries are then given political guidance and recommendations in advance of preparing their national budgets. The Covid-19 pandemic has shown how valuable coordinated action within the EU is. For this reason, EU member states have agreed to use the European Semester as an instrument of coordination during the pandemic, and to use its recommendations as a basis for designing the recovery plan and identifying medium- and long-term solutions to the pandemic-induced crisis.
The ESM was established by international treaty as an international financial institution based in Luxembourg. The ESM can mobilise funds and make them available to euro area members that are struggling financially. Financial assistance is granted only under certain conditions, for example that stringent economic policy requirements be met.
A tax imposed on financial transactions on or outside of the stock market, for example on purchases and sales of shares. The goal of such a tax is to stabilise the markets by introducing higher transaction costs, which makes speculation less attractive.
The EU’s internal market rests on four fundamental freedoms: the free movement of goods, persons, services and capital. These freedoms are enshrined in law and EU citizens can invoke their right to them at any time.
The General Secretariat of the EU Council supports the EU Council and the European Council in the organisation of their work and ensures coordination between the two bodies. The General Secretariat helps organise each council presidency as well as talks with other EU bodies.
The macroeconomic dialogue is steered by the country holding the EU Council Presidency. This is where the European Central Bank, the European Commission, the countries that hold the current Council Presidency and the two following presidencies, and the social partners informally discuss current economic trends and the conclusions that can be drawn from them. The macroeconomic dialogue started at Germany’s initiative. It was launched in June 1999, in Cologne, under Germany’s EU Council Presidency.
The macroeconomic imbalance procedure serves to detect, prevent and correct any potential macroeconomic imbalances which might have the potential to interfere with the economic stability of an EU country, the euro area or the entire EU. A draft for an Alert Mechanism Report is published every year in the European Commission’s autumn package, as part of the European Semester.
The purpose of a global minimum effective tax rate is to ensure that the taxes on a company’s profits do not fall below a certain rate, wherever those profits are generated. Tax legislation would thus create a level playing field for all businesses, big and small. The aim is for an international agreement to be reached until mid-2021.
A monetary union is in place when several countries or regions have a single currency and follow a common monetary policy. The EU’s monetary union aims to achieve the common goals of maintaining price stability and introducing the euro in EU member states.
To carry out its tasks, the EU needs its own budget. The Multiannual Financial Framework (MFF) sets the limits for the EU’s overall expenditure for a period of several years. In addition, the MFF defines the EU’s policy priorities and areas where action needs to be taken. It also specifies total spending amounts for these priority policy areas. The EU’s annual budgets must stay within the limits of this framework.
To help the European economy recover and grow in the aftermath of the coronavirus crisis, the EU member states have agreed on the Next Generation EU recovery plan, with a volume of €750 billion. Under this plan, the European Commission will be able to borrow on the financial markets, allowing it to support the hardest-hit countries and regions with grants and loans from EU budgetary programmes.
The EU budget is financed by revenue from the member states, known as “own resources”. A member state’s share of the EU budget is based on its share of the EU’s economic power based on gross national income.
The European Stability Mechanism (ESM) has set up a Pandemic Crisis Support programme, which is based on the ESM's existing precautionary credit lines. This programme provides EU member states with the option of applying for a precautionary credit line of up to 2 percent of their respective GDP (reference year 2019) for the purpose of managing the effects of the coronavirus crisis. The programme has a total volume of €240 billion. Loans must be used to finance healthcare measures to mitigate the effects of the Covid-19 pandemic.
The European Investment Bank (EIB) has set up a pan-European guarantee fund that will provide businesses – especially SMEs – with liquidity during the coronavirus crisis. The fund will be equipped with €25 billion in pro rata contributions from the member states. This will enable the EIB to mobilise up to €200 billion in financial assistance.
The Permanent Representatives Committee (or Coreper, as it is called in French), is a body of the EU Council that is responsible for preparing the work of the Council as well as performing the tasks assigned to it by the Council. It consists of permanent representatives from the EU countries, who have the rank of ambassador to the European Union. Coreper is chaired by the EU country holding the Council Presidency.
The Presidency of the Council of the EU rotates among the member states every six months. Germany holds the Presidency in the second half of 2020 and will chair all Council meetings during this time.
The EU is working to set up a recovery fund that will help the European economy recover and grow in the aftermath of the coronavirus crisis. In a joint initiative, Germany and France have proposed the creation of a €500 billion recovery fund. The recovery fund would be linked to the EU budget as part of the new Multiannual Financial Framework. The European Commission would be able to borrow the necessary resources on the financial markets, allowing it to support the hardest-hit countries and regions with grants from EU budgetary programmes.
The European single market was created in 1993 for the free movement of persons, goods, services and capital within the EU. It enables EU citizens to live, work, study and do business in any country in the European Union and to benefit from a wide range of goods and services at competitive prices.
The Single Resolution Mechanism (SRM) is the second pillar of the European banking union. It sets out the rules for the recovery and resolution of European banks which have encountered financial difficulties. Implementing these rules is the responsibility of the Single Resolution Board (SRB).
The Single Supervisory Mechanism (SSM) is the first pillar of the European banking union. It sets out the rules for European banking supervision. The SSM consists of the European Central Bank (ECB), which functions as the central supervisory authority, and the national supervisory authorities of the participating countries. The purpose of the SSM is to jointly counteract any financial difficulties as early on as possible.
The Stability and Growth Pact regulates how economic and fiscal policy is coordinated and monitored in the member states of the EU. The goal of the Pact is to ensure sustainable public finances and prevent excess deficits and debt ratios from arising. The Pact’s key rules are that a member state’s budget deficit must not exceed 3 percent of gross domestic product (GDP) and total debt must not exceed 60 percent of GDP.
SURE stands for "Support to mitigate Unemployment Risks in an Emergency. This temporary programme aims to protect jobs and workers in the EU during the coronavirus crisis. To this end, the European Commission will make up to €100 billion available for loans to support short-time work schemes and similar measures in EU member states.
The Tax Act Relating to Brexit (Brexit-Steuerbegleitgesetz) mitigates disadvantages that taxpayers might otherwise suffer due to Brexit. This primarily concerns actions that taxpayers took before Brexit and which would be subject to different tax treatment after Brexit.
Under the system of a rotating six-month presidency, the three EU countries holding the EU Council Presidency in a row form groups of three – or “trios” – and set out an 18-month programme with common themes and policy priorities. This ensures greater consistency within the EU and allows for joint projects to be implemented more effectively. Germany is in a trio with Portugal and Slovenia: On 1 January 2021, Germany will be passing the baton to Portugal, which in turn will be followed by Slovenia, which assumes the Presidency on 1 July 2021.
The European Union’s Union Customs Code (UCC) and the implementing rules accompanying it make up the customs law for the EU’s customs area. The UCC is directly applicable law in all EU countries. It lays the foundations for up-to-date European customs legislation that is geared towards the future.
While the UK is no longer a member of the EU, it will continue to be treated as such until the end of 2020. If no new agreement has been concluded by the end of this transition period, there will be a no-deal (or “hard”) Brexit, which would make the UK a “third country”.