Professional Documents
Culture Documents
14 – 18 June 2010
Table of Contents
EU FINANCIAL SERVICES............................................................................................................................... 2
I. CONSULTATION ON NAKED SHORT-SELLING ..................................................................................................... 2
II. PARLIAMENT READY TO LEGISLATE AS SOON AS POSSIBLE ON DERIVATIVES .................................................. 2
III. EC CONSULTS ON DERIVATIVES AND NAKED SHORTING RULES...................................................................... 2
EU INTERNAL MARKET .................................................................................................................................. 3
I. MERKEL, SARKOZY EYE WATERED-DOWN ECONOMIC GOVERNANCE ............................................................... 3
EU HEALTH ......................................................................................................................................................... 4
I. PARLIAMENT RAISES FRESH DOUBTS ABOUT EU HEALTH BILL ......................................................................... 4
EU SOCIAL AFFAIRS......................................................................................................................................... 4
I UK THINK TANK CALLS FOR AUTO-ENROLMENT INTO ISAS .............................................................................. 4
II. IMF WARNS SLOVENIA PENSION REFORM IS CRITICAL TO FISCAL STABILITY .................................................. 4
III. DC IS PREFERRED VEHICLE FOR UK AUTO-ENROLMENT, SAYS PWC ............................................................. 5
IV. SELF-EMPLOYED WORKERS TO GAIN MATERNITY AND PENSION BENEFITS UNDER NEW EU LAW ................... 5
V. SLOVENIA GOVERNMENT WATERS DOWN SECOND-PILLAR REFORM ................................................................ 5
VI. DUTCH RECOVERY PLANS NEED HIGHER PENSION AGES AND CONTRIBUTIONS: OECD.................................. 6
VII. FRANCE TO INCREASE RETIREMENT AGE TO 62 IN BID TO TACKLE DEFICIT ................................................... 6
ECONOMY ........................................................................................................................................................... 7
I. MEASURES TAKEN BY 12 MEMBER STATES ARE SATISFACTORY - CYPRUS, DENMARK AND FINLAND ALSO
INVOLVED IN EXCESSIVE DEFICIT PROCEDURES ................................................................................................... 7
II. COMMISSION'S 2010 REPORT ON PUBLIC FINANCE CALLS FOR STRICTER BUDGET DISCIPLINE AND CLOSER
SURVEILLANCE .................................................................................................................................................... 7
III. OUTPUT FALLS IN EUROZONE CONSTRUCTION SECTOR - STABILITY IN EU27 ................................................ 8
EVENTS AND COURT CASES.......................................................................................................................... 8
I. PROMOTION OF MENTAL HEALTH AND WELL-BEING IN OLDER PEOPLE– MAKING IT HAPPEN ........................ 8
II. EU OPEN HEALTH FORUM .............................................................................................................................. 8
III. THE UK ECONOMY, POST-RECESSION – SAME AS IT EVER WAS? .................................................................... 9
IV. EUROPEAN COURT OF JUSTICE CALENDAR" .................................................................................................. 9
IN DEPTH ANALYSIS ...................................................................................................................................... 10
I. UK THINK TANK CALLS FOR AUTO-ENROLMENT INTO ISAS ........................................................................... 10
II. DUTCH RECOVERY PLANS NEED HIGHER PENSION AGES AND CONTRIBUTIONS: OECD ................................. 11
1
AEIP Newsletter • Week 24
14 – 18 June 2010
EU Financial Services
EU Financial Services
2
AEIP Newsletter • Week 24
14 – 18 June 2010
Commission's moves follow outline positions agreed by the G20. It is now in the process of finalising
its draft legislative proposals. Before doing so, it needs to obtain views on four specific issues. These
concern clearing and risk mitigation of over-the-counter derivatives, requirements for central
counterparties, interoperability and reporting obligations and requirements for trade repositories. On
proposed rules for short selling, the EC said pan-EU harmonisation would increase the "resilience and
stability of financial markets". Wright noted that, at present, the member state governments were
applying different rules. Eight have banned shorting, while another seven have applied temporary
bans. The EC said policy options could be grouped into three types: rules to increase transparency
related to short sales rules to reduce risks of uncovered short selling; and, emergency powers for
competent authorities to impose temporary short selling restrictions. Reactions to the consultations
will be assessed during the summer break. (15/06/2010 IPE.com)
EU Internal Market
EU Internal Market
Following a meeting in Berlin on 14 June, German Chancellor Angela Merkel and French President
Nicolas Sarkozy agreed to put forward a compromise plan for an "economic government" of the EU. In
a show of unity amid growing doubts about the capacity of the French-German couple to steer the
Union, the two leaders tabled a number of proposals ahead of the 17 June EU summit. Dropping his
earlier insistence that there should be a formal institution to steer the economic governance of the
euro zone, Sarkozy accepted Merkel's suggestion that regular EU summits should play that role. In
response, Merkel accepted that in case of emergency, there would be informal ad hoc meetings of
eurozone members. The two leaders also agreed that governments who breach the Union's budgetary
discipline should have their voting rights suspended. Sarkozy, who until now had not favoured punitive
measures, said that it was not clear if there was a need to change the EU treaty for that purpose. "If a
treaty change is needed we will propose it," he said. Merkel and Sarkozy also said they will request
that G20 leaders back a tax on banks for all international financial transactions at a summit in Toronto
on 26-27 June. Canada led opposition to the introduction of such a tax when finance ministers from
the Group of 20 economic powers met in South Korea earlier this month, but Sarkozy and Merkel
made clear they were not prepared to drop the idea. Merkel said she and Sarkozy would be writing to
Canadian Prime Minister Stephen Harper to inform him of what the "conditions" would be for holding
the meeting. Spain denies EU rescue bid In the meantime, Spain admitted that the European
financial crisis is taking a toll on the country's banks, with foreign banks refusing to lend to some.
Spanish Treasury Secretary Carlos Ocana admitted officially for the first time that some Spanish
banks faced a liquidity freeze in the interbank market and said the government was working to restore
confidence. Merkel was asked about media reports that Madrid could seek aid from the new 750 billion
euro European Financial Stability Facility as early as this week. "If there should be problems - and we
shouldn't talk them up - the mechanism can be activated at any time," Merkel said. "Spain and any
other country knows that they can make use of this mechanism if necessary." The German Finance
Ministry and the European Commission denied a report in the Frankfurter Allgemeine Zeitung that EU
states would hold talks on aiding Spain in Brussels this week. (15/06/2010 Euractiv.com)
3
AEIP Newsletter • Week 24
14 – 18 June 2010
EU Health
EU Health
Last week's landmark agreement by EU health ministers on cross-border healthcare has been hailed
as a breakthrough but members of parliament, doctors and patient groups say more work still needs to
be done before the new rules can be implemented. The bill now goes back to the European
Parliament, which has already backed a more far-reaching version of the directive. A majority of MEPs
will have to vote in favour of a revised text before it can become law. European governments have
accepted a compromise that will see patients reimbursed for medical treatment in other EU member
states, but are insisting on a series of safeguards giving health authorities the power to prevent
patients from travelling under certain circumstances. There was also greater clarity on who should pay
for treating pensioners who take up residence in another member state during their retirement – a
complex issue that required detailed behind-the-scenes negotiations ahead of the ministerial meeting.
For example, in most instances, the agreement says a French pensioner living in Spain will be
reimbursed by the Spanish state if they seek treatment in Germany. But France would pick up the tab
if that pensioner were to be treated in France. (15/06/2010 Euractiv.com)
EU Social Affairs
EU Social Affairs
4
AEIP Newsletter • Week 24
14 – 18 June 2010
the IMF claimed these measures would not be enough to ensure the long-term sustainability of the
pension system. (14/06/2010 IPE.com)
IV. Self-employed workers to gain maternity and pension benefits under new EU law
Self-employed workers and their partners will enjoy better social protection – including the right to
maternity leave for the first time – under new legislation endorsed by EU governments on June 7,
2010. The Directive on self-employed workers and assisting spouses repeals and replaces an earlier
law and improves the social protection rights of millions of women in the labour market, boosting
female entrepreneurship. At present, women represent only one in three entrepreneurs. The
legislation, agreed with the European Parliament on 18 May and endorsed today by EU Member
States, considerably improves the protection of female self-employed workers and assisting spouses
in case of maternity or motherhood. It will provide equivalent access to maternity leave as for
employees, but on a voluntary basis. At EU level, this is the first time a maternity allowance has been
granted to self-employed workers. The new rules will also serve to promote entrepreneurship in
general and among women in particular. There is a currently a major gender gap in this area – only
30% of entrepreneurs in Europe are women. Finally, the provision on social protection for assisting
spouses and life partners (recognised as such in national law) is also a considerable improvement
from the 1986 Directive. They will have the right to social security coverage (such as pensions) on an
equal basis as formal self-employed workers. This will help to provide a stronger social safety net and
to stop women from falling into poverty. The Council of Ministers is now expected to formally adopt the
legislation on 24 June 2010. EU countries will then have two years to introduce it into national law.
Where justified by particular difficulties, they may have an additional period of two years to implement
the provisions concerning assisting spouses. (eu.europoa.eu)
5
AEIP Newsletter • Week 24
14 – 18 June 2010
pension companies that offer insurance-based pension plans to adopt a mutual fund structure. This
would have made it compulsory for the funds to re-sign contracts with each of the 500,000 members in
the system. Miroslav Ekart, executive director of the €185m PRVA pension fund company, the largest
in the voluntary system, said the move would have been "quite dramatic". "As the Slovenian second
pillar is quite mature and no longer a major growth market, we do not have enough sales personnel to
get all contracts re-signed within six months," he said. He added that sales activities had also been
reduced in the wake of the crisis, as companies are postponing their decisions on whether or not to
join the second pillar. However, the government has opted to make changes that are easier to
implement. Those will include a change in the pension calculation in insurance funds to make it more
comparable with that of mutual funds, which use investment units to calculate pensions. Mutual funds
may have to switch to international accounting, which insurance funds are already doing. To boost
participation, the government also aims to force companies that join the second pillar to include all
their employees instead of the currently mandatory 51%. Ekart said: "This suggestion is OK with us,
but we want the possibility for individuals to opt out if they absolutely do not want to join the system."
Pension funds also opposed a proposal to put in place hefty fines for late contribution payments by
companies, as "the system is still voluntary and not mandatory", Ekart added. The reform is scheduled
for vote in the autumn. A major point of discussion remains the first pillar and necessary changes to
the retirement age, which the government wants to hike prior to 2015, as this will be the year from
which baby boomers start to retire. (15/06/2010 IPE.com)
VI. Dutch recovery plans need higher pension ages and contributions: OECD
Increasing life expectancy and the recent financial crisis are threatening the solvency of the second-
pillar pension system in the Netherlands, leading to a need for changes to the style of recovery plans,
the OECD has warned. In its latest economic survey of the Netherlands, the OECD devotes an entire
chapter to making the pension system less vulnerable to financial crises. It highlighted the recent fall in
funding ratios of pension funds from an average of more than 140% to less than the minimum 105%,
marking the second time in 10 years that recovery plans have had to be widely implemented.
The OECD pointed out these recovery plans mainly rely on suspending indexation of pension rights
and accrued pension rights.
In depth analysis page: 11
6
AEIP Newsletter • Week 24
14 – 18 June 2010
investment objectives and constraints, though a more detailed analysis will be conducted during the
annual asset/liability management review," he said. Despite the announcement, all proposals still have
to be agreed by Parliament, which is expected to address the issue in September. (16/06/2010
IPE.com)
Economy
Economy
I. Measures taken by 12 member states are satisfactory - Cyprus, Denmark and Finland also
involved in excessive deficit procedures
On Tuesday 15 June, the European Commission concluded that measures taken by 12 member
states were sufficient to correct their excessive deficit within the set timeframe. Belgium, the Czech
Republic, Germany, Ireland, Spain, France, Italy, the Netherlands, Austria, Portugal, Slovenia and
Slovakia took measures in response to the Council recommendations (see EUROPE 10032) and so
are appropriate to achieve objectives for 2010. In most cases, however, things will have to be tweaked
a little if targets are to be reached for the following years, Economic and Monetary Affairs
Commissioner Olli Rehn told press as he presented the outcome of the college meeting. “The current
budgetary targets appear to ensure an appropriate overall fiscal stance for the EU,” he said. For Spain
and Portugal, beyond the assessment of effective action, the adequacy of the new announced targets
and measures was also assessed. The new objectives were appropriate, the Commission said. Spain
and Portugal are expected to specify measures in their 2011 budgets amounting to 1¾% and 1½% of
GDP respectively in order to attain these new targets. On 13 July, the Ecofin Council will decide on all
12 cases and on the Commission recommendations that new procedures be opened against Cyprus,
Denmark and Finland. The Commission has concluded that there are excessive deficits in these three
countries (recommendations under Article 126(5-7) of the Treaty on the Functioning of the EU). The
case of Bulgaria will be examined once clarification has been brought on certain statistical data (see
EUROPE 10156). Bulgaria will also be involved in an excessive deficit procedure, so that only three
member states - Estonia, Luxembourg and Sweden - will not be subject to such a procedure.
(15/06/2010 Agence Europe)
II. Commission's 2010 report on public finance calls for stricter budget discipline and closer
surveillance
“Events in the spring of 2010 exposed the urgency of addressing the fiscal challenge in the euro area
and the EU. Sovereign risk premiums increased to unprecedented levels in member states with
perceived high budgetary and macro-financial risks”, explains the European Commission's “2010
Report on Public Finances in EMU” that presents recent budgetary developments, reports on
developments in budgetary surveillance and draws lessons for debt-reduction strategies. It also
investigates the link between macro-financial and budgetary risks.This year's edition of the Report on
Public Finances reviews how member states' fiscal policies have evolved in the wake of the financial
and economic crisis. It assesses the prospects for public finances and policy needs ahead. The strong
deterioration in public finances, with the EU average general government budget deficit forecast to
reach more than 7% of GDP in 2010 and the debt ratio rising correspondingly, is due to both the
automatic effect of economic performance and the discretionary support measures introduced by EU
governments. With real economic growth having fallen to -4.2% in 2009, there has been an automatic
decrease in revenues and increase in spending as a share of GDP. The credit and asset price led
boom that preceded the crisis in many member states has increased the impact of the recession on
the public finances as related previously substantial revenues have dried up. Discretionary support
measures introduced to support both aggregate demand and the financial sector specifically have also
7
AEIP Newsletter • Week 24
14 – 18 June 2010
added to the burden on the public finances. Already in autumn 2009, the EU agreed on a fiscal exit
strategy that should be co-ordinated and differentiated across countries in the framework of a
consistent implementation of the Stability and Growth Pact (SGP), taking account of fiscal risks and
macro-financial imbalances. (16/06/2010 Agence Europe)
8
AEIP Newsletter • Week 24
14 – 18 June 2010
9
AEIP Newsletter • Week 24
14 – 18 June 2010
In Depth Analysis
In Depth Analysis
Michael Johnson, a pension and saving policy analyst and author of the report Simplification is the key:
stimulating and unlocking long-term saving, claimed two differently taxed businesses – pensions and
savings – were competing for the same client base where the landscape for long-term savings was
already very complex.
He argued fewer savings resulting from the current complex tax and product regimes meant less long-
term investment and lower economic growth over the long term.
Johnson put forward 16 measures that could help simplify saving and improve flexibility by bringing
ISAs and pensions closer together.
In addition to a unified tax framework for the two types of product, he proposed a contribution limit of
£45,000 a year for all tax-incentivised saving, of which £35,000 would be the maximum contribution to
a pension.
The proposals from the Centre for Policy Studies, a think-tank established to promote the principles of a
free society, also include allowing people the opportunity to withdraw up to 25% of their pension
savings tax free before pension age.
This sum would then be deducted from the 25% tax-free entitlement at retirement.
Other recommendations included allowing income from annuities purchased with ISA funds to be
exempt from income tax and allowing unused pension assets to be passed to third parties, up to a limit
of around £100,000, provided they be invested in a pension in an effort to "reinforce a sense of
personal ownership of pension savings".
Johnson also argued that because people have been shown to prefer saving in ISAs rather than
pensions, the new auto-enrolment regime scheduled for 2012 should be broadened to allow auto-
enrolment into ISAs.
10
AEIP Newsletter • Week 24
14 – 18 June 2010
The report stated people would be less likely to opt out of a product they liked, although compulsory
employer contributions under auto-enrolment should initially be restricted to pension funds.
However, it conceded that if auto-enrolling in ISAs proved attractive, the product could be included as
"an alternative" for compulsory employer contributions.
Under the forthcoming pension reforms including auto-enrolment into a pension scheme, employer
contributions will be phased in from 2012 to reach a maximum of 3% of banded earnings to combine
with 4% from the employee and 1% tax relief.
Johnson also outlined four alternative tax-relief structures to harmonise pension and savings, which he
claimed could save the Treasury as much as £8.5bn a year.
However, the report noted: "It is hoped these proposals will attract cross-party consensus. That said, it
is recognised this will not be easy, as many view tax relief, for example, as an instrument of social
policy."
Commenting on the report, Gary Shaughnessy, UK managing director at Fidelity International, said:
"The new government has a lot to consider at the moment, but we sincerely hope they will heed the
advice from industry professionals when it comes to making important decisions that could materially
impact prudent long-term savers in the UK.
"There is not only a growing sentiment the UK savings and pensions systems need to be simplified
and more done to encourage people to save for their futures, but also an emerging consensus on how
this can be achieved." (14/06/2010 IPE.com)
II. Dutch recovery plans need higher pension ages and contributions: OECD
Increasing life expectancy and the recent financial crisis are threatening the solvency of the second-
pillar pension system in the Netherlands, leading to a need for changes to the style of recovery plans,
the OECD has warned.
In its latest economic survey of the Netherlands, the OECD devotes an entire chapter to making the
pension system less vulnerable to financial crises.
It highlighted the recent fall in funding ratios of pension funds from an average of more than 140% to
less than the minimum 105%, marking the second time in 10 years that recovery plans have had to be
widely implemented.
The OECD pointed out these recovery plans mainly rely on suspending indexation of pension rights
and accrued pension rights.
And while recovering equity markets have seen a number of pension funds return their nominal
funding ratios to above the legal minimum of 105%, the OECD argued that in most cases the ratios
were well below the 125% level for indexation or the 145% level that allows funds to make up for the
past suspension of indexation.
Calculations by the OECD suggested that, with the current measures in place, and based on
conservative future return assumptions, funding ratios would continue to improve within the five-year
recovery period so that most funds would reach the legal minimum.
But it warned there would be little improvement beyond this level without a strong rally in equity
markets.
11
AEIP Newsletter • Week 24
14 – 18 June 2010
It calculated that restoring funding rates so that pension funds can honour their pension promises of
up to 80% of average wages would require members to work an extra four years, contribution rates to
be increased by 4.5 percentage points or for future indexation to be paid for by reducing the real value
of accrued rights by one-third.
The OECD said: "To balance intergenerational considerations while minimising potential
macroeconomic costs, the recovery plans should include requiring members to work an additional two
years and introducing a mix of lower indexation and higher contribution rates."
It argued the additional two years of work would align the retirement age with proposed changes to the
state pension system – which would see a pension age of 67.
It also recommended a "structurally more solid solution" for a sustainable pension system and said
that to reduce early retirement incentives would be to link the official retirement age to developments
in life expectancy.
Other issues raised by the OECD survey included the recommendation that regulation be less
sensitive to short-term developments, such as changing the discount rate to either a long-term, high-
grade investment bond, or the long-term government bond rate if these are too volatile.
It suggested the temporary extension of the recovery period from three to five years should become
permanent to allow greater flexibility for pension funds, while pension transfers should be made easier
by allowing self-employed members to stay with their existing scheme.
Corporate governance issues should also be addressed to ensure the risk profile of the investment
portfolio reflects the desired risk strategy and the members' age structure, with members being able to
switch from a persistently under-funded or under-performing fund. (16/06/2010 IPE.com)
12