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27 August 2020

The Finance Ministry’s Presidency work programme from three perspectives

Interview with Thomas Westphal, head of the Directorate-General for European Policy, Dr Eva Wimmer, head of the Directorate-General for Financial Markets Policy, and Dr Rolf Möhlenbrock, head of the Directorate-General for Taxation.

Thomas Westphal, head of the Directorate-General for European Policy, Dr Eva Wimmer, head of the Directorate-General for Financial Markets Policy, and Dr Rolf Möhlenbrock, head of the Directorate-General for Taxation enlarge image
Thomas Westphal, head of the Directorate-General for European Policy, Dr Eva Wimmer, head of the Directorate-General for Financial Markets Policy, and Dr Rolf Möhlenbrock, head of the Directorate-General for Taxation Source:  Federal Ministry of Finance / Phototek

Mr Westphal, Germany assumed the Presidency of the Council of the European Union for six months on 1 July, and you are in charge of the Ministry of Finance’s Directorate-General for European Policy. What does this mean for your Directorate-General?

Thomas Westphal, head of the Directorate-General for European Policy enlarge image
Thomas Westphal, head of the Directorate-General for European Policy Source:  Federal Ministry of Finance / Photothek

Germany’s Presidency will bring the topic of Europe to the fore of attention in our country. Our Finance Minister is quite actively involved in the relevant topics, and has now been entrusted with chairing the monthly meetings of the ECOFIN Council, which is composed of the ministers for economic and financial affairs of the EU member states. Due to the coronavirus pandemic, the first meeting on 10 July was held by video conference. Everything went smoothly, however. These six months will be a very exciting time for the European Policy Directorate-General. All of us were highly motivated to get down to work. It’s a big job, with Finance Ministry employees chairing quite a number of Council working parties and committees in Brussels. Rather than going to meetings and putting forward Germany’s position, our task now involves planning and preparing the meetings and considering how to best reach political agreement. To facilitate this, the Ministry of Finance has established a coordinating unit for Germany’s 2020 Presidency under the European Policy Directorate-General. The unit’s initial tasks included identifying additional qualified people in the Ministry to support divisions responsible for handling Presidency-related matters, coordinating the Presidency Programme with the Federal Foreign Office, coordinating tasks among the Ministry’s various Directorates-General, arranging for training courses designed to meet the specific requirements of the German Presidency, and keeping the Finance Ministry’s senior leadership informed.

As the European Union’s responsibilities have grown from Presidency to Presidency, the job of the country holding the Presidency has become more complex as well. This means that the experience gained during Germany’s last Presidency in 2007 will be of limited help. That’s why I’m especially pleased that we at the Finance Ministry – and not just those in the European Policy Directorate-General – have the expertise of so many highly qualified, experienced members of staff at our disposal.

Over the next six months, the Directorate-General for European Policy will be dealing with the full range of policy-related and administrative matters in connection with Germany’s Presidency of the Council of the EU, both directly and indirectly as part of our coordination efforts. The Finance Ministry officials working at our permanent representation in Brussels also play an important role. They basically act as an extension of our Ministry – especially of the Directorates-General for European Policy, Customs, Taxation, and Financial Market Policy. They assist in implementing objectives by liaising with the European Commission, the European Parliament and our colleagues at the permanent representations of other member states in Brussels as well as by independently negotiating on many dossiers in the Council working parties (Brussels format). We have therefore added experienced colleagues to our team at the permanent representation – an investment that’s already paying off.

What are the priorities of the Finance Ministry’s work programme?

Our current task is to limit the economic consequences of the coronavirus pandemic. To this end, we will be implementing a plan to support the economic recovery of the EU member states.

The plan also includes promoting resilience, competitiveness, convergence and sustainability. We also want to improve the way in which the single financial services market functions and help bring about a fair system of taxation.

These initiatives require agreement on the part of the European Council, which we expect in the coming days.

The issue at hand is one we at the Ministry of Finance are well acquainted with – the budget. The European budget is actually relatively small. However, more and more actions can be taken only at a European level. In light of the current situation, a one-time addition to the budget is planned, consisting of a financial assistance package to promote recovery. However, some legislative acts still need to be agreed on, and as always, the devil is in the details. If we succeed in delivering results at the ECOFIN at the end of this year and reaching agreement with the other member states and the European Parliament on the EU budget for 2021, then we’ll have reason to be satisfied.

As regards further key topics and priorities in the areas of financial markets and taxation, allow me to refer you to my colleagues Dr Eva Wimmer, the head of the Directorate-General for Financial Market Policy, and Dr Rolf Möhlenbrock, the head of the Directorate-General for Taxation.

How will the coronavirus crisis affect Germany’s Presidency of the Council of the EU?

We basically started revising our plans for the Presidency in terms of both structure and content in March of this year. This still gave us a few months’ time to prepare for the new situation. Croatia, our predecessor, did not have this luxury and had to make organisational changes during a constantly evolving situation. In-person meetings in Brussels have been reduced to one-third of their usual capacity due to social distancing measures, and most of them are currently being chaired by colleagues located in Brussels due to travel restrictions. At present (July), we are only able to hold Council working party meetings by video conference, which is why we have increased the Ministry’s video conferencing capabilities to a level never before seen. The first such remote meetings went well. Nevertheless, we hope that we will be able to resume in-person meetings in Brussels after the summer recess, as it’s difficult to conduct sensitive negotiations without seeing people face-to-face. The Finance Minister will therefore be inviting his EU counterparts to Berlin on 11 and 12 September for the informal ECOFIN meeting. We will take every health precaution, and although this includes strictly limiting the size of the delegations, we still anticipate an interesting meeting.

Given that the European Commission presented fewer legislative proposals than originally planned for pandemic-related reasons, we were obliged to modify our programme at short notice. Delays are also expected in the preparatory work to be performed by the OECD. The Croatian Presidency was not able to make as much progress on some of its initiatives as originally envisioned. This means that it will fall to us to finish negotiating with the European Parliament on some of the dossiers, for example in the area of financial services. However, all of this is overshadowed by the increased expectations and additional work associated with the major recovery package put forth by the European Council.

Dr Wimmer, your Directorate-General wants to advance banking union during Germany’s Presidency of the Council of the EU. What role does banking union play in overcoming the coronavirus crisis?

Dr. Eva Wimmer, head of the Directorate-General for Financial Markets Policy enlarge image
Dr. Eva Wimmer, head of the Directorate-General for Financial Markets Policy Source:  Federal Ministry of Finance / Photothek

The current crisis shows how important a functioning, stable banking market is for managing crisis situations. This is an area in which we’ve made substantial progress since the financial crisis. By laying down a common framework, banking union creates a stable banking market with fair competition. This gives the real economy access to reliable, affordable financing, which will be especially important during the economic recovery phase. We will therefore work to advance all aspects of banking union during the German Presidency.

The German Presidency will also be used to make progress on the capital markets union. What will this entail?

Private-sector companies are funded not only by banks, but also directly via the capital markets. Investors and consumers also benefit from an efficient, sustainable capital market. That’s why it’s important to develop the various EU member states’ fragmented financial markets into a single European capital market that is stable and can compete in the international arena. The idea is to make it easier for businesses, investors and consumers to access sources of financing and investments. We want to utilise our Presidency of the Council of the EU to hone our focus on initiatives that directly benefit private-sector companies and investors and can be put into action within a short period of time in order to support economic recovery by ensuring reliable financing for the real economy.

One of the greatest challenges of our time is digitalisation. What opportunities does this bring for European financial markets?

The advance of digital technologies brings considerable opportunities in our daily lives, as we’ve seen during the coronavirus crisis, in which we have increasingly relied on digital processes. However, digitalisation also poses risks, especially for the financial markets. Europe therefore needs a good, reliable framework for digital innovation, a “digital financial markets union”. Financial services involving crypto assets are among those set for Europe-wide regulation, with the intention of increasing both cyber security and cyber resilience.

Dr Möhlenbrock, during Germany’s Presidency, your Directorate-General will be working above all to promote fair and effective taxation. Why is this so important?

Dr. Rolf Möhlenbrock, head of the Directorate-General for Taxation enlarge image
Dr. Rolf Möhlenbrock, head of the Directorate-General for Taxation Source:  Federal Ministry of Finance / Photothek

The COVID-19 pandemic has once again illustrated the importance of fair and effective taxation. Without a stable tax base, the EU member states lack sufficient financial resources to fund necessary government functions. Thanks to the sound financial practices implemented in recent years, we are now in a position to act and can move full speed ahead in taking the necessary economic policy actions, which extend to tax policy. There are various different aspects that need to be considered when deciding how to design a fair and effective system of taxation in Europe. To enable wide-ranging debate at the EU level, we have therefore chosen “The EU architecture for fair and effective taxation” as a priority topic. Based on the outcomes of international negotiations to reform the principles of international taxation, including an effective minimum tax, we will press forward with deliberations on the implementation of agreed rules in the EU.
The focus will be on transferring the results of international negotiations on the reform of international taxation principles. We intend to take advantage of our Presidency to ensure that our actions are aligned with the regulatory framework agreed at the G20/OECD level. Of particular importance here from a German perspective is the introduction of an effective minimum tax rate in the EU.

What projects aimed at fair and effective taxation do you plan to advance during the German Presidency?

A “fair” system of taxation requires all parts of society to contribute equally to funding our government – in this context, “equal” does not mean that they must all contribute equal amounts, but that they must each contribute according to their ability to pay. The principle of taxation in accordance with ability to pay is one of the underlying principles of the German government when it comes to bringing about a fair distribution of the tax burden.

Digitalisation and globalisation are so inexorably linked that it would be impossible to design a fair taxation concept without taking a global perspective. That’s why the taxation of the digital economy is a priority during Germany’s Presidency. The OECD is currently drafting reform proposals that are intended to effectively address the tax challenges arising from digital transformation and which comprise the introduction of a global minimum effective rate of tax. We will continue to be closely involved in this process at the EU level by providing constructive support and pushing for quick implementation of the reforms in the European Union. We also need to step up our efforts to combat harmful tax practices both within the EU and beyond its borders. To this end, we plan to initiate efforts to significantly expand the mandate of the Code of Conduct Group (Business Taxation). We are also committed to the introduction of a financial transaction tax at the European level as a key step in fair taxation in the financial sector.

Acting decisively to combat tax fraud is another indispensable building block in the architecture of fair and effective taxation. This will require further optimising cooperation among administrations and improving information-sharing among member states. It is with this in mind that the European Commission has proposed a Council Directive amending the previous Directive on administrative cooperation in the field of taxation, which we will be debating in the Council.

Will you be pursuing the harmonisation of taxes during your Presidency of the Council of the EU?

One of our goals during our Presidency is to make decisive headway in introducing a minimum rate of tax across the EU. In this context, it is important to us to safeguard tax revenues in the member states by preventing harmful tax competition, thus taking another important step towards European integration.

Here’s a question for all of you: Once Germany has completed its Presidency, what sort of reports would you like to read in your Directorate-General?

Thomas Westphal: As the head of the European Policy Directorate-General, this is an easy question for me to answer. If we succeed in implementing our ambitious political programme for recovery from the coronavirus pandemic and thus clear the way for supporting European businesses and citizens, then we will surely have achieved something momentous.

Dr Eva Wimmer: My hope above all is that we will be effective in advancing discussions in the Council as sincere and unbiased mediators. Specifically, I’d like to see us make significant progress in the capital markets union and banking union projects, move a good bit further on the path to a European digital financial markets union in Europe, and make additional progress in combating money laundering. If we also succeed in making Europe a leading location for sustainable investment, then we’ll be able pass the baton to Portugal with satisfaction in a job well done.

Dr Rolf Möhlenbrock: I would like to read about how our work during Germany’s Presidency made a major contribution to bringing about fair and effective taxation in the EU based on our having set the stage for an effective minimum tax rate, having driven forward measures against unfair tax competition, and having improved administrative cooperation.