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12 February 2021

Review of the 2020 German Council Presidency

Now that Germany’s six-month Council Presidency has drawn to a close, it is clear that Europe has proved its worth in the face of the crisis and shown that it is capable of taking effective action.

Germany’s Presidency of the Council of the European Union 2020 enlarge image
Source:  Federal Ministry of Finance, Florian Gaertner/Photothek
  • Now that Germany’s six-month Council Presidency has drawn to a close, it is clear that Europe has proved its worth in the face of the crisis and shown that it is capable of taking effective action. Only by working together can the member states of the European Union contain and overcome the pandemic. The German Presidency achieved some major successes, notably a closely coordinated crisis response by the EU member states and the creation of the European Recovery Fund, a powerful instrument for overcoming the economic and social fallout of the pandemic.
  • In addition, further steps towards greater integration were achieved, which will make Europe permanently stronger. As well as tackling the key issue of crisis management, we also took decisive steps to strengthen the economic and monetary union and the European architecture for fair and effective taxation. In addition, we were able to make progress on financial market policy and the fight against money laundering.

Multiannual Financial Framework, Next Generation EU and the EU budget

Thanks to enormous efforts, the German Council Presidency achieved what many observers long doubted was possible, namely guiding negotiations in such a way as to enable the EU member states to agree a joint recovery programme that is at once historical in scope and breathes life into the EU’s spirit of solidarity. The European Council created the financial basis for this by agreeing the 2021–2027 Multiannual Financial Framework (MFF) and the Next Generation EU recovery instrument in July. Furthermore, the German Council Presidency achieved agreement on this recovery package with the European Parliament. As the EU’s largest member state, Germany lived up to its responsibilities, delivering on its promise to make a large financial contribution. This is the right course of action, because the funds will be deployed in a future-oriented way and will create tangible European added value. Furthermore, the ambitious goals for the new MFR have already been implemented in a substantive way with the EU budget for 2021, which was adopted, again under the German Council Presidency, in record time.

The budget also provides for payments for Next Generation EU, making it the largest budget in the history of the European Union.

Own Resources Decision

The Own Resources Decision determines the EU’s revenue (“own resources” primarily consist of contributions from the member states) and the total volume of resources available for the EU budget. However, the Own Resources Decision does not only secure the financing of the MFF: to finance the new Next Generation EU recovery instrument, the EU is, for the first time, borrowing funds on financial markets on a large scale in order to combat the pandemic and its grave economic fallout. In this way, EU member states are showing solidarity for each other during the crisis and are demonstrating that they are committed to the European project. Since the issuing of bonds could only be authorised once the Own Resources Decision had been adopted, the Decision had to be negotiated in a very short time and will likely be ratified a year or two faster than its predecessors.

Recovery and Resilience Facility (RRF)

The German Council Presidency oversaw the negotiation of the Recovery and Resilience Facility (RRF), which was concluded very quickly, thus enabling the RRF to be adopted shortly before Christmas and paving the way for a rapid implementation. With a total volume of €672.5bn, the RRF is Next Generation EU’s largest instrument. All member states wishing to receive funding from the RRF must present recovery and resilience plans outlining how they will use the EU funds. As well as direct measures to fight the crisis, focus areas include the major challenges facing the EU. Member states’ plans must focus expenditure on future-oriented areas such as climate action and digital technology and include not only investments but also reforms to boost growth and resilience.

European architecture for fair, effective taxation

Another aim of the German Council Presidency was to advance the European architecture for fair, effective taxation. This also includes consistently implementing international taxation standards at the EU level, enhancing tax-related cooperation between member states and effectively curbing harmful tax practices. During the German Council Presidency, we were able to make substantial progress in these areas. We succeeded in achieving consensus among all member states on key tax policy issues such as VAT, the fight against unfair tax competition and the taxation of the digital economy. This will make an important contribution to fairer taxation in Europe.

Taxation of the digital economy

In the future, it will be ensured that international corporations can no longer avoid paying their fair share when it comes to financing public goods. This applies in particular to large companies in the digital economy with cross-border operations. It is therefore good that during Germany’s Council Presidency important progress was made on the issue of taxing the digital economy and, specifically, on the goal of introducing a minimum rate of tax. After consensus on the key technical aspects was reached in the negotiations at the OECD/G20 level, all EU member states affirmed that they would continue to support this international process. A global agreement is scheduled to be reached by mid-2021, which would then be implemented at the EU level.

Cooperation in tax matters

Germany also succeeded in driving further progress on European cooperation in tax matters. To this end, the member states completed the technical work for the revision of the EU directive on administrative cooperation in the field of taxation (DAC7).1 The directive allows transactions made via online platforms to be taxed more effectively and substantially improves cooperation among member states overall.

Corporate taxation

Important steps were taken to combat unfair tax competition and harmful tax practices even more effectively. The German Presidency initiated a discussion to revise the mandate of the Code of Conduct Group (Business Taxation), which has not changed since 1997, and we jointly agreed the next steps with the member states. The Group’s work plays a decisive role in enabling more effective action against unfair tax competition and harmful tax practices.

Reform of the European Stability Mechanism

Germany has made it its goal to further develop the economic and monetary union, which includes improving its resilience to crises. Progress was made in this area in December 2020 when the Eurogroup reached an agreement on a comprehensive reform of the European Stability Mechanism (ESM). Created in Luxembourg in 2013, the purpose of the ESM is to mobilise financial resources and make them available to euro area member states that are experiencing financial difficulties, providing certain economic policy conditions are met. The agreement among European finance ministers that was reached in early December 2020 meant that negotiations on the reform of the ESM, which had been going on for years, were successfully concluded. As a result, the economic and monetary union will become even more resilient to crises.

Common Backstop

The reform centres on what is known as the common backstop. The backstop allows the ESM, as a last resort, to provide loans to the Single Resolution Fund (SRF) in order to wind down banks that are in financial difficulties. The SRF is financed by contributions from the banking sector. If these contributions prove insufficient, the ESM can, under certain conditions, approve a loan for the Single Resolution Board, which is then repaid later via special retroactive contributions from the banking sector. The backstop will be fiscally neutral in the medium term to protect taxpayers. This is an important contribution to strengthening the banking union and maintaining financial stability in the monetary union.

Further strengthening of the ESM

In addition to the common backstop, the ESM reform provides for further measures to enhance the ESM’s firepower as a crisis management instrument. For example, the reform makes the existing precautionary credit lines more effective. In this way, ESM members who get into financial difficulties through no fault of their own can receive solidarity-based support. This in turn mitigates risks to the stability of the monetary union and improves its debt sustainability in the long term. The introduction of uniform single-limb collective action clauses by the member states also helps towards this goal, as they ensure greater legal certainty in the event of debt restructuring. Furthermore, the ESM’s cooperation with the European Commission has been reorganised in a way that gives the ESM a stronger role in designing, negotiating and monitoring future financial assistance programmes.

European fight against money laundering enhanced

The European fight against money laundering has been enhanced and progress has been made towards the goal of establishing a common European anti-money laundering (AML) supervisor. Following difficult negotiations on the Council conclusions on anti-money laundering and countering the financing of terrorism, the German Presidency managed to achieve agreement on the following goals for the legislative reform planned for 2021:

a) the far-reaching harmonisation of EU AML rules in a single rulebook,

b) the establishment of an EU-level AML supervisor with direct supervisory powers, especially for high-risk companies in the financial sector, and

c) the creation of a coordination and support mechanism for Financial Intelligence Units.

Safeguarding the EU’s financial interests

EU anti-fraud architecture

As ofthe beginning of 2021, the European Anti-Fraud Office (OLAF) has been geared towards cooperating with the European Public Prosecutor’s Office (EPPO). The steps required for amending the legal basis of OLAF, the OLAF Regulation (Regulation No 883/2013), i.e. the concluding trilogue negotiation and the adoption of the law, were brought to fruition under the German Council Presidency. EPPO took up its work in January 2021. In the meantime, working arrangements between the two authorities were elaborated, partly thanks to the new OLAF Regulation.

EU Anti-Fraud Programme

The German Council Presidency saw political consensus achieved with the European Parliament to establish a future anti-fraud programme (€181m). The programme merges the earlier Hercule programme, which finances member states’ anti-fraud training and cooperation measures, with the IT platform AFIS (Automated Fingerprint Identification System), which supports both the customs’ IT tools and the EU’s Irregularity Management System.

Creation of a real single market for financial services: further developing the capital markets union and the banking union

In order to tackle the economic effects of the coronavirus crisis, an unprecedented amount of public funding has been made available at the European level through the Multiannual Financial Framework (MFF) and the Recovery and Resilience Facility (RRF). However, the public sector will not be able to manage this task alone.

Capital Markets Recovery Package

In the economic recovery phase, European businesses will also have to rely on financing from the capital markets. To facilitate this, the European Commission proposed the Capital Markets Recovery Package in July 2020. Under the German Council Presidency, negotiations within the Council on the Capital Markets Recovery Package were completed in under five months, and an agreement was reached with the European Parliament. This means that soon rules will enter into force that are designed, among other things, to facilitate bank lending to small and medium-sized enterprises (SMEs) and to improve their access to capital markets.

Developing the capital markets union

In addition to these rapid-response adjustments to help tackle the crisis, Council conclusions were adopted that also advanced the long-term development of the capital markets union. The German Presidency was able to achieve agreement among member states regarding the necessity of taking further steps towards a real internal market for financial services. In the Council conclusions, the member states agreed on the order of priority for planned measures, thus giving the Commission important guidance for the work set out in its action plan.

Strengthening the banking union

For financial markets to be stable, there needs to be confidence in their ability to withstand crises. In addition to discussions on a European deposit guarantee scheme, the Council under the German Presidency also addressed the important issues of crisis management, the regulatory treatment of sovereign bonds, and cross-border market integration. Germany was able to achieve progress on the topic of crisis management in particular, and the European Commission is now preparing legislative proposals in this area.

Rules for new financial benchmarks

Furthermore, the German Council Presidency swiftly advanced negotiations on the Benchmark Regulation at the European level. Less than five months after the Commission presented its proposal, consensus was reached both within the Council and with the European Parliament. The agreed amendments are important in order to avoid risks for the financial system that may arise, for example, from the upcoming end of the London Inter-Bank Offered Rate (LIBOR). The LIBOR reference rates and other important indices often serve as benchmarks to price a large number of financial instruments and contracts.

Harnessing the opportunities that digital technology opens up for the European financial services sector: the Digital Finance Package

The German Council Presidency decisively advanced the Digital Finance Package that was presented by the European Commission in late September 2020.

The German Presidency swiftly commenced very ambitious work on new, complex legislative initiatives that target crypto-assets and cyber resilience. The aim here is to ensure that the European financial services sector can take better advantage of the opportunities that digitalisation offers while simultaneously managing risks effectively, including in the future. Furthermore, the finance ministers of France, Italy, the Netherlands, Spain and Germany issued a joint statement in September 2020 in which they stressed that global stablecoins (crypto assets that are pegged to a certain benchmark) may only be circulated in the European Union if the challenges and risks of such projects are subject to appropriate regulatory and supervisory oversight.

Sustainability to play greater role on the financial markets Sustainable Finance

If we are to curb climate change, it is vital that financial market players incorporate sustainability into their decision-making. Under the auspices of the Federal Ministry of Finance and the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, the Green and Sustainably Finance Cluster Germany took the German Council Presidency as an opportunity to organise the European Sustainable Finance Summit in September 2020. This allowed for issues that the German Finance Ministry considers priorities to be advanced, while setting the tone for the European Commission’s pending Sustainable Finance Strategy.

Furthermore, the German Finance Ministry issued the first Green German Federal Securities in the autumn of 2021, an innovative approach and a big step towards more sustainability in the finance sector.

Trade and Cooperation Agreement with the United Kingdom

On 24 December 2020, the European Commission and the United Kingdom agreed on a comprehensive Trade and Cooperation Agreement. This Agreement is unprecedented in scope and breadth: it creates a new foundation for UK-EU relations and will form the basis for a close partnership now and in the future. The Agreement initially applies on a provisional basis from 1 January 2021, allowing the European Parliament to review and approve the agreement in 2021. The German Council Presidency supported the European Commission during all phases of the negotiations; in particular, it worked towards maintaining unity among the 27 member states throughout the negotiations.

Towards a stronger customs union

Ursula von der Leyen, the President of the European Commission, set a policy guideline to take the EU customs union to the next level. This guideline will be implemented in the Commission’s Customs Action Plan, which spans several years. The Council conclusions on this Action Plan substantiated and advanced the goal of creating a stronger, more coherent EU customs union.


Directive of the European Parliament and of the Council on administrative cooperation in the field of taxation (Directive on Administrative Cooperation).