The Economic and Financial Affairs Council (Ecofin), chaired by Czech finance minister Miroslav Kalousek agreed at a meeting in Brussels on March 10 2009 to reduce value-added tax (VAT) in some sectors.

The ministers reached agreement on a short list that included, above all, labour-intensive local services, where all European Union member states should be allowed to permanently apply the reduced VAT rate.

These services include small repair services of bicycles, shoes, leatherware, textile furnishings and clothes, window cleaning and household cleaning, hair salons and the provision of home nursing services.

The reduced rate could also apply in restaurants.

In housing, member states could opt for the reduced VAT tax on renovation and repair of private dwellings. In addition, the agreement allows for the application of the reduced VAT rate to all types of books, i.e., books delivered on all types of media, and further allows Portugal to apply the reduced rate to the toll collected on Lisbon bridges and Cyprus to apply the reduced rate to bottled gas supplies.

The agreement also stipulates that the reduced VAT rate will not apply to the other items contained in a European Commission proposal presented in July 2009.

Ecofin called on the EC to present a proposal that will allow Malta to continue applying its zero-tax rate to foodstuffs and pharmaceuticals.

Ecofin also expressed its support for the extension of the United Kingdom’s derogation for the application of the reverse-charge mechanism. Last but not least, the Ecofin Council agreed that before applying reduced rates, EU member states should consider using alternative instruments to achieve their environmental goals, as reduced VAT rates may have limited effect.

Euronews reported that Germany had been among those hardest to convince to streamline and make permanent a system of reduced rates, the current form of which expires in 2010.

"This will mean lower tax revenues, but without a deal, consumers would have ended up paying more, at a time when no one wants further brakes on spending," Euronews said.
The EU currently has a patchwork of reduced rates of value-added tax on labour-intensive services, such as home care for the elderly, hairdressing or home repairs.

The Wall Street Journal said that Bulgaria, Denmark, Estonia, Germany and Lithuania said in a statement that they did not intend to take advantage of the cut in taxes.

Ecofin also called for International Monetary Fund resources for countries in trouble to be doubled to $500 billion.

A media statement by the Czech Presidency of the EU said that the Ecofin meeting had focused on preparations for the spring summit of the European Union and adopted opinions on 21 stabilisation and convergence programmes of EU member states.

Ecofin assessed 11 stabilisation and 10 convergence programmes and adopted its opinions.

A report by Bulgarian National Radio (BNR) said that during the discussion on the Stability and Growth Pact, Ecofin endorsed a stand on Bulgaria’s convergence program in which the "sensible fiscal policy" of the Bulgarian Government was strongly commended by EU member states.

"The country is recommended to keep up a consistent policy that guarantees a stable fiscal position by limiting public spending in view of dealing with internal disbalances," BNR said.

The Czech Presidency media statement said that recommendations for the member states contained therein "bear out the fact that even in the current difficult economic situation, the rules of the Stability and Growth Pact do apply".

This year’s programme assessments also take into consideration the implementation of the European Economic Recovery Plan.

"The extent of the stimuli in the individual Member States varies depending on the funds currently available, which the ministers agreed was a good approach," the Czech Presidency media statement said.

The implementation of the Stability and Growth Pact will be further discussed at the informal meeting of finance ministers in Prague which will address the question of launching the Excessive Deficit Procedure.

Preparing for the Spring European Council, to be held on March 19 and 20 2009, the ministers adopted the regular Ecofin contribution to this summit – the Key Issues Paper (KIP) on economic and financial affairs for 2009.

This year’s KIP focuses above all on financial markets and support for the real economy.

As regards the former, the Ecofin Council gives top priority to restoring credit flows, improving the EU regulatory and supervisory framework to prevent future crises, and promoting the EU’s active role in the reform of the global financial architecture.

The ministers also welcomed the report, submitted at the end of February by the reflection group led by Jacques de Larosiere, as an important contribution to the debate on the reform of the EU supervisory framework.

The recommendations contained in this report will be discussed in more detail at the informal Ecofin meeting in early April in Prague.

"As regards the real economy, the Council’s KIP concluded that the member states had fully responded to the European Economic Recovery Plan."

The ministers reiterated that steps taken at national level must not result in the loss of advantages which the EU internal market brings to European citizens, the media statement said.

They also emphasised the role of the Stability and Growth Pact in maintaining sustainable public finances and the importance of pursuing structural reforms in line with the Lisbon Strategy.

Ecofin adopted a report for the Spring European Council that contains integrated country-specific recommendations to member states regarding their economic and employment policies.

The report assesses the progress of the Lisbon Strategy structural reforms within the context of the European Economic Recovery Plan.

The Ministers agreed on EU common messages for the meeting of G20 finance ministers, which will take place on March 14 in London.

"In these messages, they set the EU priorities in the area of international co-ordination of macroeconomic policies, global financial market regulation based on transparency and accountability, better co-operation between financial authorities at international level and the strengthening of the International Monetary Fund," the Czech Presidency said.

At the same time, these common messages form the Ecofin Council’s contribution to the EU’s position for the G20 summit of April 2, to be established during the March meeting of Heads of State or Government in Brussels.

The Ecofin Council adopted conclusions on the international financing of climate change measures.

"The EU is prepared to strengthen the financial flows in this area and render them more transparent as well as to promote fair division of the burden that results from the combat of climate change."

The conclusions adopted by the Ecofin Council will contribute to the future common EU position at the UN conference on climate change in Copenhagen in December.

Further funding-related steps will be addressed at the upcoming March meeting of the European Council.

Apart from the preparation of the spring summit, the Ecofin Council adopted conclusions setting its priorities for the EU's general budget for 2010.

The ministers held a breakfast meeting to discuss the current economic and financial situation.

At the meeting, the ministers signed the Convention on Centralised Customs Clearance, "which will significantly help reduce the administrative burden on entrepreneurs and simplify trade," the Czech Presidency media statement said.

This convention simplifies the customs formalities for entrepreneurs, for instance by allowing them to file customs declarations at one customs office and declare the goods themselves at any other EU customs office within the whole of the EU.