BRUSSELS (MNI) – European finance ministers will meet in Brussels
on Monday and Tuesday for the first time since the summer break.

The ministers will discuss plans for taxation of banks and will try
to hash out new economic governance rules, as Germany pushes for
stronger sanctions to enforce fiscal rules and other countries favor a
softer approach.

Representatives from the European Commission, the European Central
Bank and the finance ministries of the EU’s 27 countries attend a
meeting chaired by European Council President Herman Van Rompuy
beginning at 1500 GMT Monday. No press conference is envisaged, Van
Rompuy’s office said, but it may issue a statement.

On Tuesday the finance ministers will meet for a second day of
talks on the economic situation, Europe’s new supervisory architecture,
plans for a permanent crisis backstop mechanism, and the way forward on
a bank tax.

The 16 Eurozone countries will meet again on Tuesday afternoon, in
a forum chaired by Jean-Claude Juncker.

Belgian finance minister Didier Reynders, whose country holds the
rotating EU presidency, and Olli Rehn, European Commissioner for
Economic and Monetary Affairs, will give a press conference at around
1100 GMT on Tuesday. Jean-Claude Juncker, President of the Eurogroup and
Rehn will give a separate press conference at around 1600 GMT.

The ministers meet against a backdrop of widening bond spreads in
some Eurozone countries, as investors worry that the Eurozone recovery
could be hampered by slow US growth and high levels of debt and deficit
across the bloc. Exacerbating the concerns is a relatively heavy
government borrowing schedule this month, which could put some of the
vulnerable peripheral EMU states to the test.

“Ecofin on Monday-Tuesday is unlikely to bring big news, but we are
approaching the first release of Van Rompuy’s proposals for policy
coordination,” said Erik Neilsen, an economist at Goldman Sachs.

“Their agenda includes taxation of banks and the new policy
coordination framework, and there may be some statements afterwards on
this, but no important decisions,” he added.

European Union finance ministers are discussing ways to beef up
rules on debt and deficit limits. The current framework allows for a
budget deficit of 3% of annual GDP and total government debt of 60% of
GDP, but many member countries are well in excess of those limits.

A lackadaisical attitude towards enforcement and the impact of the
financial crisis have led those countries to breach the limits. Greece
is the worst offender with a budget deficit of nearly five times the 3%
limit, though Spain is not far behind.

Such high levels have spooked markets, sending government bond
spreads higher — particularly on Irish and Greek debt in recent weeks.

After bailing out Greece to the tune of E110 billion in May and
setting up a second backstop fund worth E440 billion, Eurozone
policymakers are keen to give the rules more teeth, to keep a better lid
on debt and deficit levels.

European Commission President Herman Van Rompuy is set to publish
his recommendations in mid-September, while the European Commission will
publish a separate set at the end of the month.

EU diplomats say Commission officials want to work within the
existing treaty rules, but Van Rompuy has not ruled out making treaty
changes — a lengthy process.

Germany and France — the Eurozone’s two largest members — favor
an approach that would limit the EU voting rights of a Eurozone country
that is deemed to have an irresponsible fiscal policy. But that’s likely
to prove controversial, because many countries won’t back rules that
they consider to be an infringement on their sovereignty.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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