§ Mr. Arbuthnot
To ask the Chancellor of the Exchequer if he will make a statement on the outcome of the meeting of the European Community's Economic and Finance Council on 7 October.
§ Mr. Norman Lamont
The Economic and Finance Council of the European Community met in Luxembourg on 7 October. I represented the United Kingdom.
Detailed aspects of the proposed post-1992 VAT technical system and the mechanism for administrative co-operation between fiscal authorities were discussed. Member states raised a number of specific concerns and several outstanding issues were identified. I argued for a substantial transitional period before the abolition of intra-Community tax-free and duty-free shopping. All member states agreed that a transitional period was necessary. The exact length of this period will be the subject of further negotiations.
The Council also agreed to set up an ad hoc group which will discuss the Commission's proposals on the taxation of interest and royalties and report back to ECOFIN by 1 December.
The Council discussed a proposal from the Commission for the relief of debt owed to the Community under the Lomé agreements by the African, Caribbean and Pacific group of countries, but no decisions were reached.
The Commission presented a paper outlining a suggestion by the Prime Minister, as chairman of the G7, that the European Community should provide a contingency facility for the Soviet Union of 2 billion ecu, including the 750 million ecu of food assistance already agreed.
I supported the 2 billion ecu facility, and agreed with the Commission that the new funds, 1.25 billion ecu, should be in the form of Community loans. I also supported the suggestion that there should be a form of triangular trade involving food purchases from the east European countries. I emphasised the need for fundamen-tal policy reforms in agriculture and food distribution in 16W the USSR, to include price liberalisation, allowing freer rein to markets and privatisation. I also emphasised that the new credits should be contingent on a clear demonstration of need, and that there should be careful targeting and monitoring of disbursements. As there was an agreement in principle to the facility and the figure, it was agreed that the Prime Minister would write to the non-European G7 Heads of Government to propose fair burden sharing.
The Commission also announced that they would be considering further the prospects for greater co-operation with the EBRD in the management of funds for technical assistance to eastern Europe and the Soviet Union.
The Council agreed to put forward some procedural guidelines aimed at improving the preparation of issues with financial implications for discussion at the European Council.
There was a brief discussion of the Commission's provisional Communication on a possible Community strategy for limiting CO2 emissions and improving energy efficiency including a new carbon/energy tax. It was agreed that the communication should be discussed at a future ECOFIN as well as at a joint Energy and Environment Council.
In the afternoon of the same day Economics and Finance Ministers reconvened at a meeting of the intergovernmental conference on economic and monetary union. Two issues were discussed: the procedure for monitoring member states' budget deficits and a Danish proposal that Central bank governors be invited at the beginning of stage 2 to look at the possibility of narrowing the standard band of the exchange rate mechanism of the European monetary system.
All member states agreed that excessive budget deficits should be avoided, but a wide variety of views were expressed as to how this could best be achieved. I suggested that sound fiscal positions were best encouraged by a combination of peer group pressure, through Community surveillance, and market forces, reinforced by a ban on any bail-out of a member state. On the second issue, there was little support for the idea of narrowing the ERM band in stage 2. Although some delegations were sympathetic to the objectives of the Danish proposal, it did not receive sufficient support to be pursued further.