FINANCE : View Posts

WASHINGTON – Today, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued guidance designed to facilitate automatic enrollment and contribution increases in 401(k) and similar retirement savings plans. This guidance adds to the current IRS self-correction program, which allows plan sponsors to easily correct administrative errors without risking the plan’s tax qualification and without having to obtain IRS approval.

“Today, Treasury and IRS are taking another step to promote broader participation in 401(k) and similar plans by facilitating automatic enrollment and automatic contribution increases,” said J. Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health Policy. “These simplified, safe harbor correction methods build on previous steps to encourage plan sponsors to adopt “next generation” features and practices that help employees save for retirement.”

The new guidance responds to public comments from 401(k) sponsors and service providers. The guidance simplifies and reduces the cost and burden of the correction process if a 401(k) or 403(b) plan using automatic enrollment or automatic increases fails to implement the correct amount of employee contribution.

The correction safe harbor for plans with automatic contribution features requires the plan sponsor to make all employer matching contributions that should have been made with respect to the missed employee contributions, and to contribute an additional amount to make up for the earnings that should have accrued under the plan on those matching contributions. In addition, the plan is required to notify participants of errors and corrections, and of their ability to make up for the missed employee contributions by electing larger employee contributions going forward.

The guidance also provides other new safe harbor methods to simplify and reduce the cost and burden of correcting certain errors in 401(k) and similar plans regardless of whether they use automatic enrollment or automatic increases.

The new correction methods are effective immediately. The new safe harbor for plans using automatic contribution features applies to administrative errors occurring before 2021. The guidance also invites public comment on potential further improvements.

WASHINGTON, D.C. — Cities around the world struggle to secure revenue sources and to manage funds efficiently, with serious consequences on everyday urban service delivery as well as long-term investment. To help city governments improve their financial management practices, the World Bank is offering a comprehensive online municipal finances course geared specifically toward local practitioners. Thanks to its practical, problem-solving approach, the e-course has so far yielded tangible results on the ground. It also led to the creation of a global online forum where alumni can learn from each other and share best practices

A finance official from Mutare, Zimbabwe plans to make municipal finances more transparent and accountable to citizens.

A government official responsible for district development in Dominica will be able to give better advice to local authorities regarding revenue projection and managing expenditures.

An IT specialist from Kampala, Uganda organized a working group to increase revenue sources, including from user charges on water and electricity.

These are some of the early actions that participants of the World Bank’s e-course “Municipal Finances – A Learning Program for Local Governments” are taking to improve financial management in their home cities. The course was conducted over eight weeks between October and December 2014, the fourth delivery since the pilot launch in May 2013.

This time, more than 507 applied, bringing together hundreds of finance professionals from municipalities and ministries, international organizations, consulting firms and academia. Institutions such as the Caribbean Development Bank encouraged senior finance executives, senior finance and development officers, accountants, and tax auditors to participate.

Reconciling two imperatives: transparency and efficiency

The e-course’s popularity underscores just how urgent the issue is for practitioners around the world: with bulging urban populations, city leaders are working to deliver services and make investments under tight fiscal constraints, and they need to develop technical capacity on the ground to improve financial management practices. “Local governments are under pressure to do more with less, so they have to be creative about finding sources of revenue and judicious in rationalizing their expenditures,” said World Bank lead urban specialist Catherine D. Farvacque-Vitkovic, co-author of the book “Municipal Finances: A Handbook for Local Governments”— a companion to the e-course.

Structured around 8 modules, the e-course is unique in how it focuses on helping local governments solve municipal problems, connecting urban planning, investment programming and financing so they can move forward on reforms. It also brings together many different agendas: on one side — governance, accountability, social inclusion and citizen engagement, all concerned with the transparency in the use of public funds and, on the other side — public finances, infrastructure, land, PPPs all concerned with efficiency of public expenditures.

“Local governments stand in the middle of these two large agendas, and need to make tough choices. What we try to do in this e-course is to unbundle these challenges and present a menu of solutions in a compelling and palatable way,” said Farvacque-Vitkovic.

According to a survey of participants of the Fall 2014 course, 95% considered it highly relevant to their daily work. Some found the opportunity to familiarize themselves with management tools particularly useful, such as multi-year budgeting and capital improvement planning, design of revenue enhancement programs, borrowing strategies, and cost recovery schemes that focus on financial and equity concerns. A Municipal Finances Self-Assessment Tool (MFSA) included in module 7 enabled participants to work through their own situation and identify pathways for reforms.

Creating a global community of practitioners

Participants also favored the course’s ability to connect a global community of practitioners facing similar local challenges through a discussion forum led by core participants. In the Fall 2014 session, successful participants represented 43 countries covering all regions of the world.

“I particularly liked the discussion forums where each one of us could share our experiences and exchange ideas related to Municipal Finance,” said a participant, explaining how the forum helped them learn from each other.

A participant from India said, “Frequent discussions have been extremely helpful in understanding the intricacies of existing systems, methodologies and approaches in municipal corporations in other nations.”

Participants are already beginning to apply their knowledge to their daily work, to boost revenue collection, improve on reporting systems for greater transparency and accountability, make effective use of external resources, manage and utilize assets more efficiently, as well as conduct training of local authorities.

The e-course is being conducted twice yearly, with the latest delivery beginning today, March 30, 2015. The 858 participants in this latest edition amount to an enrollment increase of almost 70% over the Fall offering that shows the growing interest in training on this area. The next course will be offered in Fall 2015.

The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana in an amount equivalent to SDR 664.20 million (180 percent of quota or about US$918 million) in support of the authorities’ medium-term economic reform program.

The program aims to restore debt sustainability and macroeconomic stability to foster a return to high growth and job creation, while protecting social spending. The Executive Board’s decision will enable an immediate disbursement of SDR 83.025 million (about US$114.8 million).
At the conclusion of the Executive Board’s discussion, Mr. Min Zhu, Deputy Managing Director and Acting Chair, stated:
“After two decades of strong and broadly inclusive growth, large fiscal and external imbalances in recent years have led to a growth slowdown and are putting Ghana’s medium-term prospects at risk. Public debt has risen at an unsustainable pace and the external position has weakened considerably. The government has embarked on a fiscal consolidation path since 2013, but policy slippages, exogenous shocks, and rising interest costs have undermined these efforts. Acute electricity shortages are also constraining economic activity.

“The new ECF-supported program, anchored on Ghana’s Shared Growth and Development Agenda, aims at strengthening reforms to restore macroeconomic stability and sustain higher growth. The main objectives of the program are to achieve a sizeable and frontloaded fiscal adjustment while protecting priority spending, strengthen monetary policy by eliminating fiscal dominance, rebuild external buffers, and safeguard financial sector stability.

“Achieving key fiscal objectives will require strict containment of expenditure, in particular of the wage bill and subsidies. The government’s efforts to mobilize additional revenues will also help create more space for social spending and infrastructure investment, in particular in the energy sector. The government is rightly adjusting expenditures further to mitigate the shortfall in oil revenue and avoid a larger debt build-up. Moreover, a prudent borrowing strategy will be needed to ensure that financing needs are met at the lowest possible cost.

“The government’s structural reform agenda appropriately focuses on strengthening public financial management and enhancing transparency in budget preparation and execution. Strengthening expenditure control will be critical to avoid new accumulation of domestic arrears. The government should continue to clean up the payroll and improve control of hiring in the public sector to address one of the main sources of fiscal imbalances in the recent past. At the same time, enhanced transparency in the public finances will be critical to garner broad support for reforms.

“The authorities are strengthening monetary operations and gradually eliminating monetary financing of the budget to improve the effectiveness and independence of monetary policy and bring inflation down to single digit territory. Safeguarding financial sector stability will be important for supporting private sector activity.

“Forceful and sustained implementation of the program will be essential to address Ghana’s macroeconomic imbalances and enhance investor confidence in view of downside risks. The frontloaded nature of the fiscal consolidation and expected financial support from development partners should help to mitigate program risks, and foster broad-based, inclusive growth in the medium term.”

Annex
Recent Economic Developments
Ghana has experienced strong and broadly inclusive growth over the last two decades and its medium-term economic prospects are supported by rising hydrocarbon production. However, emergence of large fiscal and external imbalances, compounded by severe electricity shortages, has put Ghana’s prospects at risks. In recent years, a ballooning wage bill, poorly targeted subsidies and rising interest payments outpaced rising oil revenue and resulted in double digit fiscal deficits. These imbalances have led to high inflation, a decline in reserves, a significant depreciation of the Cedi and high interest rates, weighing on growth and job creation.

Growth decelerated markedly in 2014, to an estimated 4.2 percent, driven by a sharp contraction in the industrial and service sectors. This was due to the negative impact of the currency depreciation on input costs, declining domestic demand and increasing power outages. Inflationary pressures rose on the back of a large depreciation of the cedi and the financing of the fiscal deficit by Bank of Ghana (BoG). Despite several hikes in the policy interest rate in 2014 to 21 percent, headline CPI inflation reached 17.0 percent at end-2014, well above the 8 +/-2 percent target range of the BoG.

The fiscal deficit remained high in 2014 despite gradual fiscal consolidation efforts undertaken since mid-2013. In addition, the government started facing increasing financing difficulties. Delays in implementing some adjustment measures and unbudgeted wage allowances resulted in a higher-than-budgeted cash fiscal deficit of 9.5 percent of GDP. Additional domestic arrears were accumulated and the overall fiscal deficit on a commitment basis remained close to 10 percent of GDP. The government has had to resort increasingly to short-term domestic debt, which now carries interest rates at around 25-26 percent, and significant monetary financing. A US$1 billion Eurobond was successfully issued in September 2014, but at significantly higher interest rate than other issuers in sub-Saharan Africa.

The external position weakened through mid-2014, with net international reserves reaching low levels in the third quarter and the exchange rate depreciating sharply. The exchange rate dropped sharply in the first 8 months of the year before recovering on the back of inflows from the September Eurobond and the US$1.8 billion short-term loan contracted by the Cocoa Board. The currency depreciation and the economic slowdown led to a substantial contraction of imports and a narrowing in the current account deficit, which nonetheless ended at 9.2 percent of GDP. For the year as a whole, the balance of payments was broadly balanced, leading to a fragile stabilization in international reserves, with gross reserves partly supported by large BOG’s short-term liabilities.

Program Summary
The government’s three-year economic reform program seeks to support growth and help reduce poverty by restoring macroeconomic stability through an ambitious and sustained fiscal consolidation, a prudent debt management strategy with improved fiscal transparency, and an effective monetary policy framework.

The program foresees a pick-up in economic growth, starting in 2016, supported by expected increases in hydrocarbon production. Lower inflation and interest rates, combined with a stable exchange rate environment would help support private sector activity. Increased oil exports and lower oil imports on the back of domestic gas production will support the improvement in the current account, which together with the surpluses on the financial and capital account will help build up gross reserves to a more adequate level over the medium term.

The main pillars of the program are: (i) a sizeable and frontloaded fiscal adjustment to restore debt sustainability, focusing on containing expenditures through wage restraint and limited net hiring, as well as on measures to mobilize additional revenues; (ii) structural reforms to strengthen public finances and fiscal discipline by improving budget transparency, cleaning-up and controlling the payroll, right-sizing the civil service, and improving revenue collection; (iii) restoring the effectiveness of the inflation targeting framework to help bring inflation back into single digit territory; and (iv) preserving financial sector stability. To alleviate the potential adverse impact of the strong fiscal adjustment on the most vulnerable in society and protect real income of the poor, which was dented by three years of high inflation, the government is committed to use part of the resulting fiscal space to safeguard social and other priority spending under the program, including expanding the targeted social safety nets—such as the Livelihood Empowerment Against Poverty (LEAP) program.

The envisaged fiscal consolidation is projected to further dampen non-oil economic growth initially and reduce inflation in 2015, but growth is expected to rebound in the following years. Non-oil GDP growth would decelerate further to 2.3 percent in 2015 before picking up in the following years, reaching 5.5 percent by 2017. On the fiscal side, the program seeks to expand revenue collection, restrain the wage bill and other primary expenditures, while making space for priority spending and for clearing all domestic arrears. Despite lower projected oil revenues, the program aims at turning the primary balance from a deficit of 3.7 percent in 2014 into a surplus of 0.9 percent of GDP in 2015 and 3.2 percent of GDP in 2017.

The Royal Bank of Scotland Group plc (“RBS”) today announced it has reached an agreement to sell its internationally managed Private Banking and Wealth Management business to Union Bancaire Privée UBP SA (“UBP”).

The sale comprises client relationships outside the British Isles and associated staff. RBS will continue to service UK Private Banking and Wealth Management client needs, together with those of international clients with a strong connection to the UK, from the British Isles through its Coutts and Adam & Company brands. The transaction is subject to regulatory approvals.

The sale includes relationships managed from Switzerland, Monaco, UAE, Qatar, Singapore and Hong Kong. As at 31 December 2014 assets under management were approximately CHF32bn and total risk weighted assets were CHF2bn. The price paid will be determined in part by assets under management on closing. RBS anticipates receiving a premium. The resulting capital benefit to RBS is expected to be modest after writing off goodwill related to the business and taking into account anticipated exit and restructuring costs. In the Q1 2015 results, the business to be sold will be treated as a disposal group, resulting in an expected charge in the order of £200 million, primarily relating to goodwill write off. Initial closing of the transaction is envisaged in Q4 2015, when a majority of the business is expected to transfer, with the remainder during the first part of 2016.

Alison Rose, CEO, Commercial & Private Banking at RBS commented;

“Last year we set out a clear strategy to create a truly UK-focused bank. This announcement is another important step in that process. Following an extensive review, it was clear that the bank we are building would not be the most appropriate owner of the business being sold.

“We gave careful consideration to identifying a buyer with the capability to take on this business in order to minimise the impact on clients and staff. We believe that in UBP we have found a good long term owner for this business.

“There will be no interruption of service for clients of Coutts or Adam & Company and we remain committed to improving all aspects of our market leading businesses.

“Our Private Banking brands are integral to RBS, supporting our ambition to make this the number one bank for customer service, trust and advocacy in the UK.”

The transaction, supported by Goldman Sachs, is subject to regulatory approvals.

Read more at http://www.rbs.com/news/2015/march/disposal-of-rbs-internationally-managed-private-banking-and-wealth-management-business.html#vdoMTwxZSmAf8fhM.99

The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) on Monday announced that they had completed the reviews of resolution plans submitted in 2014 by three large, foreign banking organizations and had issued feedback letters to each institution.

In their review of the resolution plans from BNP Paribas, HSBC Holdings plc, and The Royal Bank of Scotland Group plc, the agencies noted some improvements from the original plans. However, the agencies have jointly identified specific shortcomings with the 2014 resolution plans that will need to be addressed in the 2015 submissions. The letters to each institution detail the specific shortcomings of each firm’s plan and the expectations of the agencies for the 2015 submission.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that certain banking organizations with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve periodically submit resolution plans to the Federal Reserve and the FDIC. Each plan, commonly known as a living will, must describe the company’s strategy for rapid and orderly resolution under the U.S. bankruptcy code in the event of material financial distress or failure of the company.

While the shortcomings of the plans varied across the firms, the agencies have identified several common features of the plans’ shortcomings. These common features, among other things, include:
Unrealistic or inadequately supported assumptions about the likely behavior of customers, counterparties, investors, central clearing facilities, and regulators; and
Inadequate analysis regarding interconnections within the firms.

The agencies will require that the annual plans submitted by these three institutions on or before December 31, 2015, demonstrate that the firms are making significant progress to address all the shortcomings identified in the letters, and are taking actions to improve their resolvability under the U.S. bankruptcy code. These actions include:

Amending the financial contracts entered into by U.S. affiliates to provide for a stay of certain early termination rights of external counterparties triggered by insolvency proceedings to the extent those rights are not addressed by the International Swaps and Derivatives Association 2014 Resolution Stay Protocol;

Ensuring the continuity of shared services that support critical operations and core business lines throughout the resolution process; and
Demonstrating operational capabilities for resolution preparedness, such as the ability to produce reliable information in a timely manner.
Agency staff will discuss with each of these firms expected improvements in the resolution plans and the efforts, both proposed and already in progress, to facilitate each firm’s preferred resolution strategy. The agencies are also committed to finding an appropriate balance between transparency and confidentiality of proprietary and supervisory information in the resolution plans and will work with the institutions to explore ways to enhance the public transparency of future plan submissions.

Based on the review of the 2014 plans, the FDIC Board of Directors determined pursuant to section 165(d) of the Dodd-Frank Act that the plans submitted by these three filers are not credible and do not facilitate an orderly resolution under the U.S. bankruptcy code. The Federal Reserve Board determined that the three foreign banking organizations must take immediate action to improve their resolvability and reflect those improvements in their 2015 plans. The agencies agreed that in the event that these filers have not, on or before December 31, 2015, submitted plans responsive to the identified shortcomings, the agencies expect to use their authority under section 165(d) to determine that a resolution plan does not meet the requirements of the Dodd-Frank Act.

NEW YORK– American International Group, Inc. (NYSE:AIG) announced today that it has agreed to acquire a controlling stake in NSM Insurance Group, a leading U.S. managing general agent and insurance program administrator, from ABRY Partners and NSM management. Terms of the deal were not disclosed. The transaction is expected to close within the next 30 days.

NSM Insurance Group is a recognized leader in insurance programs administration, well known for its unique development and implementation of programs for a broad range of niche customer segments. NSM has been managing certain insurance programs for AIG for more than 15 years and will continue to do so, while continuing to manage third party programs. AIG’s investment was executed through a non-operating holding company, NSM Investments, Inc.

AIG’s stake in NSM furthers its strategic goal of diversifying its product offerings and provides its customers greater access to unique insurance programs.

“NSM’s track record, highly innovative approach to program structuring, and strong reputation enhances AIG’s ability to deliver the comprehensive products and services customers need to successfully manage risk,” said Robert Schimek, AIG Senior Vice President and CEO of the Americas. “We look forward to working with the exceptional management team at NSM to further grow this important business.”

NSM Insurance Group is managed by a strong team with decades of proven leadership in distribution and program management. The company is located in Conshohocken, Pennsylvania, and employs 300 people across nine regional offices.

“We are pleased to partner with AIG,” said Geof McKernan, CEO, NSM Insurance Group. “AIG brings to NSM strong financial backing and A+ rated paper which will power our acquisitions and internal growth plans. Ultimately, AIG’s investment enables us to continue to be an entrepreneurial organization and to seek new opportunities and programs.”

American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 100 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.

Additional information about AIG can be found at www.aig.com | YouTube: www.youtube.com/aig | Twitter: @AIG_LatestNews | LinkedIn: http://www.linkedin.com/company/aig

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.

The boards of directors of Sabadell S.A. (Sabadell) and TSB Banking Group plc (TSB) are pleased to announce that they have reached agreement on the terms of a recommended cash offer for TSB by Sabadell pursuant to which Sabadell will acquire the entire issued and to be issued share capital of TSB (the Offer).
View full details on our RNS

Commenting on the Offer, Will Samuel, Chairman of TSB, said:
“Since the IPO, TSB has pursued a strategy focused on growing its share of personal current accounts, accelerating asset growth through re-entering the intermediary mortgage channel and providing the kind of banking that people want. The offer from Sabadell represents a significant endorsement of TSB’s progress since its IPO and provides TSB shareholders the opportunity to receive today in cash the value that would otherwise be unlocked over time as TSB executes its strategy.”

Commenting on the Offer, Paul Pester, Chief Executive Officer of TSB, said:
“Since its launch on high streets across Britain in September 2013, TSB has been successful in attracting new customers and establishing itself as Britain’s challenger bank.
Today’s offer by Sabadell to acquire TSB is a real vote of confidence in TSB, our 8,700 employees and the straightforward, transparent approach we’re bringing to banking in the UK.

With the support of Sabadell, TSB will benefit from the full capabilities the wider group will have to offer enabling us to accelerate our competitive capabilities even further.
I’m looking forward to working with Sabadell to continue to bring great banking to consumers across Britain, accelerate the expansion of our services to business customers and to continue to bring more”

The Federal Reserve System on Friday released the 2014 combined annual financial statements for the Federal Reserve Banks, as well as statements for the 12 individual Federal Reserve Banks, Maiden Lane LLC, and the Board of Governors. These financial statements are audited annually by an independent auditing firm and, consistent with prior years, received unmodified audit opinions for 2014.

The audited financial statements provide a significant amount of information about the assets, liabilities, and earnings of the Reserve Banks, Maiden Lane LLC, and the Board as of December 31, 2014, including information about the composition, fair value, and earnings related to the $4.4 trillion of U.S. Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities (MBS) acquired through open market operations.

The Federal Reserve Banks’ 2014 earnings, inclusive of other comprehensive income, were $99.7 billion. The Reserve Banks provided for remittances to the U.S. Treasury of $96.9 billion. Interest income on securities acquired through open market operations totaled $115.9 billion, an increase of $25.5 billion from the previous year. Interest expense on depository institutions’ reserve balances during the year was $6.9 billion. Losses from the daily revaluation of foreign currency denominated asset holdings were $2.9 billion. Reserve Bank operating expenses were $6.1 billion, including assessments of $1.9 billion for Board expenses, currency costs, and the operations of the Bureau of Consumer Financial Protection.

Total Reserve Bank assets as of December 31, 2014, were $4.5 trillion, which is an increase of $500 billion over the balance on December 31, 2013. Holdings of U.S. Treasury securities increased by $237 billion, and federal agency and GSE MBS holdings increased by $255 billion. GSE debt securities holdings decreased by $19.1 billion. Asset holdings of Maiden Lane LLC totaled $1.8 billion on December 31, 2014. Maiden Lane II LLC, Maiden Lane III LLC, and TALF LLC, which were created to respond to strains in financial markets, were dissolved in 2014 and all the residual assets were distributed to the Federal Reserve Bank of New York and to the respective entity’s other beneficial interest holders.

Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

The European Commission today presented a package of tax transparency measures as part of its ambitious agenda to tackle corporate tax avoidance and harmful tax competition in the EU. This marks the start of a new era of transparency. Today’s package includes a legislative proposal introducing the automatic exchange of information between Member States on their tax rulings and a communication outlining a number of other initiatives to advance the tax transparency agenda in the EU.

“Everyone has to pay their fair share of tax. This applies to multinationals as to everyone else. With today’s proposal on the automatic exchange of information, tax authorities would be able to better identify loopholes or duplication of tax between Member States. In the coming months, we will put forward concrete actions to tackle such loopholes or overlaps. We are committed to following up on our promises with real, credible and fair action,” said Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “Tolerance has reached rock-bottom for companies that avoid paying their fair share of taxes, and for the regimes that enable them to do this. We have to rebuild the link between where companies really make their profits and where they are taxed. To do this, Member States need to open up and work together. That is what today’s Tax Transparency Package aims to achieve.” Corporate tax avoidance is thought to deprive EU Member States’ public budgets of billions of euros a year. It also undermines fair burden-sharing among tax-payers and fair competition between businesses.

Companies rely on the complexity of tax rules and the lack of cooperation between Member States to shift profits and minimise their taxes. Therefore, boosting transparency and cooperation is vital in the battle against aggressive tax planning and abusive tax practices. Today’s Tax Transparency Package aims to ensure that Member States are equipped with the information they need to protect their tax bases and effectively target companies that try to escape paying their fair share of taxes. The press release is available in all EU languages here. More information of today’s texts can also be found in an online Fact sheet. The speaking points used by Commissioner Moscovici are available here.

1.GENERAL QUESTIONS
1.1 Why is the Commission presenting a Tax Transparency Package?
The Commission has made the fight against tax evasion and corporate tax avoidance a political priority, with a view to creating a socially and economically more efficient Single Market.
While much has been done to advance this agenda in recent years (see below), there is ample evidence that more measures are needed before Member States are sufficiently equipped to tackle these problems effectively. This is particularly the case in the field of corporate taxation, where there is clearly room for improvement when it comes to Member States’ cooperation against aggressive tax planning and harmful tax regimes.
At a time when citizens are making huge efforts and many small businesses are struggling to remain afloat, the ability of certain – mostly multinational – companies to minimise their taxes through aggressive tax planning is intolerable. Corporate tax avoidance not only eats into Member States’ much-needed revenues, but it also damages public morale and creates competitive disadvantages for companies that cannot, or will not, engage in abusive tax practices.
However, Member States cannot tackle this problem through purely national measures. Corporate tax avoidance is wide-scale and global and aggressive tax planners use complex, cross-border techniques to minimise their tax liability. The problem is exacerbated by the fact that many Member States have set up tax regimes designed to encourage multinationals to shift profits to their jurisdiction.
The current low level of transparency in corporate taxation enables these practices to continue unchallenged, because Member States lack information on the impact that other countries’ tax regimes are having on their own. It also means that loopholes between national tax regimes go unnoticed and are left open for aggressive tax planners to exploit.
Therefore, in order to re-establish the link between taxation and real economic activity and to effectively tackle corporate tax avoidance, the Commission has identified tax transparency as a priority. The measures put forward today should help to inject greater openness into Member States’ corporate tax regimes and to make companies more accountable for their tax practices.

1.2 What is the difference between tax evasion and corporate tax avoidance?
Tax evasion is the deliberate concealment of income or assets to escape paying the taxes due on them. It is illegal. Tax evasion may be carried out by individuals, companies or other entities, such as trusts.
Tax avoidance, on the other hand, is mostly associated with companies, rather than individuals. It usually falls just within the limits of the law, but goes against the spirit of the law. Using aggressive tax planning techniques, certain companies exploit legal loopholes in tax systems and mismatches between national rules to minimise their tax bills and avoid paying their fair share of taxes. Corporate tax avoidance frequently entails artificially shifting profits to low or no tax jurisdictions to reduce tax liability, thereby undermining the principle that taxation should reflect where the economic activity occurs.

2. TAX RULINGS
2.1 What is a tax ruling?
A tax ruling is a confirmation or assurance that tax authorities give to tax-payers on how their tax will be calculated. Tax rulings are typically issued to provide legal certainty for taxpayers, often by confirming the tax treatment of a large or complex commercial transaction. Tax rulings are mostly given in advance of the transaction taking place or a tax return being filed.
In cross-border cases, tax rulings can influence the allocation of a group’s taxable profits between its subsidiaries located in different countries. For example, a tax ruling might clarify the tax treatment of R&D or intellectual property, or help determine whether certain holding companies would be taxed and how. A particular type of tax ruling, known as an Advance Pricing Arrangement (APA), is used to confirm a company’s transfer pricing arrangements i.e. the prices for goods or services provided by one subsidiary of a corporate group to another subsidiary of the same group.
Tax rulings are in themselves not considered to be a problem and many Member States issue them. But there is an issue if the tax ruling gives preferential treatment to certain companies or (intentionally or not) facilitates aggressive tax planning. For example, tax rulings which offer a low level of taxation in one Member State can encourage companies to artificially shift profits there, leading to serious revenue losses for other Member States.

2.2 Why is the Commission proposing new transparency requirements for tax rulings?
Greater transparency for tax rulings is urgently needed in order to tackle aggressive tax planning and ensure fair tax competition between Member States. This has been highlighted through the Commission’s ongoing state aid investigations, work carried out by the Code of Conduct Group for Business Taxation and recent public revelations.
A tax ruling issued by one Member State can have an impact on the taxing rights or revenue of another Member State. For example, tax rulings which result in a low level of taxation in one Member State can entice companies to artificially shift profits there, leading to serious tax base erosion for other Member States. Moreover, tax rulings may inadvertently create loopholes between Member States’ tax systems (e.g. where two Member States independently agree to a tax deduction for a company on the same income), which aggressive tax planners can exploit to minimise their overall tax contribution.
The current framework does not foresee an automatic exchange of information, which means that Member States are often unaware of one another’s tax rulings, or the effect these are having on their own tax bases. As a result, they are unable to take the necessary and appropriate response to aggressive tax planning driven by tax rulings.
With the introduction of the automatic exchange of information on tax rulings, the EU is proposing a third major revision of the Directive on Administrative Cooperation. This will better equip Member States to protect their tax bases and counter-act aggressive tax planning. It should also deter companies from using tax rulings as part of their aggressive tax planning, as they will be under closer scrutiny and aware of the greater oversight that tax authorities will have.

2.3 What information exchange rules are currently in place for tax rulings?
Currently, EU legislation provides for spontaneous exchange of information on tax rulings, but only in certain circumstances. These spontaneous exchange provisions require a Member State to communicate information on their tax ruling(s) to any other Member State for whom the information may be relevant.
However, this system leaves a lot of room for interpretation by the Member State issuing the tax ruling. That State decides what is “relevant” and which other Member States should receive the information. In some cases, this leeway may be deliberately exploited to avoid sharing information. In other cases, the Member State issuing the tax ruling may simply not realise that this information could be useful to another Member State, so it doesn’t spontaneously exchange it. Moreover, under current rules, Member States can refuse to spontaneously exchange the information on the grounds of commercial secrecy laws or public policy.
In 2014, Member States were required, for the first time, to provide statistics to the Commission on their information exchange on tax rulings. This was required by the current Directive, which entered into force in 2013.These statistics confirmed that, in practice, very little information was being shared between tax authorities and that the spontaneous exchange of information on tax rulings has been quite ineffective.
That is why the Commission has now made it a priority to put forward clearer, more comprehensive and more stringent information exchange requirements for tax rulings.

2.4 What new transparency provisions is the Commission proposing for tax rulings?
Today’s proposal would oblige Member States to automatically exchange information on their tax rulings. This means that tax authorities would have to share a pre-defined set of information on all of their advance cross-border tax rulings with all other Member States. They would do this on a quarterly basis and following a standard format. Recipient Member States would then be allowed to request more detailed information on a particular tax ruling if they believe that it is relevant to their own taxation rules.
The big improvement that would come with this automatic exchange of information on tax rulings is that there would be clear and unequivocal rules on what information Member States must share with each other and when. The fact that Member States would have to send information on their rulings at regular, set intervals will help to ensure that information exchange is applied properly and comprehensively, and that the Commission would be able to monitor the correct application of the information exchange. Moreover, Member States would not be allowed to refuse or reduce information on the grounds of commercial secrecy or public policy.
With the automatic exchange of information, every Member State would know what cross-border tax rulings apply across the EU, and would be able to assess for itself whether a tax ruling of another Member State has an impact on itself. This would make all MS much better equipped to take the necessary measures to protect their tax base and to react to aggressive tax planning.

2.5 How would the automatic exchange of information on tax rulings work in practice?
Every three months, every Member State would be obliged to report to all the other Member States on the tax rulings they have issued in that period.
This report, sent via a secure email system, would contain a pre-defined, standard set of information. The Member States receiving the information would have to confirm receipt within 7 days, to ensure that the information has reached the intended recipients.
The recipient Member States would also have the right to request more detailed information on any of these rulings, where the information is relevant to the administration of the tax laws.
Every year, Member States would have to provide statistics to the Commission on the volume of information exchange on tax rulings.

2.6 What information on tax rulings would Member States be obliged to exchange automatically?
The proposal outlines the standard information that Member States would have to include in the quarterly reports on their tax rulings. This covers:
– Name of taxpayer and group (where this applies);
– A description of the issues addressed in the tax ruling;
– A description of the criteria used to determine an advance pricing arrangement;
– Identification of the Member State(s) most likely to be affected;
– Identification of any other taxpayer likely to be affected (apart from natural persons)
The aim is to keep the administrative burden to a minimum, while still ensuring that Member States have enough information to assess whether a tax ruling may be relevant to them. If it is, they can then request more detailed information from the Member State that issued the tax ruling.
Once the proposal is adopted, the Commission will work with Member States (on the basis of a delegated act) to standardise the way in which this information is presented e.g. a form with pre-defined boxes to make it as easy as possible for Member States to compile and to read the information.

2.7 How would the automatic exchange of information on tax rulings be enforced?
With today’s proposal, Member States would be legally obliged to report all rulings and there will be very clear rules on the frequency, content and format of the tax ruling information to be automatically exchanged. If a Member State were to not comply with these rules, the Commission would be entitled to open an infringement procedure against it.
It will be much easier for the Commission to react to a breach of the new information exchange rules than it is today, for a number of reasons. First, the requirements would be much clearer, without scope for different interpretations. The information would also be more structured. So there would be a more solid and defined legal ground for opening an infringement, when needed. Second, there wouldn’t be the “escape clauses” that previously made it difficult to prove an infringement. For example, Member States would no longer be able to refuse to exchange information on the grounds of protecting commercial secrecy or public policy, which is difficult to challenge. Finally, Member States would have to provide the Commission with information on the volume of information automatically exchanged on an annual basis. All of these factors would make non-compliance more obvious.
How would automatic exchange of information on tax rulings help fight corporate tax avoidance?
Example 1:
A group of companies sets up a management centre in Member State X, which has a low corporate tax rate. The management centre asks Member State X for a tax ruling to confirm that it must pay a royalty fee of 70% of its turnover to a holding company in a non-EU country.
Member State X gives the tax ruling, de facto agreeing only to tax 30% of the profits that the management centre makes.
The management centre (which consists of one part-time employee) then provides “management services” to all the group’s companies in other Member States and charges them 20% of their total turnover for these services. As a result, large amounts of the group’s revenue is shifted to Member State X, which applies a low tax rate to just 30% of these profits. The rest of the profits are shifted to the holding company in the non EU-country and remain untaxed.
The Member States in which the other companies are established are not aware of Member State X’s tax ruling, nor do they have enough information to challenge the high price that the tiny management centre in Member State X is charging the companies in their jurisdictions.
With the automatic exchange of information, the other Member States would be made aware of the tax ruling and the fact that only 30% of the management centre’s profits are being taxed by Member State X. They would then be allowed to request more information if they believed that this ruling, and the company’s set-up was impacting their taxing rights or eroding their tax base.
Example 2:
Member State X is a low tax country. A company in Member State X gets a tax ruling from the authorities there, confirming that it can charge very high prices for goods sold to its parent company in Member State Y. By doing this, the company generates artificially high profits in Member State X, which are taxed at a low rate.
The same company then transfers those profits back to the parent company in Member State Y in the form of dividends. By doing this, it avoids any further taxes on those profits, in line with the EU Parent-Subsidiary Directive. This Directive gives a tax exemption to dividends transferred between a subsidiary and its parent company, in an effort to prevent the double taxation of companies.
With the automatic exchange of information, Member State Y would find out about the artificially high prices that the subsidiary is charging to the parent company, in order to shift profits to Member State X. As a result, it may be able to apply the anti-abuse element of the Parent-Subsidiary Directive, and deny the company the usual tax exemption for dividends.

2.8 Do all Member States issue tax rulings and how many are issued every year?
It is not clear exactly how many countries issue tax rulings, or how many are issued. The Commission is currently gathering this information as part of a state aid inquiry (see IP/14/2742). With the proposed legal framework, it would be easier to quantify these tax rulings.
Moreover, Member States have different concepts of what constitutes a tax ruling, which makes it difficult to have a global view of national practices. For example, a Member State may not consider an opinion that it gives a company on its corporate tax treatment as a tax ruling, unless it is written down or legally binding.
In order to avoid divergent interpretations of what constitutes a tax ruling, which could enable some Member States to circumvent the new information exchange obligations, the Commission has included a clear and very wide definition of a tax ruling in today’s proposal. It is defined as “any communication or other instrument or action of similar effect, given by or on behalf of a Member State, regarding the interpretation or application of its tax laws”.
The on-going state aid inquiry, together with the greater clarity and transparency that today’s proposal will bring, should ensure a much better overview of the scale and nature of tax rulings in the future.

2.9 Would all tax rulings be covered by the proposal?
The proposal covers all advance cross-border tax rulings and all advance pricing arrangements which Member States issue to companies and entities. In addition to automatically exchanging information on any future tax rulings, Member States would also be obliged to do so on any cross-border tax ruling issued since 2005. This provision should ensure transparency on nearly all rulings which are currently valid.
Purely domestic tax rulings would be exempt, as these do not have consequences for the Internal Market or other Member States. Tax rulings issued to natural persons would also be exempt, in order to avoid unnecessary administrative burdens and data protection and privacy issues. In any case, a comprehensive level of information exchange for natural persons is already provided for under EU legislation, with a view to tackling tax evasion.

2.10 Would the new requirements create administrative burdens for tax administrations or companies?
The automatic exchange of information would be between tax authorities, on tax rulings that they have issued. There are no obligations or administrative burdens for companies under this proposal.
With regard to tax authorities, the additional burden of these new requirements should be minimal. Most Member States keep records of rulings and some already publish this information.
In addition, Member States already automatically exchange information on some forms of income (e.g. VAT and savings income), and will have to widen this coverage to all forms of financial information from 2017. The new requirements for tax rulings would be built into the existing legislative framework for information exchange, through amendments to the Directive on Administrative Cooperation. As such, Member States can use all the procedures and processes already in place, making it quicker and easier for them to apply the new rules for tax rulings.

2.11 Would businesses’ commercial secrets still be protected under the proposed new measures?
Up to now, Member States have been able to refuse to spontaneously exchange information on a tax ruling if they claim that they are protecting commercial secrets. This is a loophole which Member States seem to have used regularly, even though information exchange between tax authorities is covered by confidentiality clauses etc. Under the new proposal, they won’t be able to use commercial secrets as a reason for not automatically exchanging information. The information will have to be transmitted between tax authorities. However, once the information has been exchanged, companies’ commercial secrets and data would be protected because, under EU legislation, tax authorities are bound by official secrecy obligations and data protection provisions when information is shared between them. Therefore the commercial secrets of the company are respected, but without compromising the level of information tax authorities receive.

2.12 Why is the Commission not proposing to make all tax rulings public?
The quickest and most effective way to introduce more transparency on tax rulings is through the automatic exchange of information between tax authorities. The benefit of this approach is that there is already a solid EU legislative framework for information exchange, which the new requirements for tax rulings can make use of. This has enabled the Commission to make a proposal in a very short space of time (less than three months after the European Council called for it) and will allow Member States to rapidly apply the new provisions once they have adopted them. As a result, the primary objective of tax transparency for rulings can be quickly achieved, namely ensuring that Member States have the information they need to better react to profit shifting and prevent their tax bases from being eroded.
Publicly disclosing all tax rulings would not be any more effective than automatic exchange between tax administrations, from the point of view of Member States’ ability to react to abusive practices. Moreover, it would present much greater challenges than the measures proposed today, such as how to protect data and sensitive commercial information and how to prevent the published information from being misused.
However, the public disclosure of tax rulings could have other advantages. For example, it could serve as an additional deterrent against harmful tax regimes and aggressive tax planning, given the greater public scrutiny it would allow.
Therefore, the Commission will look further into the question of whether tax rulings information should be subject to wider publication, particularly by the companies that benefit from these rulings. The objectives, challenges, benefits, risks and costs of such a requirement need to be carefully considered before any decision is made.

2.13 Would the automatic exchange of information prevent the types of tax ruling that are currently under state aid investigation?
The very fact that there is more transparency on tax rulings should create a greater incentive for Member States and companies to play fair. If Member States are obliged to systematically share information on all their tax rulings with other tax authorities, they are less likely to issue rulings which breach EU state aid rules or the Code of Conduct principles of fair tax competition. If they do, the other Member States would be able to spot it more easily and report the breach to the Commission.
The automatic exchange of information on tax rulings may also deter companies from aggressive tax planning on the basis of tax rulings, as Member States would now have the information needed to detect and react to artificial arrangements and profit shifting.

2.14 How do the proposed EU measures for tax rulings relate to work being done by at international level through the OECD’s BEPS project (Base Erosion and Profit Shifting)?
The proposed automatic exchange of information for tax rulings goes further than what is currently being discussed at international level within the OECD’s BEPS project. Under BEPS, countries are currently considering the spontaneous exchange of information on tax rulings that provide preferential tax treatment. If implemented, this could provide a useful basis for exchange on tax rulings at global level. Nonetheless, it would be much more limited in scope than the automatic exchange of information proposed for the EU. Moreover, unlike the requirements under EU law, OECD measures are not legally binding.
With the automatic exchange of information on tax rulings, the EU could be a global standard setter for tax transparency. Past experience in the tax good governance field shows that, by leading the way, the EU has been able to push for more ambition internationally too. President Juncker already raised the idea of global automatic exchange of information on tax rulings with his international counterparts at the G20 meeting in Brisbane in November 2014.

3. OTHER TAX TRANSPARENCY MEASURES
3.1 What work has been done to improve tax transparency and tackle corporate tax avoidance in recent years?
In 2012, the Commission presented an Action Plan with over 30 measures to combat tax evasion and tax avoidance. Many of these focussed specifically on enhancing tax transparency and information exchange. Important progress has been made in taking these measures forward with a number of key initiatives already completed. These include:
– Expanding the automatic exchange of information on financial accounts: In December 2014, Member States adopted landmark transparency measures through a revision to the Administrative Cooperation Directive. This requires Member States to automatically exchange information on the full spectrum of financial information from 2017, and spells the end of bank secrecy in the Single Market. The revised Directive implements the new OECD/G20 global standard of automatic exchange in the EU. The revision of the Savings Tax Directive was also agreed in March 2014 (see above). MEMO/14/591
– Negotiating stronger tax agreements with neighbouring countries: The Commission is currently finalising negotiations with Switzerland, Andorra, Monaco, San Marino and Lichtenstein on ambitious new tax agreements. The agreements will secure the widest scope of automatic information exchange between the EU and each of these five countries, in line with the OECD/G20 global standard. They should be ready to be signed in the summer. MEMO/14/172
– Tightening corporate tax legislation: In November 2013, the Commission proposed measures to close loopholes in the Parent-Subsidiary Directive and address national mismatches (IP/13/1149+ Statement/15/3720. These have now been adopted by Member States and will enter into force in December 2015. They will shut off opportunities for a particular type of corporate tax avoidance and strengthen measures against tax abuse.
– Tackling harmful tax competition: The Commission has continued to scrutinise and control state aid granted through tax measures to companies. There are four ongoing investigations against specific tax rulings granted by Ireland (Apple), Luxembourg (Amazon and Fiat) and the Netherlands (Starbucks) and in-depth investigation into a Belgian corporate tax scheme. In addition, in December 2014, the Commission asked all Member States to provide information about their tax ruling practices to see if they were creating competitive distortions in the Single Market. The Commission has also supported the work of the Code of Conduct Group in addressing harmful tax competition and has contributed detailed analyses of many national tax regimes for consideration by the Code Group.
– Increasing corporate transparency: The revised Accounting Directive, adopted in 2013, obliges large extractive and logging companies to publicly report the payments – including taxes – which they make to governments, on a country-by-country basis (Statement/13/323). Since 2013, banks are also required to publicly disclose their activities, profits, taxes and subsidies in different jurisdictions, under the Capital Requirements Directive (CRD IV) (MEMO/13/690). The result has been a better oversight of the tax practices of companies in these sectors.
– Boosting transparency in capital flows: The fourth Anti-Money Laundering Directive will create greater transparency in capital flows (IP/13/87, MEMO/13/64). By introducing central registers of beneficial ownership information, accessible to Financial Investigation Units all over Europe, it will not only counteract terrorism financing but also indirectly benefit the fight against tax evasion. As regards tracing money flows, tax and customs authorities are also now cooperating to make better use of information on cash movements.
– Strengthening tools to fight VAT fraud: In June 2013, Member States unanimously agreed on a set of measures to better combat VAT fraud. The Quick Reaction Mechanism and reverse charge mechanism allow Member States to react more quickly and efficiently to large-scale VAT fraud, thereby reducing substantial losses for public finances (IP/12/868). A VAT Forum for business-to-tax authority dialogue has also been set up to better address problems in the VAT field.
– Establishing a Platform on Tax Good Governance: The Commission established a Platform on Tax Good Governance to discuss the best ways to fight tax evasion and avoidance and monitor progress in this area at both EU and national level (IP/13/351). The Platform brings together national and stakeholder experts (including NGOs, business groups, academics, accountants and unions) in order to achieve a more coherent and consistent EU position against non-cooperative jurisdictions and aggressive tax planning.
In addition, the EU has played an active role in pushing forward the international agenda to boost transparency and tackle corporate tax avoidance. It has made a strong contribution to the OECD/G20 BEPS project, due to be completed this year, while also looking at ways to integrate the new international measures against corporate tax avoidance at EU level.

3.2 What other new initiatives to improve tax transparency are in today’s Package?
While the proposal on tax rulings is the central feature of today’s Transparency Package, the Commission has also set out a number of other initiatives which contribute to advance tax transparency in the EU. These include:
– Repealing the Savings Tax Directive in order to ensure a streamlined and coherent framework for the automatic exchange of information
– Assessing the impact of possible requirements for multinationals in all sectors to publicly disclose certain corporate tax information
– Reviewing how the Code of Conduct on Business Taxation can be improved so that it is more effective in ensuring fair and transparent tax competition within the EU
– Exploring how to better quantify the level of tax evasion and avoidance in the EU, in order to better target measures against these problems.

3.3 Why is the Commission proposing to repeal the Savings Taxation Directive?
The revised Savings Tax Directive, adopted in March 2014, widened the scope of information that Member States would automatically exchange on savings income. (IP/12/1325). While this was an important transparency measure, its scope was limited to savings-related income.
In December 2014, Member States adopted a revision of the Administrative Cooperation Directive, which was much wider in scope than the Savings Directive. The revised Administrative Cooperation Directive would ensure that Member States automatically exchange the full spectrum of financial information from 2017. It reflects, in EU law, the new OECD/G20 global standard for the automatic exchange of information.
Provisions previously contained in the EU Savings Tax Directive are now entirely covered by the more ambitious Administrative Cooperation Directive. Therefore, in order to avoid duplication and overlapping EU legislation in this field, the Commission is proposing to repeal the Savings Tax Directive as part of today’s Tax Transparency Package. This will ensure a simpler and streamlined legislative framework for businesses and tax administrations, in line with the Commission’s REFIT objectives.

3.4 Would the repeal of the Savings Tax Directive have any consequences for the new tax agreements that the Commission is currently finalising with Switzerland, Andorra, Lichtenstein, Monaco and San Marino?
No. The mandate to negotiate stronger tax agreements with these five countries was never specifically linked to the Savings Tax Directive. The goal of these negotiations was always to ensure that the five countries exchanged an equivalent level of tax information with Member States to that exchanged within the EU. Given major advances in this field over the past few years, at both EU and global level, these agreements will be significantly more ambitious than originally foreseen. They will be aligned to the new global standard and will secure the widest scope of automatic information exchange on financial information between Member States and each of these five countries. The Commission is currently finalising these negotiations with the five neighbouring countries, and intends to present a proposal for their signature by summer 2015.

3.5 Is the Commission going to propose any new transparency requirements for companies?
The Commission intends to assess the impact of possible public disclosure requirements for multinational companies, which could require them to make certain corporate tax information public.
Such transparency requirements currently exist for banks under the Capital Requirement Directive IV (IP/14/1229) and for large extractive and logging industries under the Accounting Directive (see IP/11/1238 and MEMO/11/734), in the form of country-by-country reporting.
Extending such public disclosure obligations to multinationals in all sectors could help to deter aggressive tax planning, as companies would be subject to closer public scrutiny.
However, before a decision can be taken on the necessity and feasibility of such ambitious measures, the Commission will need to carefully assess the objectives, benefits, costs, risks and safeguards needed for such a move.

3.6 What is the Code of Conduct on Business Taxation and why is the Commission suggesting that it be reviewed?
To promote fair and transparent tax competition within the EU, Member States have committed to a Code of Conduct on Business Taxation. The Code, which is non-binding, sets out the criteria to assess whether national tax measures create harmful competition. This assessment is carried out by the Code of Conduct Group, made up of Member State representatives. The Code is essentially a political commitment by Member States to work together to eliminate harmful tax competition in the Single Market. Since it was established in 1997, around 400 tax regimes have been examined under the Code and over 100 harmful tax regimes have been abolished.
However, in recent years, the Code has become less effective tool for tackling harmful tax regimes. This is partly because the criteria in the Code are no longer adequate to assess certain modern and complex tax regimes, and partly because the Code of Conduct Group lacks a strong enough mandate to act decisively against such regimes.
The Commission will therefore work with Member States to see how the Code of Conduct can be improved and the Group made more effective.

SENDAI, JAPAN, March 16, 2015 – With developing countries the hardest hit by disasters like floods, cyclones, droughts and earthquakes, a new competitive challenge fund is being launched today to help developing countries design and implement ground-breaking solutions to overcome problems they face assessing disaster risks.

The Global Facility for Disaster Reduction and Recovery (GFDRR), the World Bank, and the UK Department for International Development (DFID) have joined forces to launch the new fund to help spur new and inventive approaches and partnerships so developing countries can better gauge disaster risks.

“Finding new ways to use technological innovation to empower communities to build their own solutions to the risk of disasters has proven effective from Nepal to New Orleans,” said Rachel Kyte, World Bank Group Vice President and Special Envoy for Climate Change. “We hope this challenge fund can further spread innovation.”

“The technology to help developing countries prepare for disasters is getting better every day. Early warning systems saved thousands of lives when Cyclone Sidr hit Bangladesh in 2007, aid workers in Haiti used crowd-sourcing software to find people after the 2010 earthquake, and weather forecasting expertise is helping the Philippines predict and prepare for catastrophes like Typhoon Haiyan,” said Desmond Swayne, Minister, International Development, UK.

“World-class innovations and data tools can save lives but global investment in these new technologies remains far too low and is not keeping pace with the growing risk countries face. That is why Britain is backing the best new ideas to help the world’s most vulnerable people limit the devastating cost of natural disasters,” he added.

The world is facing twice as many natural disasters as 30 years ago, with the annual cost to economies rising from $50 billion to almost $200 billion. To limit the human and financial cost, it is vital that countries understand the risks and how to reduce the impact of natural disasters on individuals, communities and governments. Rapid innovation means the technology already exists to help countries do this, but many of the world’s poorest countries still face difficulties in accessing and using this information.

Francis Ghesquiere, Manager, GFDRR, said: “We have great examples of where ‘disruptive innovation’ has transformed our lives, the internet being a classic example. In this field, we have seen the potential for crowdsourcing and participatory mapping sky-rocket, with governments around the world embracing the power of the crowd to collect data on schools, roads, refugee camps and so on. Datasets that would otherwise take years and millions of dollars to collect.”

The Challenge Fund aims to help decision makers in developing countries to make the best use of technology and data through new approaches and innovative partnerships between technology companies, NGOs and those at risk from natural disasters.

With a Challenge Fund grant, organizations will respond to challenges including how to:

Access high resolution digital models of an area’s terrain and elevation;
Identify and collect missing data that undermines countries’ ability to understand the risks they face;
Develop new approaches to modeling risk; and
Develop innovative approaches to communicating risk information to different stakeholders.
In its first phase, the Challenge Fund will provide between $20,000 and $150,000 to up to 20 projects. More information on the fund including how to apply can be found here.

About the Global Facility for Disaster Reduction and Recovery
The Global Facility for Disaster Reduction and Recovery (GFDRR) helps high-risk, low-income developing countries better understand and reduce their vulnerabilities to natural hazards, and adapt to climate change. Working with over 400 partners—mostly local government agencies, civil society and technical organizations—GFDRR provides grant financing, on-the-ground technical assistance to mainstream disaster mitigation policies into country-level strategies, and a range of training and knowledge sharing activities. GFDRR is managed by the World Bank and funded by 25 donor partners.

About the Department for International Development
The Department for International Development (DFID) leads the UK’s work to end extreme poverty. We’re ending the need for aid by creating jobs, unlocking the potential of girls and women and helping to save lives when humanitarian emergencies hit.

The Executive Board of the International Monetary Fund (IMF) today approved a four-year extended arrangement under the Extended Fund Facility for Ukraine. The arrangement amounts to the equivalent of SDR 12.348 billion (about US$17.5 billion, 900 percent of quota) and was approved under the Fund’s exceptional access policy. The Board also took note of Ukraine’s decision to cancel the Stand-By Arrangement (SBA) for Ukraine that was approved on April 30, 2014 (see Press Release No. 14/189).

The authorities’ economic program supported by the Extended Fund Facility (EFF) will build on and deepen reforms launched under the SBA. The program aims to put the economy on the path to recovery, restore external sustainability, strengthen public finances, and support economic growth by advancing structural and governance reforms, while protecting the most vulnerable.

The approval of the extended arrangement under the EFF enables the immediate disbursement of SDR 3.546 billion (about US$5 billion), with SDR 1.915 billion (about US$2.7 billion) being allocated to budget support. Further disbursements will be based on standard quarterly reviews and performance criteria.

Following the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:
“Notwithstanding a strong policy-led adjustment effort in 2014, the Ukrainian economy continues to be affected by the conflict in the East and the attendant loss of confidence. The deep recession and sharp exchange rate depreciation aggravated existing vulnerabilities, weakened bank balance sheets, and raised public debt.

“Demonstrating strong resolve, Ukraine’s authorities have developed a new program to restore macroeconomic stability and address long-standing structural obstacles to growth, including weak governance. The authorities recognize that the resolute implementation of the program is critical to restore confidence and growth, bring inflation to single digits, keep external deficits manageable, and replenish international reserves.
“The authorities recognize that the best support for the hryvnia is the restoration of confidence through strong policies and reforms. To support this new regime, appropriate reserve targets are included in the program. While program policies are taking hold, the authorities plan to maintain monetary policy rates positive in real terms to anchor inflation expectations, and remove capital controls and restrictions at an appropriately calibrated pace as the balance of payments improves.

“The authorities are determined to stabilize the financial system, maintain confidence in banks, and strengthen financial regulation and supervision. To this end, they have made progress toward recapitalizing systemic banks and resolving weak non-systemic banks. The decisive implementation of the banking strategy would be crucial to regain public confidence.

“Recognizing the need for fiscal consolidation, the authorities have launched an expenditure-led adjustment and frontloaded energy price increases to reduce quasi-fiscal losses and set debt on a firm downward path. Policies to underpin the fiscal adjustment include improving the pension system’s sustainability, reforming public employment, and reforming the healthcare and education systems. The planned debt operation would also help secure program financing and restore debt sustainability with high probability. A successful debt operation with high participation will be a key consideration to proceed with the first program review.

“The authorities plan to eliminate the large quasi-fiscal losses of Naftogaz by 2017 by undertaking bold measures to increase tariffs, improve collection rates, and fundamentally restructure the company. Funding to protect the most vulnerable from the impact of the energy price increases will be raised to alleviate social costs and build support for the reforms.

“Addressing deep-rooted structural problems is critical to create an enabling environment for investment and private sector activity. Tackling weak governance and improving the business climate is critical to increase investment and achieve higher growth. A comprehensive strategy to reform state-owned enterprises is important to enhance efficiency and reduce fiscal risks.

“The program is subject to exceptional risks, especially those arising from the conflict in the East, which may affect the country’s ability to sustain the stabilization efforts and deliver the structural overhaul needed to resume growth. On the other hand, the crisis provides an opportunity for the government to make a decisive break from the past and implement reform-oriented and sustainable policies with strong ownership. The authorities’ program responds appropriately to present challenges and deserves strong support. The implementation risks are being mitigated by a critical set of measures adopted as prior actions and by securing broad political support for program objectives and policies. These should help unlock sizable international official assistance and private capital inflows.”

Recent Economic Developments
Despite the authorities’ policy efforts, the economy fell into a deep recession in 2014. The conflict in Eastern Ukraine had a significant impact on the economy and the financial system, through disruptions in trade and industrial production and loss of confidence, which fueled capital outflows and led to sharp exchange rate depreciation. Banks came under increasing stress, public debt increased, and international reserves fell to low levels. New financing needs emerged.
Under the SBA, the authorities began implementing difficult reforms to tackle unsustainable policies of the past, including fiscal adjustment, greater exchange rate flexibility, and increases in energy prices, as well as simplifying the regulatory environment for business activity and taking steps to improve governance. Despite these efforts, meeting the program objectives became difficult given the size of the new shocks. Restoring external sustainability will now take longer and require even deeper reforms. To address these challenges, the authorities have asked for a cancellation of the SBA and its replacement with a new four year extended arrangement under the EFF.
Program Summary
The authorities’ economic program supported by the Fund aims to secure external and financial stability and restore robust economic growth, while protecting the most vulnerable. Specifically, the policies would aim at:
Securing financial stability. This includes (i) a strong monetary policy framework to restore price stability; (ii) exchange rate flexibility to cushion the economy against external shocks; and (iii) a comprehensive strategy to strengthen banks’ financial health, through bank recapitalization, reduction of related party lending, and resolution of impaired assets, which are critical to regain public confidence and support economic recovery.

Strengthening public finances. An expenditure-led adjustment will support fiscal consolidation in the coming years. Together with energy sector reforms and the announced debt operation, this would reduce fiscal imbalances and achieve public debt sustainability with high probability. Social protection schemes would be revamped to protect the poorest and alleviate social costs.

Advancing structural reforms. Decisive efforts will help revitalize the business climate, attract investment, and enhance Ukraine’s growth potential. This includes governance reforms, including anti-corruption and judicial measures, deregulation and tax administration reforms, and reforms of state-owned enterprises to improve corporate governance and reduce fiscal risks. Broader energy sector reforms, including Naftogaz’s restructuring, would increase energy efficiency and foster energy independence.
Macroeconomic Outlook
In the current difficult environment, real GDP is expected to contract by about 5½ percent in 2015. Inflation is expected to spike temporarily in response to the exchange rate depreciation and gas and heating tariff increases, before subsiding to about 27 percent at end-2015. The current account deficit should fall to about 1½ percent of GDP on the back of the exchange rate adjustment and subdued domestic demand. With sizable international assistance, gross international reserves will be gradually re-built, reaching around 3.3 month of imports coverage at end-2015. The currency devaluation and official borrowing are expected to push public sector debt up to 94 percent of GDP and external debt to 158 percent of GDP in 2015.
Ukraine’s economic prospects will improve in the medium-term. Real GDP growth is expected to rebound to 2 percent in 2016 and rise to 4 percent in the medium term. Buoyed by restored competitiveness, the current account deficit is projected to stabilize at around 1¼ percent of GDP in 2016–18. By end-2018, inflation will fall to mid-single digits and the NBU will build its international reserves to cover nearly 83 percent of short term debt. Following the debt operation and sustained fiscal adjustment, public debt is expected to decline to around 71 percent of GDP by 2020.

Benjamin M. Lawsky, Superintendent of Financial Services, announced today that Commerzbank will pay a $1.45 billion penalty, terminate individual employees who engaged in misconduct, and install an independent monitor for Banking Law violations in connection with transactions on behalf of Iran, Sudan, and a Japanese corporation that engaged in accounting fraud. The overall $1.45 billion penalty includes $610 million to the Department of Financial Services (DFS); $300 million to the U.S. Attorney’s Office for the Southern District of New York; $200 million to the Federal Reserve; $172 million to the Manhattan District Attorney’s Office and $172 million to the U.S. Department of Justice.

Superintendent Lawsky said: “When there was profit to be made, Commerzbank turned a blind eye to its anti-money laundering compliance responsibilities. Bank employees helped facilitate transactions for sanctioned clients such as Iran and Sudan, and a company engaged in accounting fraud. What is especially disturbing is that employees sought to alter the Bank’s transaction monitoring system so that it would create fewer ‘red flag’ alerts about potential misconduct, which highlights a potential broader problem in the banking industry.”

From at least 2002 to 2008, Commerzbank used a series of measures – including stripping out information identifying clients subject to U.S. sanctions (“wire-stripping”) – to process 60,000 U.S. dollar clearing transactions valued at over $253 billion on behalf of Iranian and Sudanese entities. Additionally, deficiencies in Commerzbank’s anti-money laundering compliance program resulted in Commerzbank’s facilitation of numerous payments through the Bank’s New York Branch that furthered a massive accounting fraud by the Olympus Corporation, a Japanese optics and medical device manufacturer.

Anti-money-laundering Compliance Failures

Foreign branches often transmitted payment requests to Commerzbank’s New York Branch using non-transparent SWIFT payments messages that did not disclose the identity of the remitter or beneficiary. As a result of not having a complete picture of the transactions, Commerzbank’s New York Branch’s compliance processes and controls were ineffective, and fewer alerts or red flags were raised than would have been if full information had been shared.
Even when transactions from foreign branches did trigger alerts in New York, the New York compliance staff did not have access to the customer information necessary to investigate the alert; they had to request relevant information directly from the foreign branch or from the Home Office in Frankfurt. Overseas personnel, however, often did not respond to those requests by New York staff for many months or sent inadequate or insufficient responses. Many overseas employees were uncooperative or did not respond to requests for more information by those investigating alerts – they felt that New York compliance staff were simply “crying wolf” when they raised BSA/AML compliance issues.

On some occasions, because information from overseas offices was not provided, New York staff “cleared” or closed alerts based on its own perfunctory internet searches and searches of public source databases, without ever receiving responses to its requests for information from the foreign offices.
In an interview with investigators, a New York-based vice president in compliance who was involved in establishing the thresholds used by Commerzbank’s New York Branch’s monitoring software in effect until 2010 reported that, while the goal of the threshold-setting process was to identify suspicious transactions and exclude irrelevant alerts, the threshold floors were driven by the volume of the output of alerts – that is, the threshold floors were set based on a desire not to generate “too many alerts.”

In addition, the New York compliance staff member charged with overseeing the implementation of a new transaction monitoring tool told investigators that the Head of Regional Compliance for Commerzbank’s New York Branch required a weekly update as to the number of alerts generated by the transaction monitoring system.

Furthermore, the compliance staff member reported that in 2011, both the Head of Regional Compliance and the Head of AML Compliance asked him to change the thresholds in the automated system to reduce the number of alerts generated. The compliance staff member reported that he refused to do so.

Olympus Corporation Accounting Fraud

Commerzbank’s BSA/AML compliance deficiencies allowed a customer to operate a massive corporate accounting fraud through the Bank, during which time some senior bank officials in Singapore – two of whom later held senior positions in Commerzbank’s New York Branch while the fraud was ongoing – had suspicions about the business but failed to convey those suspicions to compliance personnel in Commerzbank’s New York Branch or take adequate steps to stop fraudulent transactions.

From the late 1990s through 2011, the Olympus Corporation, a Japanese optics and medical device manufacturer, perpetuated a massive accounting fraud designed to conceal from its auditors and investors hundreds of millions of dollars in losses. Olympus perpetuated its fraud through Commerzbank’s private banking business in Singapore, known as Commerzbank (Southeast Asia) Ltd. (“COSEA”), and a trusts business in Singapore, Commerzbank International Trusts (Singapore) Ltd., and the New York Branch, through its correspondent banking business. Among other things, the fraud was perpetuated by Olympus through special purpose vehicles, some of which were created by Commerzbank – including several executives based in Singapore – at Olympus’s direction, using funding from Commerzbank. One of those Singapore-based Commerzbank executives, Chan Ming Fong – who was involved both in creating the Olympus structure in 1999 while at COSEA, and who later on his own managed an Olympus-related entity in 2005-2010 on behalf of which Chan submitted false confirmations to Olympus’s auditor – subsequently pled guilty in the United States District Court for the Southern District of New York to conspiracy to commit wire fraud. Starting as early as 1999 and continuing intermittently until 2010, Commerzbank facilitated numerous transactions through New York, totaling more than $1.6 billion, which supported the accounting fraud by Olympus.

Over the life of the fraud, numerous Commerzbank employees in Singapore raised concerns about the Olympus business and related transactions. But those concerns did not lead to effective investigation of the business and were not shared with relevant staff in New York responsible for BSA/AML compliance. For example, when Commerzbank sent a London-based compliance officer on special assignment to Singapore in 2008 to analyze and help enhance compliance efforts there, he was told by the Bank’s Asian Regional Head of Compliance and Legal to pay particular attention to the Olympus-related business. The Regional Head of Compliance warned him that, while the business yielded “very substantial” fees for Commerzbank, the structure of the business was “complex” and “extraordinarily elaborate and redolent of layering” and that it raised suspicions of money laundering, “fraud, asset stripping, market manipulation, and derivative Tax offences.”

A new staff member was installed as Head of Regional Compliance for the New York Branch in approximately June 2010. He, too, had spent time at Commerzbank’s Singapore affiliates before coming to New York. And he, too, was aware of the compliance deficiencies in Singapore and of the suspicious nature of the Olympus-related business, which he also knew involved wire transactions through New York. For example, while he was working in Singapore, a resigning compliance staff member told him that Singapore compliance was “a time bomb ready to go off.” Yet, after moving to the New York Branch, he also failed to share any concerns with the New York compliance staff who would have been in a position to scrutinize the fraudulent transactions being processed through New York.

Wire Stripping and Other Schemes to Facilitate Iranian and Sudanese Transaction

Commerzbank also used altered or non-transparent payment messages to process tens of thousands of transactions through New York on behalf of customers subject to U.S. economic sanctions.

In an effort to grow its business relationships with Iranian customers in the early 2000s, Commerzbank created internal procedures for processing U.S. dollar payments to enable those clients, which included state-controlled financial institutions such as Bank Sepah and Bank Melli, to clear U.S. dollar payments through the U.S. financial system without detection.

From at least May 2003 to July 2004, Commerzbank altered or stripped information from wire messages for payments involving Iranian parties subject to U.S. sanctions so as to hide the true nature of those payments and circumvent sanctions-related protections.

The Bank designated a special team of employees to manually process Iranian transactions – specifically, to strip from SWIFT payment messages any identifying information that could trigger OFAC-related controls and possibly lead to delay or outright rejection of the transaction in the United States. Bank employees circulated both formal written instructions and informal guidance via email directing lower-level staff to strip information that could identify sanctioned parties from wire messages before sending the payment messages to U.S. clearing banks.

Beginning in 2005, Commerzbank processed U.S. dollar payments for an Iranian subsidiary of the Islamic Republic of Iran Shipping Lines (“IRISL”) using the accounts of a different, non-Iranian IRISL affiliate in order to avoid detection by correspondents and regulators in the U.S. Later, after the Bank instituted a policy limiting its business with Iranian customers in 2007, Hamburg branch employees moved the accounts of two Iranian IRISL subsidiaries into sub-accounts under the account of one of IRISL’s European affiliates and also changed the country identification codes for certain IRISL affiliates in the Bank’s internal records so as to obfuscate these entities’ true Iranian relationship.

In addition, the Bank recognized that other international financial institutions declined to process Sudanese U.S. dollar transactions, due to U.S. sanctions, and therefore that Sudan represented a potentially profitable market. From at least 2002 to 2006, the Bank maintained U.S. dollar accounts for as many as 17 Sudanese banks, including five SDNs, and processed approximately 1,800 U.S. dollar transactions valued at more than $224 million through the U.S. using non-transparent methods for these clients and other Sudanese entities.

Commerzbank’s New York Branch also helped hide the true nature of the Bank’s U.S. dollar clearing activities by failing to act on numerous indications that payment requests were being submitted in a non-transparent manner; in 2004, an employee even called upon the Frankfurt office to “suppress” the creation of MT210s relating to payments ordered by Iranian banks because “authorities could view our handling of them as problematic.”

Termination of Commerzbank Employees under DFS Order

While several of the Bank employees who were centrally involved in the improper conduct discussed in this Consent Order no longer work at the Bank, several such employees do remain employed by the Bank.

The Department’s investigation has resulted in the resignation from Commerzbank of the employee then serving as the Head of AML, Fraud, and Sanctions Compliance for Commerzbank’s New York Branch, who played a central role in the improper conduct described in this Consent Order.

DFS also ordered the Bank to take all steps necessary to terminate four additional employees, who played central roles in the improper conduct but who remain employed by the Bank: a relationship manager in the Financial Institutions Department; a staff member in the Interest, Currency & Liquidity Management Department; and two members of the Cash Management & International Business Department.

Additionally, as previously noted, a Singapore-based Commerzbank executive who was involved both in Olympus matter pled guilty in the United States District Court for the Southern District of New York to conspiracy to commit wire fraud.

Superintendent Lawsky thanks U.S. Attorney Preet Bharara; Manhattan District Attorney Cy Vance, the U.S. Department of Justice, the Federal Reserve; and the U.S. Department of the Treasury for their work and cooperation in the Commerzbank investigation.

The Council granted France two extra years to bring its government deficit below 3% of GDP, the EU’s reference value for deficits.

In a recommendation adopted on 10 March 2015 under the excessive deficit procedure, it called on France to correct the deficit by 2017.

The Council called on France to fully implement measures already adopted for 2015. It called for an additional fiscal effort by the end of April 2015, involving additional structural measures equivalent to 0.2% of GDP. This will enable France to close the gap with a recommended improvement in the structural budget balance of 0.5% of GDP for 2015.

Weak economic conditions

The Council found that extending the deadline for correcting the deficit was justified by the fiscal effort made by France since 2013, and by the current weak economic conditions and other factors.

According to the Commission’s 2015 winter economic forecast, the government deficit is projected to reach 4.3% and 4.1% of GDP in 2014 and 2015, respectively. France is thus set to miss the previous 2015 deadline for correcting its deficit.

Fiscal effort since 2013

The cumulated adjustment in the country’s structural balance over 2013-2014 is estimated to have reached 1.9% of GDP. This falls short of the 2.1% of GDP recommended by the Council in June 2013. However, the Commission estimates that the fiscal effort made by France amounted to ‑0.1% in 2013 and 1.1% in 2014. The cumulated effort is thus in line with the “above 1.0% of GDP” indicated by the Council. The evidence did not lead the Council to conclude that no effective action had been taken.

In setting 2017 as a new deadline, it took into account economic conditions and other relevant factors, such as the implementation of structural reforms. It required an annual adjustment in the structural balance that is at least equal to the minimum benchmark of 0.5 % of GDP set by the EU’s Stability and Growth Pact.

Excessive deficits since 2009

This is the third time the deadline for the correction of France’s deficit has been extended. The country has been subject to an excessive deficit procedure since April 2009, when an initial Council recommendation called for its deficit to be corrected by 2012.

In December 2009 however, the Council extended this deadline to 2013, after the Commission forecast that France’s 2009 general government deficit would reach 8.3% of GDP, nearly three percentage points higher than its previous estimate.

In June 2013, the Council extended the deadline again, this time to 2015, on account of a worse-than-expected deterioration in France’s economy.

New deficit targets

In its new recommendation, the Council set headline deficit targets if 4.0% of GDP for 2015, 3.4% for 2016 and 2.8% for 2017. This is consistent with improvements in the structural budget balance of 0.5 % of GDP in 2015, 0.8 % in 2016 and 0.9% in 2017. To achieve the targets, additional measures of 0.2% of GDP in 2015, 1.2% in 2016 and 1.3% in 2017 will be required.

The Council set a deadline of 10 June 2015 for France to take effective action.

WASHINGTON—Today, Administrator Maria Contreras-Sweet, the head of the U.S. Small Business Administration (SBA) and Dan Berger, President of the National Association of Federal Credit Unions (NAFCU), signed a Memorandum of Understanding (MOU) to invest in America’s future entrepreneurs and economy.

“The SBA and NAFCU are formalizing a national partnership to promote small business lending. Credit unions help their members with so many other financial needs, and we want them to be able to help the entrepreneurs they serve with SBA loans as well,” says Contreras-Sweet. “Credit unions have stepped up and stepped in to fill a real need, adding outlets for SBA loans in communities that need our assistance the most. SBA’s joint effort with NAFCU will make credit unions even more valuable as we work to give credit where it’s due to small business across the nation.”

“We appreciate SBA Administrator Contreras-Sweet’s attention to microlending and her innovative efforts to engage credit unions in this space,” said Berger. “This partnership is particularly valuable to credit unions because each dollar of an SBA-guaranteed business loan from a credit union is excluded from the credit union’s member business lending cap. This affords credit unions much-needed flexibility to serve their small business members. Credit unions have always wanted to do more to help their small business members, and this initiative will go a long way toward making that possible.”

The partnership between the SBA and credit unions will increase the availability of small dollar loans by providing more outlets entrepreneurs can access SBA products in their neighborhoods. Second, it will help small business owners get capital for investments into their new or existing business they may have otherwise put on a high-interest credit card or a personal credit line. Third, it will make the small dollar loans more accessible to underserved communities, including women and minorities.

About the Small Business Administration (SBA)
The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. We recognize that small business is critical to our economic recovery and strength, to building America’s future, and to helping the United States compete in today’s global marketplace. Although SBA has grown and evolved in the years since it was established in 1953, the bottom line mission remains the same. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam. www.sba.gov

About National Association of Federal Credit Unions (NAFCU)
The National Association of Federal Credit Unions (NAFCU) is a direct membership association committed to representing, assisting, educating and informing its member credit unions and their key audiences. Founded in 1967, NAFCU is an independent voice in Washington, focusing exclusively on the needs and issues of federal credit unions. NAFCU’s specific, overriding purpose: to directly shape the laws and regulations under which federal credit unions operate.

SBA’s participation is not an endorsement of the views, opinions, products or services of any person or entity.

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference, here, in Nicosia. I would like to thank Governor Georghadji for her kind hospitality and to express our special gratitude to her staff for the excellent organisation of today’s meeting of the Governing Council.

Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged. As regards non-standard monetary policy measures, the focus is now on implementation.

Following up on our decisions of 22 January 2015, we will, on 9 March 2015, start purchasing euro-denominated public sector securities in the secondary market. We will also continue purchasing asset-backed securities and covered bonds, which we started last year. As previously stated, the combined monthly purchases of public and private sector securities will amount to €60 billion. They are intended to be carried out until the end of September 2016 and will, in any case, be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. Further information on certain implementation aspects of the public sector purchase programme will be released at 3.30 p.m. CET on the ECB’s website.

We have already seen a significant number of positive effects from these monetary policy decisions. Financial market conditions and the cost of external finance for the private economy have eased further, also following our previous monetary policy measures. In particular, borrowing conditions for firms and households have improved considerably. Moreover, money and credit dynamics have been firming.

The substantial additional easing of our monetary policy stance supports and reinforces the emergence of more favourable developments for the euro area economy. In an environment of improving business and consumer sentiment, the transmission of our measures to the real economy will strengthen, contributing to a further improvement in the outlook for economic growth and a reduction in economic slack. Thereby, our measures will contribute to a sustained return of inflation towards a level below, but close to, 2% over the medium term and underpin the firm anchoring of medium to long-term inflation expectations.

Let me now explain our assessment in greater detail, starting with the economic analysis. According to Eurostat’s flash estimate, real GDP in the euro area rose by 0.3%, quarter on quarter, in the last quarter of 2014, which was somewhat higher than previously expected. The latest economic data and, particularly, survey evidence available up to February point to some further improvements in economic activity at the beginning of this year. Looking ahead, we expect the economic recovery to broaden and strengthen gradually. The low level of the price of oil should continue to support households’ real disposable income and corporate profitability. Domestic demand should also be further supported by our monetary policy measures leading to ongoing improvements in financial conditions, as well as by the progress made in fiscal consolidation and structural reforms. Moreover, demand for euro area exports should benefit from improvements in price competitiveness and from the global recovery. However, the euro area recovery is likely to continue to be dampened by the necessary balance sheet adjustments in various sectors and the rather slow pace of implementation of structural reforms.

This assessment is also broadly reflected in the March 2015 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017. Compared with the December 2014 Eurosystem staff macroeconomic projections, the projections for real GDP growth in 2015 and 2016 have been revised upwards, reflecting the favourable impact of lower oil prices, the weaker effective exchange rate of the euro and the impact of the ECB’s recent monetary policy measures.

The risks surrounding the economic outlook for the euro area remain on the downside but have diminished following recent monetary policy decisions and the fall in oil prices.

According to Eurostat’s flash estimate, euro area annual HICP inflation was -0.3 % in February 2015, after -0.6% in January. The negative outcomes largely reflect the impact of the significant fall in oil prices since July 2014. On the basis of current information and prevailing futures prices for oil, annual HICP inflation is expected to remain very low or negative in the months ahead. Supported by the favourable impact of our recent monetary policy measures on aggregate demand, the impact of the lower euro exchange rate and the assumption of somewhat higher oil prices in the years ahead, inflation rates are expected to start increasing gradually later in 2015.

This assessment is also broadly reflected in the March 2015 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.0% in 2015, 1.5% in 2016 and 1.8% in 2017. In comparison with the December 2014 Eurosystem staff macroeconomic projections, the inflation projection for 2015 has been revised downwards, mainly reflecting the fall in oil prices. In contrast, the inflation projection for 2016 has been revised slightly upwards, also reflecting the expected impact of our recent monetary policy measures.

The Governing Council will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, geopolitical developments, and exchange rate and energy price developments.

When discussing the economic outlook and the new projections, the Governing Council acknowledged that the staff projections are conditional on the full implementation of all our policy measures. Moreover, the March staff projections extend the horizon to 2017. In this context, the Governing Council again stressed that the degree of forecast uncertainty tends to increase with the length of the projection horizon.

Turning to the monetary analysis, recent data confirm the gradual increase in underlying growth in broad money (M3). The annual growth rate of M3 increased to 4.1% in January 2015, up from 3.8% in December 2014. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 9.0% in January.

The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -0.9% in January 2015, after -1.1% in December 2014, continuing its gradual recovery from a trough of -3.2% in February 2014. The three-month cumulated net lending flows were positive in January for the second consecutive month, compared with sizeable net redemptions still recorded a year ago. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued and continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased further to 0.9% in January 2015, after 0.8% in December 2014. Our recent monetary policy measures should support a further improvement in credit flows.

To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the appropriateness of the Governing Council’s recent decisions. The determined implementation of all our monetary policy measures will provide support to the euro area recovery and bring inflation rates towards levels below, but close to, 2% in the medium term.

Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas need to contribute decisively. Given high structural unemployment and low potential output growth in the euro area, a cyclical recovery along the lines of the March ECB staff projections is no grounds for complacency. In particular, in order to increase investment, boost job creation and raise productivity, both the decisive implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively, as this will not only increase the future sustainable growth of the euro area but also raise expectations of higher incomes and encourage firms to increase investment today, bringing forward the economic recovery. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Stability and Growth Pact is key for confidence in our fiscal framework. In view of the necessity to step up structural reform efforts in a number of countries, it is also important that the macroeconomic imbalance procedure is implemented effectively in order to address the excessive imbalances as identified in individual Member States.

We are now at your disposal for questions.

* * *
Question: Mr Draghi, could you explain to us what the Governing Council means by sustained adjustment in the path of inflation? That seems to be the criteria for success of your asset purchase programme.

My second question is about Greece. The Greek government would like to be able to fund its short-term obligations by issuing more T-bills. The ECB has one of these T-bill limits in its control, namely the ceiling that is set on T-bills that can be placed as collateral. My question is, would you be willing, or would the Governing Council be willing, to raise this ceiling at some point, and under what conditions?

Draghi: The sustained improvement, it just says what it says. There is no other way to answer your first question. In other words, a material dislocation from the foreseen objective would be the criteria, but at this point in time, we see absolutely no reason to think or plan or act in any different way from what we’ve planned, namely the purchasing of €60 billion a month of securities until September 2016, or beyond, if needed.

On your second point, a quick answer to your question is the following. The ECB is a rule-based institution. It’s not a political institution. One of the rules that we comply with is contained in the Treaty, and it’s Article 123, and it’s the prohibition of monetary financing. Monetary financing is when the central bank of a country prints money to buy the government bonds in the primary market of that country, and it could be either direct or indirect, when banks bring collateral to the ECB in order to be financed in order to buy the sovereign debt of that country, and we are prohibited from doing that.

Question: There are more and more government bond yields that have turned negative in the eurozone. You said in January that negative bond yields wouldn’t prohibit you from doing QE, but is there a limit to how low, how negative these bond yields can be in order for you to purchase bonds at a negative yield?

My second question is, we’ve seen a major impact in the financial markets from the run-up to QE, the QE decision, equity prices at record highs, bond yields at record lows. Is there a danger that this policy is going to widen the wedge between the rich and the poor? People with access to financial markets are going to benefit, but the people in the eurozone who are without a job or are struggling might not see the fruits of the quantitative easing decision as much as people with access to the financial markets.

Draghi: First of all, let me say, our monetary policy decisions have worked, and it’s with a certain degree of satisfaction that the Governing Council has acknowledged this. The monetary policy decisions we are discussing today are the final set of measures of a series of decisions that have been taken starting in June last year, and we see that the objectives are gradually being attained. The market reaction to the announcement, the expectation first and the announcement second, of our asset purchase programme has also been quite effective and quite positive.

We haven’t even started, and a lively discussion about whether we’ll actually be able to do this has developed. It’s quite interesting that until a month ago, nobody had any doubt that public debt, sovereign debt in the euro area, was actually very, very big, and now some people worry that we won’t have enough bonds. Incidentally, I’m told that the very same statements were made when the US and the UK started their bond buying programme. But the bottom line of this is that there may be complexities. We think they’re not relevant. We observe that almost half of the euro bonds are outside the euro area and we also observe that the average weighted price of bonds in the 2 to 30-year maturity is well above par. It’s exactly 124%. So how negative do we go? Until the deposit rate.

The second question assumes that the improvements we see in the financial markets will never pass through to the real economy, but that’s exactly what we have not been observing over the last few months. As a matter of fact, in a more and more accelerated way, we’ve seen a decline, if not a steep fall, in the lending rates across the euro area, a significant decrease in dispersion in the lending rates. You know from previous press conferences that fragmentation on the funding side for the banking system has basically disappeared several months ago, but for quite a time, fragmentation on the lending side still remained. That has gone down a lot, and one can say now that all rates have converged quite well.

What we are seeing now is that these benefits from a very accommodative monetary policy stance are being passed in the form of lower borrowing costs to the real economy, to non-financial companies, to households. We see for example the credit flows to households have increased, and then we will see that the channels through which this asset purchase programme works will firm up, will strengthen the transmission through the usual signalling channel, confidence channel, interest rate channels, wealth effects, and exchange rate effect of course.

Question: Was there a solution in the recent past for the conditions to re-start the smooth financing of the Greek system? Could you perhaps elaborate more specifically on the conditions for the fiscal side and the type of reforms that a programme that you yourself think would be adequate guarantee, that would re-start the financing? Could you elaborate on that, please? That’s my first question.

My second question, the QE programme that you have announced pertains to purchases of sovereign bonds and also private. The four Greek systemic banks have been judged creditworthy after the stress test they went through. Does that mean that the Eurosystem could proceed to purchase securities, bonds or ABS of the Greek banks, or covered bonds, on those terms?

Draghi: Let me first say something that perhaps is not entirely known. The ECB up to today has lent to Greece €100 billion, and more exactly has doubled its lending from €50 billion to €100 billion in the last month and a half, the last two months. The lending to Greece today is 68% of the Greek GDP, which is the highest in the eurozone. In this sense, one can really say that the ECB is the central bank of Greece, but it’s also the central bank of all the other countries, and it’s a rules-based institution, as I have just recalled a moment ago. The ECB is the first to wish to re-start the financing to the Greek economy, provided the conditions are in place. And the conditions to be in place is that a process which suggests a successful completion of the review be put in place fast. That is the condition, and we will certainly welcome such development.

Going to your second question, right now, the ECB cannot buy Greek bonds. The purchase programme doesn’t foresee the purchase of private bonds. It cannot buy Greek bonds for a variety of reasons. First of all, the purchases are not supposed to take place for countries under a contract or a programme during the review period, so in this sense, we wouldn’t be able to buy Cypriot bonds either, or Greek bonds.

Secondly, we can only buy investment-grade bonds, and as such, the Greek bonds are below the threshold of investment-grade, so the waiver will have to be reinstated, and we are ready to do so, as soon as these conditions are in place.

Third, we have a limit of 33% per issuer’s bonds, so we cannot buy more than 33% of the bonds, of the total stock of bonds issued by the same sovereign, and our current SMP holdings are such that this limit is at present overcome, so we wouldn’t be able to buy these bonds. As soon as Greece repays the SMP bonds that are due, they’re coming due I believe in July or August, and if the waiver had been reinstated of course, then we would be able to buy Greek bonds via this new asset purchase programme.

Question: You’ve already outlined the financial accommodation you’ve offered to Greece. Much of it comes in the form of emergency liquidity assistance. Could you perhaps expand on the degree of willingness there would be to extend further emergency liquidity assistance towards Greece and if indeed today perhaps you’ve already decided to extend the limit beyond the current level?

Also, you talked about the need to respect the Stability and Growth Pact in the eurozone. Do you see a risk of, let’s say ill feeling in the eurozone if large countries are given additional flexibility and smaller countries on the periphery are required to stick to stricter limits in terms of spending?

Draghi: In fact, yes we’ve raised ELA today. That’s what the Governing Council has decided, by €500 million. As I said the ECB is a rules-based institution. From this viewpoint, the decision about lifting the waiver, as well as the decision not to allow monetary financing, and finally the decision about determining an ELA, are all the outcome of rules, not our political decisions.

ELA is a decision of the National Central Bank of Greece, to which the Governing Council may decide to object with a very special and demanding majority requirement, if certain conditions are not in place. One condition is that ELA can be given to solvent banks with adequate collateral. The Greek banks at the present time are solvent. Their capital levels are well above the minimum requirements, and that’s positive news. A lot has been done by Greece to strengthen its banking system. Capital has been raised. There has been restructuring. There has been consolidation. Some of the NPL, the non-performing loan problems, have been addressed so, today, the Greek banking system is solvent and is key to providing credit to the Greek economy.

It’s absolutely essential that this solvency be maintained, because that is the precondition for the ECB to be able to allow ELA, and therefore financing to the economy, financing to companies and households in Greece, and the private sector in Greece. And this is important, and I’m saying this because if there is in place a certain communication that creates volatility in the markets, this communication destroys collateral, increases the spreads and destroys collateral, undermines the solvency of the Greek banking system. Communication is absolutely essential.

That’s the most important thing that we can do today, to preserve the solvency and the robustness of the Greek banking system, and also to this extent, the ECB has asked the Eurogroup members to make sure that the recapitalisation fund of something around €10 billion be readily available to face any sudden negative contingency that might materialise. The ECB has presented this request. Some language in the last Eurogroup statement reflects this request by the ECB.

I don’t want to comment on the ill feelings, but certainly, what I would suggest is you go back to the last 15-plus years and look at which countries have been in the excessive deficit procedure most often, over the last, say, 15, 16, 17 years, and then draw a conclusion from there. But to address your point, there is a sentence here that says, full and consistent. Consistent implementation of the Stability and Growth Pact is key for confidence in our fiscal framework.

Question: I know that you have already made a statement, but still, I want to know, what would be the immediate impact or benefit for Cyprus from the QE programme? Can Cyprus benefit from the policy immediately? Of course also for Mrs. Georghadji.

Georghadji: As President Draghi explained, countries like Cyprus, which are under a programme, to get benefit from the programme, they must have a positive review by the Troika, or the institutions, whatever you like. Unfortunately, as you know, the Fifth Review of the Cyprus economy has not been concluded yet, and this is because the law for the foreclosures has not been put into effect. When there is a positive review, we will be able to start immediately and get the benefit of the programme. According to the parameters of the programme, then the Cyprus economy can benefit up to €500 million throughout the effect of the programme.

The programme, as President Draghi said in his initial statement, will start on 9 March, and it will go at least until September 2016. This programme will have a very beneficial impact for Cyprus, as it will suppress the interest rates, and suppress the interest rates downwards, and therefore, the Cypriot government will be able to borrow at lower rates. This is the big benefit from the programme, and therefore, we look forward to taking part in this programme.

Question: In the last weeks, we have seen negative yields in public debt, in some public debts. In Germany, even five-year bonds are in negative territory.. Do you think these countries, Germany in particular, should use this new fiscal space to guarantee the effectiveness of the monetary policy transmission mechanism?

And a second question if I may. Did you take the decision about the Greek waiver in February based on your doubts of the successful conclusion of the programme? Why is the extension agreed by the Eurogroup, and the list of reforms sent by Mr Varoufakis, not enough?

Draghi: Let me step back. We decided to have a waiver in place at the time when there were reasonable assessments for a successful completion of the review of the programme. In other words, by and large, the programme was on track.

Let me explain why this is so. We have this rule that says we can’t accept as collateral bonds that are below a certain threshold. The Greek bonds at the present time, and were even then, below this threshold. However, if certain conditions are in place, as far as the economic policy is concerned, that would make the ECB and the Governing Council think that in some time from now these bonds will become again eligible, will be rated above the threshold. Then there are the conditions for the waiver. And that’s the decision taken at that time.

Then we assessed that these conditions were not in place. It’s quite clear that in mid-February when we decided this, the programme was not on track. It was not only an assessment that we were making; it was an assessment explicitly stated by the government. So at that point we really had no choice.

Having said that, we stand ready to reinstate the waiver as soon as we are able to make a positive assessment about the likelihood of a successful completion of the review.

On the first point, I frankly don’t want to pass judgement on specific individual countries’ fiscal policies. What I could say, however, is that the monetary policy measures that we decided in January, but also for the previous ones, to be fully effective, need first and foremost strong structural reforms. That is, otherwise we can provide as much credit as possible. We can refinance the banking system so they can lend as much money at the lowest interest rates. But if the structural conditions are not in place, there will be little incentive to use this credit.

I’m not saying that these measures are not effective. I’m saying that their effectiveness is going to be lower. And from our viewpoint, that means it’s going to take longer to get to our objective of price stability, namely an inflation that is close but below 2% in the medium term.

Question: I will speak in Greek once again, Mr. President. I would like to ask, I heard you say, and I was glad to hear you say, that you’ve approved 100 billion euros liquidity to our country. But we see that in the last 20 days, you say that you decided this based on political criteria. The question is, since the liquidity goes to the banks firsts, the Greek banks, are they safe?

And second, your decisions, up to which level are they affected by the political decisions of the ministers of the Eurogroup?

Draghi: You rightly said, you rightly reminded us that the ECB has already lent – not liquidity – just lent 100 billion euros. And I repeat, it’s 68% of Greece’s GDP, and it’s the highest in the whole euro zone. And it has doubled this amount in the last two months. So the last thing one can say is that the ECB is not supporting Greece.

Now you asked the question to what extent our decisions depend on what happens in the Eurogroup. The answer is, to an enormous extent. If there is an agreement – called contract, call it whatever you want – our underlying, our background changes completely, and we would be much better in place to take favourable, more favourable, decisions for Greece.

And you know, the reasoning really goes this way. First of all, once a country has a contract, then disbursements could take place, could be restored by the member states. Then market access could be restored. If there is market access, many of our concerns about monetary financing would disappear because if the government has the capacity to finance itself on the market then the issue of having banks financing the government would disappear.

So the ultimate result of all this is that flexibility to the Greek government economic policy would return within the contract that the Greek government would define with the other members of the Eurogroup.

Question: From what I can see from the opening statement, it seems that the inflation forecasts are based in large part on the futures market, getting it right about the direction of oil prices. But we’re still in an environment where core inflation is at an all-time low. Can you tell me a little bit about how you see the path of core inflation developing over the forecast horizon? Just a forecast for 2016, is it more a reflection of the bounce-back from oil prices? Or now that you’re more bullish on the economy, does it affect core inflation as well?

Second question to both yourself and the governor of the Central Bank of Cyprus. It’s almost two years now since the haircut and capital controls were imposed on Cypriot depositors. Knowing what’s happened since then, do you think it’s a decision you’d take again?

Draghi: I will first answer my question, and then the governor will answer the other question. You are absolutely right. Core inflation is still low, although we noticed just today that one of our measures of inflation expectations is now back to a fairly high level. I wouldn’t say an all-time high, certainly not, but a three-month or four-month high, yes, I’m pretty sure. So that is another piece of news. But I wouldn’t rely too much on point observations because as they come they also go.

What we can say safely is that our monetary policy decisions, this one but also the previous ones, have stopped a decline in inflation expectations that had started at the end of July last year, and it became more and more marked by year-end.

Now, it is true that our projections of inflation are basically, as you said, based on oil price futures, but also there are other factors which play a role for core inflation. One, of course, is again our monetary policy stance and its effects on the exchange rate. The second one is the closing of the output gap that we foresee happening gradually between now and 2017. Another factor is that real disposable income is being supported, again, not only by oil prices but also by our monetary policy stance.

And here the channel through which this may happen is the following. Our monetary policy decisions have significantly decreased the risk of second round effects coming from lower oil prices on inflation. You remember, when we discussed the effects of lower oil prices a few months ago, we said they were a good thing, but also there was a potential negative side to that if these effects produced second round effects which could have a deflationary impact. Then people will actually save more and consume less. We believe that our monetary policy decisions have avoided this risk. Therefore, we foresee a savings rate which remains what it is today, a recovery where consumption gradually strengthens and firms up. Now all these factors will have an impact on core inflation as well.

Georghadji: The decisions were taken in March 2013, two years ago, and they were very painful for the country and for its people. However, it is my view that under the then circumstances, there was no other way. We should have taken measures long before the very difficult decisions were taken.

Now the question with regard to the capital controls. Capital controls also were inevitable until the restoration of the confidence in the banking sector. But it was a decision taken by the minister of finance after consultation with the Governor of the Central Bank. And I can assure you that it is the view of the minister, of the government and of the Governor that these capital controls, the very few capital controls which are still in place, very few, only two or three measures, will be very soon lifted, before the end of the first quarter of the year.

Question: Mr Draghi, if I understood you correctly, you said that during a review no programme country could participate in the QE. But don’t you think it’s a bit suspicious on behalf of the ECB, why during those 15 days no QE would be allowed for a country under the programme?

And my second question is, you yourself last night during the dinner with the President of the Republic referred to Cyprus’ good record of programme implementation. Given this positive assessment by you, is the ECB considering approving the request submitted by the government of Cyprus for the conversion of the ELA, the emergency liquidity funding of Bank of Cyprus, to a long-term bond?

Draghi: On the first issue, it’s the same condition we have with OMT. During a review process, we don’t want to influence the review process via conditions that are special conditions for market access of the country. So it would be an element which would interfere with the negotiations. So that is a standard rule that we have in place, that we have in place with OMT as well.

On the second point, I’m not sure I know anything about that. But I’ll give the floor to the governor.

Georghadji: With regard to the first question, let me add to what President Draghi has said, that one prerequisite to participate in the programme is that you have a positive review. Therefore, during the review period you cannot participate in the programme anyway since you need to have a positive review.

With regard to the second question concerning ELA, of course President Draghi was there in the meeting with the President. And we have to remind you that, as he said twice during his opening speech, the ECB is a rules-based institution and ELA is extended under a framework and rules of the ECB. Within these rules I can assure you that both the governor, the central bank and the government is doing the best for the country.

Question: My question is this. Greece and Cyprus are the only two countries that, at this moment, cannot participate in the QE programme, despite their favourable assessment. For Cyprus, the assessment is open up to the summer. How long do you think the Cyprus economy can last for this assessment?

Georghadji: We believe, we expect, we anticipate that the obstacle that exists for the completion of the fifth review, the law on foreclosures, the obstacle that exists will be lifted and we will be able to participate in the QE programme. I hope that that will happen soon. There could not be any waiver or exception to that.

CHICAGO, – The Financial Solutions Lab at the Center for Financial Services Innovation (CFSI) with founding partner JPMorgan Chase & Co. today announced a $3 million competition for technology innovators working to address consumer financial challenges. This cross-sector initiative will identify technology-enabled financial solutions and provide winners with direct and indirect support to test and expand the availability of their products and services to consumers.

The challenge, opening today, will be the first in a series and invites innovators to submit financial product and service solutions that help households better manage their finances on a tight budget. Vulnerable consumers can get caught in a cycle of debt when relying on alternative services, like payday lenders or check cashing institutions, while trying to make ends meet in the days between when income comes in and bills are due. CFSI has identified the timing mismatch between household income and expenses as one of the greatest financial challenges facing low- to moderate-income families.

In fact, CFSI’s 2013 Financially Underserved Market Size Report found that Americans spent $36.5 billion in one year on credit and transaction products to address this challenge. Additionally, over one hundred million Americans struggle with balancing their household finances[i] and forty-three percent of Americans struggle to pay their bills. [ii]

“Millions of Americans are struggling to make ends meet often juggling uneven income and unpredictable expenses,” said Jennifer Tescher, CEO of CFSI. “Through the Financial Solutions Lab we want to identify and support innovators who are working to meet consumer needs with meaningful, scalable solutions. The Lab will help build the next generation of financial products and services to improve consumer financial health.”

From February 24 until April 7, 2015, the Financial Solutions Lab will accept applications from innovative entrepreneurs and nonprofit organizations competing to receive up to $250,000 in capital, along with national partnership opportunities, industry expertise, mentorship, and cutting-edge consumer and design insights necessary to power the next generation of leading financial services innovations. Solutions from approximately eight winning organizations will embrace consumer-friendly design, promote consumer success, build trust, and create opportunity in order to generate mutual benefit for providers and consumers.

Winners will be selected by an expert, cross-sector group including leaders from JPMorgan Chase, CFSI, and strategic partners in human-centered design, behavioral economics, community outreach and for-profit entrepreneurship. Winners will be announced at CFSI’s Emerge Conference on June 11th.

“The personal financial security of individuals impacts the financial health of their household, their community and the overall economy,” said Janis Bowdler, Head of Financial Capability at JPMorgan Chase & Co. “That is why JPMorgan Chase is committed to supporting innovators who share our goal of helping low- to moderate-income consumers better manage their daily financial lives, improve resiliency and promote economic security.” JPMorgan Chase’s support of the Financial Solutions Lab is a part of its broader commitment to helping people better understand and manage their finances to secure their futures.

Financial Solutions Lab Led by Experts in Finance, Technology, and Human-Centered Design
CFSI and JPMorgan Chase also today announced the Lab’s Advisory Council, a group of industry leaders from the financial services, technology, academia, and investment community who will provide overall strategic guidance and resources to Lab competition winners. In addition to the strategic direction they provide on the Lab, the Advisory Council will play an integral part in guiding the success of the winning innovations to ensure they meet the needs of consumers and can be made widely available. They include:

Paul Breloff, Managing Director, Accion Venture Lab
Kosta Peric, Deputy Director, Financial Services for the Poor, Bill and Melinda Gates Foundation
Jennifer Tescher, President and CEO, CFSI
Susan Ehrlich, Board of Directors, CFSI
Arjan Schütte, Founder and Managing Partner, Core Innovation Capital
Jonathan Mintz, Founding President and CEO, Cities for Financial Empowerment Fund
Andrea Levere, President, Corporation for Enterprise Development
Darren Walker, President, Ford Foundation
Eldar Shafir, Scientific Director and Co-Founder, Ideas42
Tim Brown, CEO, IDEO
Barry Saik, SVP and GM, Consumer Ecosystem Group, Intuit
Dalila Wilson-Scott, President, JPMorgan Chase Foundation
Ben Knelman, CEO and Co-Founder, Juntos Finanzas
Ben Jealous, Partner, Kapor Capital
Ann Lamont, Managing Partner, Oak Investment Partners
Chris Bishko, Partner, Omidyar Network
Caribou Honig, Partner, QED Investors
Cheryl Porro, SVP of Tech and Product, Salesforce Foundation
Michael Barr, Professor of Law, University of Michigan
Suzi Sosa, Founder and CEO, Verb

“We know that the challenges posed by financial insecurity can have a profound impact on individuals and families. I’m heartened by the Financial Solutions Lab’s efforts to improve the financial health of low-income people and impressed that they have begun with a focus on household liquidity,” said Eldar Shafir, the William Stewart Tod Professor of Psychology and Public Affairs at Princeton University and Scientific Director and Co-Founder of ideas42, a non-profit organization leading the applications of behavioral science to do social good and have impact at scale.

“The Financial Solutions Lab is a great example of the practical application of human-centered design to address the challenges everyday Americans face and to create real impact, “said Tim Brown, CEO, IDEO. “I’m honored to be a part of this cross-sector group of experts and I’m looking forward to working closely with the innovators who participate in the Lab.”

About the Financial Solutions Lab
The Financial Solutions Lab is a $30 million, five-year initiative managed by the Center for Financial Services Innovation (CFSI) with founding partner JPMorgan Chase & Co. to identify, test and expand the availability of promising innovations that help Americans increase savings, improve credit, and build assets. The Lab will launch a series of competitions to identify solutions to specific consumer financial challenges. It will provide incentives for entrepreneurs, businesses, and nonprofits to enhance financial products and services that address these challenges and improve consumers’ financial health. For more information, visit finlab.cfsinnovation.com.

About Center for Financial Services Innovation
CFSI is the nation’s authority on consumer financial health. CFSI leads a network of financial services innovators committed to building a more robust financial services marketplace with higher quality products and services. Through its Compass Principles and a lineup of proprietary research, insights and events, CFSI informs, advises, and connects members of its network to seed the innovation that will transform the financial services landscape. For more on CFSI, go to www.cfsinnovation.com and follow on Twitter at @CFSInnovation.

About JPMorgan Chase & Co.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.6 trillion and operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, and asset management. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

An IMF staff team in Ghana has reached agreement with the government on a new economic reform program that would be supported by an IMF loan of about $940 million.

The loan, which could receive final approval in early April, would back a program aimed at boosting economic growth and tightening fiscal discipline.

Ghana would implement its reform program under a three-year Extended Credit Facility arrangement from the IMF, which is still subject to approval by the IMF’s management and Executive Board. One of the priorities of Ghana’s program is to restore debt sustainability through a sustained fiscal consolidation.

Offshore oil production came on stream in Ghana in 2010, and the slump in world oil prices since mid-2014 has resulted in a shortfall of budget revenue of about 2 percent of GDP. Under its new program, the government has acted to buttress the 2015 budget with additional measures to lower spending ceilings and draw from an oil stabilization fund, to offset the budget’s oil revenue shortfall arising from the recent slump in world oil prices.

Ghana is one of Africa’s frontier emerging markets, having entered the global capital market for the first time in September 2007. Its past wealth lay in gold and cocoa―commodities that have remained in high demand, and which have helped the country weather the recent global recession.

Sustained slowdown
An IMF statement said Ghana’s economic growth rate is expected to slow for a fourth consecutive year in 2015 to 3 ½ percent on the back of a severe energy crisis and the budget-tightening measures. Growth topped 9 percent in 2011, but had been followed by three difficult years characterized by slowing activity, accelerating inflation, and rising debt levels and financial vulnerabilities.

In 2014 economic growth reached its lowest level in many years amid high interest rates, a fast depreciating currency, low aggregate demand, and a deepening energy crisis. Inflation reached 17 percent, well above the central bank’s inflation target. Large fiscal deficits caused by a ballooning wage bill, poorly targeted energy subsidies, and commodity price shocks pushed government debt and financing costs to very high levels.

The main priority of the program is to restore debt sustainability through a sustained fiscal consolidation, and to support growth with adequate capital spending and a reduction in financing costs. The program rests on three pillars.
• Restraining and prioritizing public expenditure with a transparent budget process;
• Increasing tax collection; and
• Strengthening the effectiveness of the central bank monetary policy.

The program explicitly accommodates for the expansion and the safeguard of priority spending, in particular social protection programs.

Ghana’s growth is expected to rebound over the medium term on account of an improved macroeconomic environment and cost effective solutions to address the energy crisis. Inflation should decelerate substantially, while the stronger fiscal consolidation will stabilize the debt ratio to GDP. The external current account deficit is projected to decline which, together with increased donor support, should contribute to start rebuilding reserves.

Better budget transparency
Key elements of the reforms include improving transparency in the budget process to prioritize spending, enhancing revenue mobilization and strengthening fiscal institutions, including through the review of possible fiscal rules. Reviewing fiscal rules has been a focus of ongoing discussions between the Ghanaian authorities and the country’s civil society, which is concerned about fiscal transparency in the budget process.

To strengthen its control on the wage bill and address payroll irregularities, the government has started to detect and remove ghost workers, to secure and unify payroll databases, and to sanction those responsible for fraud. In addition, strict control on new hiring and the reduction in the number of public service agencies will further help contain the wage bill.

Tax administration reforms are under way, and the government also initiated a review of existing tax exemptions with a view to reducing them. Public debt management will continue to be strengthened to ensure that financing needs and payment obligations are met at the lowest possible cost, consistent with a prudent degree of risk.

My Staff has reviewed the list of measures that the Greek authorities prepared over the weekend. We think that it covers the broad topics that should be on the new Government’s agenda. In view of this, we would certainly be able to support the conclusion that the list “is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review,” as called for by the Euro Group at its last meeting. But a determination in this regard should of course rest primarily on an assessment by Member States themselves and by the relevant European institutions.

While the authorities’ list is comprehensive, it is generally not very specific, which is perhaps to be expected considering that the government is new in office. In some areas, like combating tax evasion and corruption, I am encouraged with what appears to be a stronger resolve on the part of the new authorities in Athens, and we look forward to learn more about their plans. In quite a few areas, however, including perhaps the most important ones, the letter is not conveying clear assurances that the Government intends to undertake the reforms envisaged in the Memorandum on Economic and Financial Policies. We note in particular that there are neither clear commitments to design and implement the envisaged comprehensive pension and VAT policy reforms, nor unequivocal undertakings to continue already-agreed policies for opening up closed sectors, for administrative reforms, for privatization, and for labor market reforms. As you know, we consider such commitments and undertakings to be critical for Greece’s ability to meet the basic objectives of its Fund-supported program, which is why these are the areas subject to most of the structural benchmarks agreed with the Fund. Thus, it is important for me to emphasize that for the discussions on a completion of the review to be successful they cannot be confined within the policy perimeters outlined in the Government’s list.

My Staff and I look forward to working with the new Government on finding common ground, with the aim of concluding the 6th review of the Fund-supported program as soon as possible.

Since my appearance before this Committee last July, the employment situation in the United States has been improving along many dimensions. The unemployment rate now stands at 5.7 percent, down from just over 6 percent last summer and from 10 percent at its peak in late 2009. The average pace of monthly job gains picked up from about 240,000 per month during the first half of last year to 280,000 per month during the second half, and employment rose 260,000 in January. In addition, long-term unemployment has declined substantially, fewer workers are reporting that they can find only part-time work when they would prefer full-time employment, and the pace of quits–often regarded as a barometer of worker confidence in labor market opportunities–has recovered nearly to its pre-recession level. However, the labor force participation rate is lower than most estimates of its trend, and wage growth remains sluggish, suggesting that some cyclical weakness persists. In short, considerable progress has been achieved in the recovery of the labor market, though room for further improvement remains.

At the same time that the labor market situation has improved, domestic spending and production have been increasing at a solid rate. Real gross domestic product (GDP) is now estimated to have increased at a 3-3/4 percent annual rate during the second half of last year. While GDP growth is not anticipated to be sustained at that pace, it is expected to be strong enough to result in a further gradual decline in the unemployment rate. Consumer spending has been lifted by the improvement in the labor market as well as by the increase in household purchasing power resulting from the sharp drop in oil prices. However, housing construction continues to lag; activity remains well below levels we judge could be supported in the longer run by population growth and the likely rate of household formation.

Despite the overall improvement in the U.S. economy and the U.S. economic outlook, longer-term interest rates in the United States and other advanced economies have moved down significantly since the middle of last year; the declines have reflected, at least in part, disappointing foreign growth and changes in monetary policy abroad. Another notable development has been the plunge in oil prices. The bulk of this decline appears to reflect increased global supply rather than weaker global demand. While the drop in oil prices will have negative effects on energy producers and will probably result in job losses in this sector, causing hardship for affected workers and their families, it will likely be a significant overall plus, on net, for our economy. Primarily, that boost will arise from U.S. households having the wherewithal to increase their spending on other goods and services as they spend less on gasoline.

Foreign economic developments, however, could pose risks to the outlook for U.S. economic growth. Although the pace of growth abroad appears to have stepped up slightly in the second half of last year, foreign economies are confronting a number of challenges that could restrain economic activity. In China, economic growth could slow more than anticipated as policymakers address financial vulnerabilities and manage the desired transition to less reliance on exports and investment as sources of growth. In the euro area, recovery remains slow, and inflation has fallen to very low levels; although highly accommodative monetary policy should help boost economic growth and inflation there, downside risks to economic activity in the region remain. The uncertainty surrounding the foreign outlook, however, does not exclusively reflect downside risks. We could see economic activity respond to the policy stimulus now being provided by foreign central banks more strongly than we currently anticipate, and the recent decline in world oil prices could boost overall global economic growth more than we expect.

U.S. inflation continues to run below the Committee’s 2 percent objective. In large part, the recent softness in the all-items measure of inflation for personal consumption expenditures (PCE) reflects the drop in oil prices. Indeed, the PCE price index edged down during the fourth quarter of last year and looks to be on track to register a more significant decline this quarter because of falling consumer energy prices. But core PCE inflation has also slowed since last summer, in part reflecting declines in the prices of many imported items and perhaps also some pass-through of lower energy costs into core consumer prices.

Despite the very low recent readings on actual inflation, inflation expectations as measured in a range of surveys of households and professional forecasters have thus far remained stable. However, inflation compensation, as calculated from the yields of real and nominal Treasury securities, has declined. As best we can tell, the fall in inflation compensation mainly reflects factors other than a reduction in longer-term inflation expectations. The Committee expects inflation to decline further in the near term before rising gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate, but we will continue to monitor inflation developments closely.

Monetary Policy
I will now turn to monetary policy. The Federal Open Market Committee (FOMC) is committed to policies that promote maximum employment and price stability, consistent with our mandate from the Congress. As my description of economic developments indicated, our economy has made important progress toward the objective of maximum employment, reflecting in part support from the highly accommodative stance of monetary policy in recent years. In light of the cumulative progress toward maximum employment and the substantial improvement in the outlook for labor market conditions–the stated objective of the Committee’s recent asset purchase program–the FOMC concluded that program at the end of October.

Even so, the Committee judges that a high degree of policy accommodation remains appropriate to foster further improvement in labor market conditions and to promote a return of inflation toward 2 percent over the medium term. Accordingly, the FOMC has continued to maintain the target range for the federal funds rate at 0 to 1/4 percent and to keep the Federal Reserve’s holdings of longer-term securities at their current elevated level to help maintain accommodative financial conditions. The FOMC is also providing forward guidance that offers information about our policy outlook and expectations for the future path of the federal funds rate. In that regard, the Committee judged, in December and January, that it can be patient in beginning to raise the federal funds rate. This judgment reflects the fact that inflation continues to run well below the Committee’s 2 percent objective, and that room for sustainable improvements in labor market conditions still remains.

The FOMC’s assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings. If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the Committee will change its forward guidance. However, it is important to emphasize that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings. Instead the modification should be understood as reflecting the Committee’s judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting. Provided that labor market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2 percent objective.

It continues to be the FOMC’s assessment that even after employment and inflation are near levels consistent with our dual mandate, economic conditions may, for some time, warrant keeping the federal funds rate below levels the Committee views as normal in the longer run. It is possible, for example, that it may be necessary for the federal funds rate to run temporarily below its normal longer-run level because the residual effects of the financial crisis may continue to weigh on economic activity. As such factors continue to dissipate, we would expect the federal funds rate to move toward its longer-run normal level. In response to unforeseen developments, the Committee will adjust the target range for the federal funds rate to best promote the achievement of maximum employment and 2 percent inflation.

Policy Normalization
Let me now turn to the mechanics of how we intend to normalize the stance and conduct of monetary policy when a decision is eventually made to raise the target range for the federal funds rate. Last September, the FOMC issued its statement on Policy Normalization Principles and Plans. This statement provides information about the Committee’s likely approach to raising short-term interest rates and reducing the Federal Reserve’s securities holdings. As is always the case in setting policy, the Committee will determine the timing and pace of policy normalization so as to promote its statutory mandate to foster maximum employment and price stability.

The FOMC intends to adjust the stance of monetary policy during normalization primarily by changing its target range for the federal funds rate and not by actively managing the Federal Reserve’s balance sheet. The Committee is confident that it has the tools it needs to raise short-term interest rates when it becomes appropriate to do so and to maintain reasonable control of the level of short-term interest rates as policy continues to firm thereafter, even though the level of reserves held by depository institutions is likely to diminish only gradually. The primary means of raising the federal funds rate will be to increase the rate of interest paid on excess reserves. The Committee also will use an overnight reverse repurchase agreement facility and other supplementary tools as needed to help control the federal funds rate. As economic and financial conditions evolve, the Committee will phase out these supplementary tools when they are no longer needed.

The Committee intends to reduce its securities holdings in a gradual and predictable manner primarily by ceasing to reinvest repayments of principal from securities held by the Federal Reserve. It is the Committee’s intention to hold, in the longer run, no more securities than necessary for the efficient and effective implementation of monetary policy, and that these securities be primarily Treasury securities.

Summary
In sum, since the July 2014 Monetary Policy Report, there has been important progress toward the FOMC’s objective of maximum employment. However, despite this improvement, too many Americans remain unemployed or underemployed, wage growth is still sluggish, and inflation remains well below our longer-run objective. As always, the Federal Reserve remains committed to employing its tools to best promote the attainment of its objectives of maximum employment and price stability.