COUNCIL OF THE EUROPEAN UNION
Brussels, 5 March 2008
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ECOFIN 107 EF 19 AG 26 RELEX 152 NOTE from: to: Subject:
Mr Andrej Bajuk, President of the Ecofin Council Mr Janez Janša, President of the European Council Sovereign Wealth Funds - Report on the outcome of discussions in the Ecofin Council of 4 March 2008.
Delegations will find attached a report to the President of the European Council of the outcome of discussions in the ECOFIN Council of 4 March 2008 on Sovereign Wealth Funds. This report is submitted under the sole responsibility of the President of the ECOFIN Council.
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Sovereign Wealth Funds
On 4 March 2008, the ECOFIN Council discussed the Commission's Communication on Sovereign Wealth Funds with a view to preparing the discussion in the forthcoming European Council. I submit this report of the outcome of those discussions under my own responsibility as President of the ECOFIN Council.
The Council (ECOFIN) welcomed the Commission Communication on Sovereign Wealth Funds (SWFs).
The EU is committed to an open global investment environment based on the free movement of capital and the effective functioning of global capital markets. SWF have been part of the financial landscape for many years now and so far have played a very useful role as capital and liquidity providers with long-term perspective. The current situation is a good example of how SWFs have contributed to financial stability.
However, their strong growth in the last few years and their concentration on a few countries in relation with sustained external imbalances has attracted attention and triggered a public debate about possible risks. The emergence of new players with a limited transparency concerning their investment strategy and objectives, unclear governance structures and low degree of accountability has raised some concerns related to potential non-commercial practices, which need to be addressed in order to ensure continued smooth market functioning.
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The Council (ECOFIN) agreed on the need to have a common European approach on this issue for the following reasons:
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This is a global issue which calls for a multilateral approach. At the international level, the IMF and OECD have been given mandates to explore possible risks related to financial markets, and to identify best practices for SWFs and recipient countries with a view to agree on a Code of Conduct. The EU should aim at giving a coordinated input to this ongoing debate, so as to maximise European influence in these discussions. Coordinated action by Member States is appropriate in the context of the EC Treaty which defines a common legal framework for free movement of capital with third countries.
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It is important to maintain a well-functioning internal market. On the national level, many countries already have instruments available to identify critical transactions and take measures in case of concerns about national security interests. At EU level, the EC Treaty contains provisions protecting legitimate interests. An uncoordinated series of responses to the new challenges at national level could adversely affect the internal market. Therefore, agreeing on a common EU approach in line with the EC Treaty respecting national prerogatives and existing responsibilities to protect legitimate public policy and national security objectives appears as the appropriate way forward.
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The discussion also showed broad support for the five principles outlined in the Commission Communication, namely:
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Commitment to an open investment environment;
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Support for multilateral work;
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Use of instruments available to Member States if necessary;
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Respect of EC Treaty obligations and international commitments;
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Proportionality and transparency.
Ministers supported the usefulness to join international efforts to engage in a constructive dialogue with SWFs and to agree at the international level on a voluntary Code of Conduct establishing best practice guidance on the governance of the Funds and on their transparency with respect to the investment strategy, the size of investments and broad portfolio management parameters.
The Council will ensure appropriate EU co-ordination to steer international efforts in this regard. It will explore ways to monitor compliance with this Code, how to encourage compliance and how to react in case of non-compliance.
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