the european council in 2012 · european council meetings (just as the lisbon treaty minimally...

The European Council in 2012

JANUARY 2013

doi:10.2860/58191

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JANUARY 2013

This publication is produced by the General Secretariat of the Council.www.european-council.europa.eu Luxembourg: Publications Office of the European Union, 2013

ISBN 978-92-824-3756-8doi:10.2860/58191ISSN 1977-3110© European Union, 2013Reproduction is authorised provided the source is acknowledged.Printed in BelgiumPRINTED ON ECOLOGICAL PAPER

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The European Council in 2012 by the President of the European Council, Herman Van Rompuy

A pivotal year 5

The stability of the eurozone 6

Growth and jobs 10

The Union in the world 14

From a continent of war to a continent of peace 17

Looking ahead 23

Conclusions of the European Counciland statements by Heads of State or Government 25

Table of contents

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The European Council, December 2012

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The year 2012, although still a difficult one, marked a turning point: step by step we are steering Europe out of the economic crisis. After the summer, we left the existential threat to the eurozone behind us. All seventeen countries remain firmly in the eurozone: a key achievement of responsibility and solidarity. We recovered financial stability, the prerequisite for a return to economic growth and job creation, which will hopefully pick up in the year ahead. More work lies ahead, but the fruits of this work are already strengthening our Union as a whole.

The European Council in 2012 covers the institution's activities in 2012. Financial stability and growth and jobs in Europe required our full attention, as did events in the world around us – from turmoil in the Middle East to leadership changes in partner countries. At the end of the year, the award of the Nobel Peace Prize to the Union came as a timely reminder of our ultimate purpose: working together for the sake of peace and prosperity on our continent, and beyond.

Our institution gathers together the Union's highest executive leaders: around the table are the 27 Heads of State or Government, the President of the Commission, and the President of the European Council. Our task is to set the Union's strategic course. We establish political priorities and we take responsibility in crisis situations. At its best, the European Council is able to meet high public expectations with a strong decision-making capacity – as we have shown on a number of occasions.

In the course of 2012 we welcomed new colleagues, and said goodbye to former ones, after government changes in Slovenia, Slovakia, Greece and France. In total we held four formal European Council meetings (just as the Lisbon Treaty minimally requires), and three additional meetings, two of which were informal. In itself, this total of seven summits, when compared to no fewer than twelve meetings in 2011, provides another indication that European politics is slowly leaving crisis mode.

Since the Lisbon Treaty, a President of the European Council is elected for two and a half years, renewable once. As the first person holding this position, I was very honoured that on 1 March, a few months before the end of my first term, my colleagues asked me to continue for a second mandate. I accepted their vote of confidence, since it is a privilege to serve Europe in such decisive times. I continue my work with the conviction that my job is to be the Union's guardian of trust: fostering mutual understanding around the table of leaders, while knowing that our common duty is to preserve the trust of citizens in the Union.

A pivotal year

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spreads were narrowing, access to credit improving and the euro area's integrity was no longer in doubt. Vital threats to the eurozone seem to have disappeared.

Enshrining responsibility and solidarity

Since the start of the crisis, we have moved forward on two parallel fronts: responsibility and solidarity. On the one hand, emphasising individual countries' responsibility, for instance in pursuing sound budgetary policies; on the other, giving practical shape to solidarity within our Union, for instance in contributing funds for firewalls against financial contagion. In the first few months of 2012, we made both these principles more binding and permanent.

On 2 March, twenty-five leaders signed the Treaty on Stability, Coordination and Governance. It is our 'responsibility treaty', committing participating countries to enshrine strong fiscal rules (a 'debt brake') in their national law. Such credible self-constraint from each country on debts and deficits will help prevent a repetition of the sovereign debt crisis. After signing the 'Fiscal Compact' (as it is also known), leaders all had to

We entered 2012 in relatively calm circumstances. The decision to lay down stricter budgetary rules in a new treaty, taken at our last meeting of the previous year, had had a positive impact on markets. A concurrent Central Bank initiative had helped ease concerns on the risk of a credit crunch and a deeper recession. New governments in Athens and Rome, established that autumn, had contributed to this cautious confidence. Yet we always knew that the situation remained fragile and that more work would be needed to overcome the crisis.

And so it proved. The fall of the Greek government in February and political uncertainty ahead of anticipated elections set into motion a new chain of – sometimes breathtaking – events. Doubts on the Spanish banking sector also crept in during the spring. Once again we experienced how the fate of one country can affect the eurozone as a whole. So while continuing to tackle urgent problems, we set out in May on a journey to bring the Economic and Monetary Union to genuine completion – work that will carry on into next year.

All along, our efforts were driven by a quest for stability and resilience. They paid off. By the end of the year,

Signing the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, 2 March 2012

The stability of the eurozone

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would stand in ten years' time, and how we intended to remedy the structural flaws revealed by the crisis.

I decided to hold a discussion to put all the options on the table, without any taboos. At our informal May meeting, colleagues expressed various opinions on issues from eurobonds to banking supervision. They agreed on the need to make our economic union commensurate with our monetary union, and asked me to explore how to do so.

The starting point of my June report 'Towards a genuine Economic and Monetary Union' – prepared with the Presidents of the Commission, the Eurogroup and the Central Bank, José Manuel Barroso, Jean-Claude Juncker and Mario Draghi – is that we must draw the lessons of our interdependence. National policies cannot be decided in isolation if their effects can quickly spread to the eurozone as a whole; they must reflect the reality of what it means to share a currency. We identified three key areas: the financial sector, fiscal matters and economic policy. Since steps in all these areas may impact upon democratic decision-making and accountability, this was the fourth issue we put on the table.

persuade their parliaments of its merits, and did so with success: after a series of ratifications the treaty entered into force on 1 January 2013.

Solidarity, for its part, is enshrined in the European Stability Mechanism – which was finalised at the beginning of the year. With €500 billion firepower, it is Europe's shield against financial shocks, our common deterrence weapon. Taking over from our temporary rescue mechanism, the EFSF, the permanent ESM became operational in October.

Meanwhile, as we improved our tools for crisis management and prevention, we never lost sight of the best way to overcome a debt crisis: economic growth. That is why we complemented the Fiscal Compact with a Compact for Growth and Jobs, agreed in June (more about which later). The two go hand in hand.

Towards a genuine Economic and Monetary Union

The uncertainties of the spring made it urgent to establish a longer-term perspective. To win over voters and investors, it had become essential to chart out where the eurozone

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With this decision, which took many by surprise, leaders acted upon a key conclusion of the report I had just presented. The situation in the Spanish banking sector had ripened minds to take things faster. After we had set the course, everything fell into place. Right after the summer, the Commission had legislative proposals ready; and within three months the finance ministers reached an agreement, while the Parliament adopted its position at committee level. It shows that the Union does have, when it wants, the ability to take timely and decisive action – a crucial test of our credibility.

Within 24 hours of the finance ministers agreeing on the technicalities of the supervision, on 14 December we were already embarking on the next step: a single resolution mechanism. The aim is to ensure any bank failures are dealt with in a swift and orderly way and in the best interest of all, to reduce risks for taxpayers and the economy. Progress on the banking union will remain at the top of the agenda in 2013.

As the June European Council was to prove immediately (in dealing with the banks), some steps could be taken in the short term. Other steps however required more in-depth reflection. That is why colleagues asked me to develop a time-bound roadmap for the end of the year, with an interim report in October. In the process all member states – both within and outside the eurozone – and the European Parliament were actively involved. This common endeavour helped gather consensus around vital new avenues to strengthen the eurozone.

Breakthrough on banks 28 June: European leaders decide to establish a single supervisory mechanism that will cover all the banks in the eurozone – something almost unthinkable just months before. In my view it was our most important decision of the year. We also agreed that, once this single supervisor was effectively in place, the European Stability Mechanism would be able to recapitalise banks directly. Setting up a ‘banking union’ would help ensure stability and improve lending conditions. We were breaking the vicious circle between sovereigns and banks.

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The euro crisis has changed things. When looking at our Union, almost for the first time citizens are confronted with the hard fact that its benefits come with some costs attached. For instance the costs and efforts of defending a common currency. Citizens are also realising now for the first time that they are in this together. That what happens in another country – with banks, bubbles or budgets – affects them too.

Being jointly responsible for a common European good can be a painful discovery for people who are struggling, in their own country, to find a job or to make ends meet. Some observers have concluded hastily that the crisis has killed solidarity between European countries. I strongly disagree. The crisis has revealed what it takes to be in a Union. This is the very first real test of solidarity in the history of the Union. Of course, there are tensions and constraints, there is opposition and critique. And yet, a gigantic collective effort is taking place, involving all eurozone countries, all European institutions, all citizens, to muster the political will, the parliamentary majorities, and the means and money, to help each other and to come out of this crisis together. If this is a test of coresponsibility and solidarity, I am confident we Europeans are passing the test.

The tide turns

Just as our June decision on banks placed us ‘ahead of the curve’ (unusually, some might say), events were going in a more positive direction on other fronts too. Particularly crucial were the Greek parliamentary elections on 19 June (after an inconclusive round in May), which resulted in a majority for those parties committed to the country remaining in the eurozone. A moment of relief – showing also that, faced with a stark choice, voters usually act more responsibly than doomsayers predict.

Trust in the eurozone’s resilience and integrity increased further after the summer, not least when on 6 September, the European Central Bank – confident leaders were dealing decisively with banking oversight – pledged to give unlimited but conditional support to countries under market pressure. One week later, the German Constitutional Court declared the European Stability Mechanism constitutional, whilst the same evening the results of the Dutch elections sent another encouraging signal. Following in the footsteps of Ireland that summer, Portugal successfully prepared to venturing back into long-term bond markets. And in December, a key decision by finance ministers helped ensure Greek debt sustainability. By the end of the year it had finally started to sink in that the euro is here to stay.

Passing the test

In a way, for Europe's elected political leaders, sitting around the table and deciding on joint policy responses is only half the job. The other half is convincing the public outside of these decisions. Presidents and Prime Ministers in the European Council feel this dual responsibility deeply. And they act upon it.

Discussions at the European Council

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four and even one in two in some countries, putting a whole generation at risk. This is why throughout the year we focused on improving conditions for growth and employment, especially during four European Councils in the first half of the year, including two where it was the only issue on our agenda.

Youth unemployment was the focus in January: working hand in hand with the Commission, leaders decided to re-direct available EU funds to help young people through apprenticeships, work experience, first proper contracts, and to support business starters, social entrepreneurs and job creation in small and medium companies. In March, we agreed – among other things – on incentives for employers to hire people, for instance by shifting tax away from labour, or cutting red tape. At an informal dinner in May we discussed several other avenues, resulting in more comprehensive decisions a month later.

In the Compact for Growth and Jobs we adopted in June, European leaders pledged to mobilise all possible means of action to tackle unemployment, address the social consequences of the crisis, and improve the competitiveness of our economies. In particular we committed to:

– encourage job creation and labour mobility, and invest in skills and training;

– preserve drivers for growth, like investment in energy, innovation and education;

– further deepen our single market, especially for digital industries;

– support innovation, research and industrial competitiveness;

– and harness the potential of trade as an engine for growth.

Restoring financial stability, the overriding concern in 2012, is not an end in itself, but rather a means to an end: economic recovery. Bringing back confidence to consumers and investors is essential for business and employment to prosper.

Relentless reforms across Europe played an important part in helping confidence improve. This year again, courageous decisions in member states demonstrated the seriousness of our efforts. Many European Council colleagues took the bull by the horns, going against all kinds of vested interests to drive forward structural reforms – reforms which would have been necessary in any case, with or without the crisis, with or without the euro.

Changes of this magnitude necessarily take time. Yet this year saw the reforms already bear some initial fruit. In several countries, including those under market pressure – from Greece to Portugal, from Ireland to Italy to Spain –, competitiveness is improving, budgets are healthier, and exports are picking up. But it will take time before the full effect on the economy is felt. There are always time lags: once stability is back, it takes time before this translates into more investment and growth. And as growth returns, it also takes time before employment starts picking up.

Fighting unemployment

Unemployment levels across the Union are unacceptably high, with 26 million men and women without a job. True: a few Member States such as Austria, the Netherlands, Luxembourg and Germany still enjoy quite low unemployment rates; the Baltic states even saw record drops this year. But unemployment increased in most other member states. Youth unemployment is particularly dramatic, one in

Growth and jobs

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Members of the European Council addressing Parliaments in Europe

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decades of negotiations to an end – to everyone’s relief. By reducing by 80% patenting costs in Europe, currently twenty times higher than in the United States or Japan, the patent will greatly benefit companies across the continent.

In financing growth, our common multiannual budget, which was being negotiated this year, can play an important role. Although it amounts only to 1% of our combined GDP, it is first and foremost an investment budget. At an extraordinary European Council in November, we launched the negotiations at our level for 2014-2020. Beyond fixing total European financing for the rest of the decade, this entails fundamental choices: what are the priorities for the next generation, which

Investing in growthThe Growth Compact is also a commitment to financing the economy. We mobilised €120 billion for immediate investment: €55 billion from European structural funds, €5 billion from a pilot initiative for project bonds, and a €10 billion capital increase for the European Investment Bank, increasing its overall lending capacity by €60 billion. Most of this funding will support initiatives in fields like transport, energy and digital networks as well as research, also helping countries and companies attract additional investment.

At our June meeting we also reached a final breakthrough on the creation of a single European patent, bringing

First semester 2012, while Denmark holds the rotating presidency of the Council of ministers of the EU

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country's performance and specific situation. And I consider it my duty to remind colleagues – gently but constantly – of their individual pledges and collective commitments, and have done so regularly to review progress on the Growth Compact measures.

In a globalised world and with an ageing population, we cannot allow ourselves to ease back. That goes for each and every country. Europe must remain that very attractive continent in which to live and work, create wealth and spend it, for all citizens.

policies best support growth, how to make the most of resources? As in past budget negotiations, it was not possible to reach agreement in one go. But there was sufficient political will and convergence of positions to make me confident that a decision is within reach for early 2013.

Staying the course Everyone in EU and national administrations is working hard to turn our commitments for growth and jobs into action that makes a difference on the ground. Implementation is the priority. It is closely monitored by the European Commission, which looks at each

Second semester 2012, while Cyprus holds the rotating presidency of the Council of ministers of the EU

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the United States, a potential boost to growth on both sides of the Atlantic.

Asian encounters

Trade is not just an engine for growth, but also for change. Economic means can help achieve security goals. Europe has imposed tougher sanctions on Iran than anybody else, including an oil embargo from 1 July, to bring the Iranian government back to the negotiating table – an issue where High Representative Catherine Ashton plays a leading role. The Nuclear Security Summit in Seoul in March was another occasion to stress that we take nuclear proliferation and the threat of nuclear terrorism very seriously. Lifting sanctions is of course a happier decision than imposing them. Following progress in Myanmar – the release of political prisoners and credible by-elections in April – the European Union suspended its sanctions and opened an office in Yangon.

Discussions with Asian partners featured prominently on the agenda in 2012. As China embarked on a once in a decade leadership change, summits in February (in Beijing) and in September (in Brussels) helped prepare the ground for the new phase in the relationship. In October, as part of our focus on strategic partners, the European Council held a fruitful discussion on how to best engage with the new leadership in China, and better coordinate among institutions and member states. Here also, we need to play our hand tactically.

Together with several European leaders I attended the Asia-Europe Meeting in Vientiane in November, a gathering of 51 countries – and for me also the occasion for meetings in Laos, Vietnam and Cambodia. In all these Asian encounters there was a clear sense that, whether Asians or Europeans, we are all in the same boat.

In many ways 2012 was a year of transition. Political transition for many countries, including government changes in the United States, China and Russia. Democratic transition, for countries embracing free and fair elections, like Egypt and Somalia. And economic transition also, from the uncertainties of 2011 to the return of global growth projected for 2013.

Economic interdependence

Rebalancing the world economy and boosting growth and jobs worldwide was at the heart of all exchanges with key partners, in particular at the G8 summit in Camp David in May and the G20 in Los Cabos in June. Understandably then, there was a lot of attention focussed on the situation in the eurozone.

Explaining our course of action, the political constraints under which we work, reassuring partners on our ability to keep moving forward is key. In the end, however, nothing is as effective as being able to show results – as summit meetings later in the year confirmed. All along we made the case that it is not only the eurozone which has to adjust imbalances. Others have to as well, not least the United States, China and Japan. As I repeatedly stressed: coordinated efforts toward growth and global economic and financial governance are the only way forward.

Trade remains the best way to turn interdependencies into mutual opportunities. Access to our common market, the world's largest, is a much sought after prize. For us, trade with the rest of the world is a key engine for growth. While the recent free trade agreement with South Korea showed its first fruit, this year saw progress on several deals underway (including with Japan, Singapore and Canada) and the launch of negotiations with Vietnam. There were also promising signs towards further opening of trade with

The Union in the world

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Summits and meetings with third countries

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international partners and the Syrian opposition; humanitarian: as the largest provider of support; and through targeted sanctions: hitting hard at the regime. The European Council called upon Assad to step down, and tasked the foreign ministers to look "at all options to support and help the opposition and to enable the greater support for the protection of civilians." But we must be frank. So far the international community has not succeeded in stopping the brutal violence. International pressure on the regime must increase to end this tragic situation.

Whether dealing with instability in the Middle East, the Great Lakes or the Sahel, it is our institution's role to respond to events when the Union's engagement is required at the highest level. Faced with escalating tensions in Mali, the European Council decided in October to step up its humanitarian response and speed up military preparations to help train Malian forces.

In December we had a good discussion on our Common Security and Defence Policy, preparing a more in-depth debate I have planned for late 2013. It had been a while – four years in fact– since it was discussed at our level. New geopolitical and security challenges as well as budgetary constraints point to the need to work more closely together. Upon receiving the Nobel Peace Prize in Oslo, we said the European Union stands by those in pursuit of peace and human dignity. To fulfil such responsibilities, we should make sure we have the means at our disposal.

NeighbourhoodEnsuring that the Western Balkans' future is European is a priority for my second mandate, and I am glad important steps were taken in 2012. At our March meeting, we agreed on Serbia becoming a candidate country. In June, leaders endorsed the decision to open accession negotiations with Montenegro. And throughout the year, preparations continued for Croatia to join our Union as its 28th member on 1 July 2013.

Since I took office, I have visited most of the countries in the Eastern partnership, and kept regular contacts with their leaders. In the early summer, I travelled to the Southern Caucasus. Europe remains engaged in the resolution of the 'frozen conflicts', as the Union's presence on Georgia's borders shows. In all these countries' efforts for economic and political reform you can feel Europe’s power of attraction at work.

Looking South, the Arab Spring was the most momentous event in recent years: history in the making. In March, one year after it began, we discussed regional developments and reviewed our action in support of democratic reform and economic development. As I pointed out at the United Nations in September: we Europeans are well-placed to recognise that political change does not happen overnight. We are in it for the long run.

Security challengesThe civil war raging in Syria remained a matter of utmost concern throughout the year – senseless violence making countless victims and threatening to wreak regional havoc. At the forefront of international efforts to encourage a Syrian-led political transition, Europe's support was three-fold. Political: working closely with

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It was up to the Commission President and myself to jointly deliver the traditional Nobel Lecture. In the closing section, President Barroso spoke compellingly about the spread of democracy to the countries of Southern and, later, Central and Eastern Europe, as well as about how our Union defends the values of peace and democracy in the world. For my part, I opened the lecture with a reflection on the place of peace in our Union today. Here, rather than providing an ill-considered summary, I prefer to give the text of my chapter of the address in full – since I deeply believe peace is at the heart of our work, this year and every year.

On the morning of 12 October, I was on the way to Helsinki to meet the Finnish Prime Minister when suddenly an agreeable announcement came through: the European Union had been awarded the Nobel Peace Prize. In its communiqué, the Nobel Committee recalled how "the Union and its forerunners have for over six decades contributed to the advancement of peace and reconciliation, democracy and human rights in Europe". This tribute to past achievements was welcomed by all members of the European Council also as a strong appeal to safeguard and strengthen Europe for the next generation.

The Nobel ceremony in Oslo on Monday 10 December proved a highlight of the year – for the Union and for me personally. Eight hundred people gathered in the City Hall, including the Norwegian royal family and twenty European heads of state or government. The trumpets of the guards, the musical interludes, the words of the Committee's chairman: everything was carefully chosen and stirring. On behalf of the European Union, the President of the Commission and I, together with the President of the Parliament, received the Nobel Prize medal and diploma. Among the guests in the audience that we had jointly invited were young Europeans, including the winners of a contest organised for the occasion, on the theme 'What does peace in Europe mean to you'.

From a continent of warto a continent of peace

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President Van Rompuy, delivering the first part of the Nobel Peace Prize Lecture on behalf of the European Union

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(Oslo, 10 December 2012)

Your Majesties, Your Royal Highnesses, Heads of State and Government, Members of the Norwegian

Nobel Committee, Excellencies, Ladies and Gentlemen,

It is with humility and gratitude that we stand here together, to receive this award on behalf of the European Union.

At a time of uncertainty, this day reminds people across Europe and the world of the Union's fundamental purpose: to further the fraternity between European nations, now and in the future. It is our work today. It has been the work of generations before us. And it will be the work of generations after us.

Here in Oslo, I want to pay homage to all the Europeans who dreamt of a continent at peace with itself, and to all those who day by day make this dream a reality. This award belongs to them.

War is as old as Europe. Our continent bears the scars of spears and swords, cannons and guns, trenches and tanks, and more. The tragedy of it all resonates in the words of Herodotus, 25 centuries ago: “In peace, sons bury their fathers. In war, fathers bury their sons.”

Yet, after two terrible wars engulfed the continent and the world with it, finally lasting peace came to Europe. In those grey days, its cities were in ruins, the hearts of many still simmering with mourning and resentment. How difficult it then seemed, as Winston Churchill said, "to regain the simple joys and hopes that make life worth living".

As a child born in Belgium just after the war, I heard the stories first-hand. My grandmother spoke about the Great War. In 1940, my father, then seventeen, had to dig

his own grave. He got away; otherwise I would not be here today.

So what a bold bet it was, for Europe's Founders, to say, yes, we can break this endless cycle of violence, we can stop the logic of vengeance, we can build a brighter future, together. What power of the imagination.

Of course, peace might have come to Europe without the Union. Maybe. We will never know. But it would never have been of the same quality. A lasting peace, not a frosty cease-fire.

To me, what makes it so special, is reconciliation. In politics as in life, reconciliation is the most difficult thing. It goes beyond forgiving and forgetting, or simply turning the page.

To think of what France and Germany had gone through, and then take this step. Signing a Treaty of Friendship. Each time I hear these words – Freundschaft, Amitié –, I am moved. They are private words, not for treaties between nations. But the will to not let history repeat itself, to do something radically new, was so strong that new words had to be found. For people Europe was a promise, Europe equalled hope.

When Konrad Adenauer came to Paris to conclude the Coal and Steel Treaty, in 1951, one evening he found a gift waiting at his hotel. It was a war medal, une Croix de Guerre, that had belonged to a French soldier. His daughter, a young student, had left it with a little note for the Chancellor, as a gesture of reconciliation and hope.

I can see many other stirring images before me. Leaders of six States assembled to open a new future, in Rome,

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children born at the time of Srebrenica will only turn eighteen next year. But they already have little brothers and sisters born after that war: the first real post-war generation of Europe. This must remain so.

So, where there was war, there is now peace. But another historic task now lies ahead of us: keeping peace where there is peace. After all, history is not a novel, a book we can close after a Happy Ending: we remain fully responsible for what is yet to come.

This couldn't be more clear than it is today, when we are hit by the worst economic crisis in two generations, causing great hardship among our people, and putting the political bonds of our Union to the test. Parents struggling to make ends meet, workers recently laid off, students who fear that, however hard they try, they won't get that first job: when they think about Europe, peace is not the first thing that comes to mind…

When prosperity and employment, the bedrock of our societies, appear threatened, it is natural to see a hardening of hearts, the narrowing of interests, even the return of long-forgotten fault-lines and stereotypes. For some, not only joint decisions, but the very fact of deciding jointly, may come into doubt. And while we must keep a sense of proportion – even such tensions don't take us back to the darkness of the past –, the test Europe is currently facing is real. If I can borrow the words of Abraham Lincoln at the time of another continental test, what is being assessed today is "whether that Union, or any Union so conceived and so dedicated, can long endure".

We answer with our deeds, confident we will succeed. We are working very hard to overcome the difficulties, to restore growth and jobs. There is of course sheer necessity. But there is more that guides us: the will to remain masters

città eterna. Willy Brandt kneeling down in Warsaw. The dockers of Gdansk, at the gates of their shipyard. Mitterrand and Kohl hand in hand. Two million people linking Tallinn to Riga to Vilnius in a human chain, in 1989. These moments healed Europe.

But symbolic gestures alone cannot cement peace. This is where the European Union's "secret weapon" comes into play: an unrivalled way of binding our interests so tightly that war becomes materially impossible. Through constant negotiations, on ever more topics, between ever more countries. It's the golden rule of Jean Monnet: "Mieux vaut se disputer autour d'une table que sur un champ de bataille." ("Better fight around a table than on a battle-field.") If I had to explain it to Alfred Nobel, I would say: not just a peace congress, a perpetual peace congress!

Admittedly, some aspects can be puzzling, and not only to outsiders. Ministers from landlocked countries passionately discussing fish-quota. Europarliamentarians from Scandinavia debating the price of olive oil. The Union has perfected the art of compromise. No drama of victory or defeat, but ensuring all countries emerge victorious from talks. For this, boring politics is only a small price to pay.

It worked. Peace is now self-evident. War has become inconceivable. Yet 'inconceivable' does not mean 'impossible'. And that is why we are gathered here today. Europe must keep its promise of peace. I believe this is still our Union's ultimate purpose. But Europe can no longer rely on this promise alone to inspire citizens.

In a way, it's a good thing; war-time memories are fading. Even if not yet everywhere. Soviet rule over Eastern Europe ended just two decades ago. Horrendous massacres took place in the Balkans shortly after. The

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same boat. No, the richness of being able to freely share, travel and exchange. To share and shape a continent, experiences, a future.

Our continent, risen from the ashes after 1945 and united in 1989, has a great capacity to reinvent itself. It is to the next generations to take this common adventure further. I hope they will seize this responsibility with pride. And that they will be able to say, as we here today: Ich bin ein Europäer. Je suis fier d'être européen. I am proud to be European.

of our own destiny, a sense of togetherness, and in a way speaking to us from the centuries, the idea of Europa itself.

The presence of so many European leaders here today underlines our common conviction: that we will come out of this together, and stronger. Strong enough in the world to defend our interests and promote our values. We all work to leave a better Europe for the children of today and those of tomorrow. So that, later, others might turn and judge: that generation, ours, preserved the promise of Europe.

Today's youth is already living in a new world. For them Europe is a daily reality. Not the constraint of being in the

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Meetings between Members of the European Council across Europe

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We must tackle these challenges with resolve, knowing that in the end we can only succeed if we answer a fundamental question: how to secure public support for Europe? In the past year we again witnessed how European politics are increasingly playing into national political debates. National leaders also meet each other frequently, a clear sign of a new sense of coresponsibility. In their encounters, they carry with them their countries' hopes and worries, echoes of the debates that shape Europe's future: on prosperity and protection, sovereignty and identity, fairness and justice. It is my conviction that a strong case can be made for Europe in all these debates, as many leaders, parties and citizens already attest. And of course, concrete results remain the strongest argument. Ultimately our Union rests upon the will of the people – as citizens of their country, and citizens of Europe.

We are entering 2013 with cautious confidence. That is good news, but there is no reason to rejoice just yet. There is still much work to be done. With a pivotal year behind us, we must make the new year into a year of results, clearly visible in all member states and for all citizens.

No effort must be spared to drive our economies toward recovery. It is first and foremost a matter of pursuing national reforms in each country. Jointly, within the European Council, we will continue to work with a strong focus on growth and employment. Implementation will remain a priority: it is the only way to translate good intentions into real improvements for families and companies. We will start by emphasising three key levers of economic growth: financing the economy and promoting trade (in February), and securing affordable and reliable energy (in May). We will continue to underpin the solidity of the single currency with our work to bring the Economic and Monetary Union to genuine completion – a task that is both urgent and historic. Herman Van rompuy

Lookingahead

Conclusions of the European Council

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Towards growth-friendly consolidation and job-friendly growthStatement by the Members of the European Council – 30 January 2012 27

Communication by the Euro Area Member States – 30 January 2012 30

European Council – 1-2 March 2012 31

Treaty on Stability, Coordination and Governance in the Economic and Monetary Union – 2 March 2012 37

Statement by the Euro Area Heads of State or Government – 2 March 2012 43

Towards a genuine Economic and Monetary Union Report by President Van Rompuy – 26 June 2012 44

European Council – 28-29 June 2012Including "Compact for Growth and Jobs" 47

Statement by the Euro Area Member States – 29 June 2012 52

Towards a genuine Economic and Monetary UnionInterim Report by President Van Rompuy – 12 October 2012 53

Statement by the Euro Area Heads of State or Government – 18 October 2012 57

European Council – 18-19 October 2012 58

European Council – 22-23 November 2012 63

Towards a genuine Economic and Monetary UnionReport and roadmap by President Van Rompuy – 7 December 2012 64

European Council – 13-14 December 2012 72

Conclusions of the European Council and statements by Heads

of State or Government

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Stimulating employment, especially for young people

1. More than 23 million people are unemployed in Europe today. Unless we can improve our growth rates, unemployment will remain high. We need to keep people in work and create new jobs, including in the "green economy". This means taking concrete action to overcome the "skills mismatch" and the "geographic mismatch". It also means reforming labour markets and addressing the cost of labour in relation to productivity. This is mainly a matter for the Member States, which need to develop and implement comprehensive initiatives on employment, education and skills. Each Member State will set out in its National Reform Programme the concrete measures it will take to address these issues ("National Job Plans"); implementation will be subject to enhanced monitoring in the framework of the

European semester. Measures to cut non-wage labour costs, such as the reduction of the tax wedge, can have a significant impact on labour demand for the low-skilled and the young. Reducing labour market segmentation can go a long way towards providing young people with job opportunities. A particular effort needs to be made immediately at national level to improve labour supply and reduce youth unemployment, by:

– stepping up efforts to promote young people's first work experience and their participation in the labour market: the objective should be that within a few months of leaving school, young people receive a good quality offer of employment, continued education, an apprenticeship, or a traineeship;

– substantially increasing the number of apprenticeships and traineeships to ensure that they represent real

TOWARDS GROWTH-FRIENDLY CONSOLIDATION

AND JOB-FRIENDLY GROWTH

STATEmENT BY THE mEmBERS

OF THE EUROpEAN COUNCIL1 – 30 JANUARY 2012

Over recent months, there have been tentative signs of economic stabilisation, but financial market tensions continue to dampen economic activity and uncertainty remains high. Governments are making significant efforts to correct budgetary imbalances on a sustainable basis, but further efforts are needed to promote growth and employment. There are no quick fixes. Our action must be determined, persistent and broad-based. We must do more to get Europe out of the crisis.

Decisions have been taken to ensure financial stability and fiscal consolidation - this is a necessary condition for a return to higher rates of structural growth and employment. But it is not in itself sufficient: we have to modernise our economies and strengthen our competitiveness to secure sustainable growth. This is essential to create jobs and preserve our social models, and is at the heart of the Europe 2020 strategy and the Euro Plus Pact. These efforts must be made in close cooperation with the social partners, respecting Member States' national systems. Growth and employment will only resume if we pursue a consistent and broad-based approach, combining smart fiscal consolidation that preserves investment in future growth, sound macroeconomic policies and an active employment strategy that preserves social cohesion.

The March European Council will provide guidance on Member States' economic and employment policies, putting particular emphasis on fully exploiting the potential of green growth and on accelerating structural reforms to increase competitiveness and create more jobs. In doing so, it must pay due attention to the growing divergences between Member States' economic situations and to the social consequences of the crisis.

Today, we focused on three immediate priorities. Wherever possible, efforts made at the national level will be supported by EU action, including better targeting available EU funds towards jobs and growth, within agreed ceilings.

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1 For parliamentary reasons, the Swedish Prime Minister was not in a position to subscribe to this statement.

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4. The participating Member States commit to reaching a final agreement in June 2012 at the latest on the last outstanding issue in the patent package.

5. It is of crucial importance that we swiftly and fully implement at the national level what we have already agreed on, so as to realise the full potential of the Single Market. In particular, EU legislation in areas such as services and the energy single market must be rapidly and fully implemented. We also need to tackle the remaining missing links still preventing the internal market from delivering its full benefits. In advance of the June 2012 European Council, the Council will assess progress made in the implementation of Single Market legislation on the basis of the Commission Internal Market Scoreboard. The Commission will report annually on progress made towards releasing the growth-creating potential of a fully integrated Single Market, including as regards network industries. The Commission will report in June on possible means to enhance the implementation of Single Market legislation and improve its enforcement.

6. We will push forward multilateral and bilateral efforts to remove trade barriers and ensure better market access and appropriate investment conditions for European exporters and investors in line with the conclusions of the October 2011 European Council. This should be a decisive year for progress on trade agreements with major partners. The EU/US High-Level Working Group on Jobs and Growth should consider all options for boosting EU/US trade and investment.

Boosting the financing of the economy, in particular SMEs7. It is vital to take measures to prevent the present credit

crunch severely limiting the ability of enterprises to grow and create jobs. The recent measures taken by the ECB as regards long-term lending to banks help very much in that respect. National supervisors and the EBA must ensure that bank recapitalisation does not lead to deleveraging which would negatively affect the financing of the economy. Supervisors should ensure rigorous application by all banks of EU legislation restricting bonus payments.

8. The 23 million European SMEs are the backbone of Europe's economic success and a key provider of employment. We therefore agree on the following urgent measures to be implemented by June:

– better mobilising structural funds by speeding up the implementation of existing programmes and projects, where appropriate re-programming monies and rapidly committing monies not yet allocated to specific projects, concentrating on growth enhancement and job creation;

– strengthening EIB support for SMEs and infrastructure; the Council, the Commission and the EIB are invited to consider possible options to enhance EIB action to support growth and to make appropriate recommendations, including possibilities for the EU

opportunities for young people, in cooperation with the social partners and where possible integrated into education programmes;

– making renewed efforts to get early school-leavers into training;

– making full use of the EURES job mobility portal to facilitate the cross-border placement of young people; further opening sheltered sectors by removing unjustified restrictions on professional services and the retail sector.

2. The EU will support those efforts, notably by: – as a first step, working with those Member States which

have the highest youth unemployment levels to re-direct available EU funds towards support for young people to get into work or training;

– enhancing the mobility of students by substantially increasing the number of placements in enterprises under the Leonardo da Vinci programme;

– using the ESF to support the setting up of apprenticeship-type schemes and support schemes for young business starters and social entrepreneurs;

– enhancing cross-border labour mobility, through the revision of EU rules on the mutual recognition of professional qualifications, including the European professional card and the European Skills Passport, the further strengthening of EURES, and progress on the acquisition and preservation of supplementary pension rights for migrating workers.

Completing the Single Market

3. The Single Market constitutes a key driver for Europe's economic growth. This is an area where action at EU level can do much to boost jobs and growth. The Single Market Act, the Digital Single Market and the ongoing reduction of overall regulatory burden for SMEs and microenterprises constitute clear priorities. Recalling our commitment to give particular priority to the speedy examination of the proposals with the most growth potential, we call for:

– agreement on standardisation, on energy efficiency and on the simplification of accounting requirements by the end of June 2012; agreement on the simplification of public procurement rules by the end of the year;

– rapid implementation of the Commission Action Plan on e-commerce; the submission of a new proposal on e-signature before June 2012; and agreement on rules on online dispute resolution and on roaming by June 2012;

– in order to deploy the full potential of the digital economy, modernisation of Europe's copyright regime and promotion of best practices and models, while fighting piracy more effectively and taking into account cultural diversity;

– progress in structured discussions on the coordination of tax policy issues and the prevention of harmful tax practices in the context of the Euro Plus Pact.

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unjustified administrative and regulatory burdens as well as by ensuring that all actions at the European Union level fully support economic growth and job creation.

9. Measures requiring action at national level will be duly ref lected in Member States' National Reform Programmes. The Council will report by June on implementation of measures to be taken at EU level.

budget to leverage EIB group financing capacity; – rapidly examining the Commission's proposals on a

pilot phase for the use of "project bonds" to stimulate private financing of key infrastructure projects;

– ensuring better access to venture capital across Europe by agreeing on the EU passport by June;

– promoting the role of the Progress Microfinance Facility in support for micro-enterprises;

– making renewed efforts to improve the environment in which SMEs operate, in particular by reducing

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urge the Greek authorities and all parties involved to finalize negotiations on the new program in the coming days. Restoration of credibility requires that all political parties irrevocably commit to the new program. We urge our Finance Ministers to take all necessary steps for the implementation of the PSI agreement and the adoption of the new programme, including prior actions, well in time for the launching of the PSI operation by mid-February. We recall that PSI in Greece is an exceptional and unique case.

4. We welcome the latest positive reviews of the Irish and Portuguese programmes which concluded that quantitative performance criteria and structural benchmarks have been met. We will continue to provide support to countries under a programme until they have regained market access, provided they successfully implement their programmes.

5. We welcome the measures decided and already enacted by Italy and Spain to reduce the public deficit and boost growth and competitiveness and call on them to pursue their important efforts for fiscal consolidation and structural reforms. These reforms as well as their swift implementation will reinforce financial stability in Italy and Spain as well as the euro area as a whole.

1. The Treaty on stability, coordination and governance in the Economic and Monetary Union has been finalized. It will be signed in March. At the same time an arrangement will be decided about the procedure to be followed to bring to the Court of Justice a case of non-compliance with the Treaty.

This represents a major step forward towards closer and irrevocable fiscal and economic integration and stronger governance in the euro area. It will significantly bolster the outlook for fiscal sustainability and euro area sovereign debt and enhance growth.

2. The Treaty establishing the European Stability Mechanism is ready for signature, and the objective is that it enters into force in July 2012. This permanent crisis mechanism will contribute to raising confidence, solidarity and financial stability in the euro area. It will have a wide range of tools available and a strong financial basis.

As agreed in December, we will reassess in March the adequacy of resources under the EFSF and ESM.

3. Concerning Greece, we note progress made in the negotiations with the private sector to reach an agreement in line with the parameters agreed upon in October. We

COmmUNICATION BY THE EURO AREA

mEmBER STATES – 30 JANUARY 2012

Today, we have taken major steps in the implementation of our overall strategy to fight the crisis:

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I. ECONOMIC POLICY

1. The European Union is taking all necessary measures to put Europe back on the path to growth and jobs. This requires a two-pronged approach, covering both measures to ensure financial stability and fiscal consolidation and action to foster growth, competitiveness and employment.

2. "Europe 2020" is Europe's strategy for jobs and growth and its comprehensive response to the challenges it is facing. In particular, the five targets set out for 2020 remain fully relevant and will continue to guide the action of Member States and the Union to promote employment; improve the conditions for innovation, research and development; meet our climate change and energy objectives; improve education levels and promote social inclusion, in particular through the reduction of poverty.

3. However, efforts undertaken to date remain insufficient to meet most of these targets. It is therefore urgent to concentrate on the implementation of reforms, with particular attention paid to measures which have a short-term effect on jobs and growth.

4. For 2012, the European Council endorses the five priorities set out in the Commission's Annual Growth Survey for action to be taken at EU and national levels to:

– pursue differentiated, growth-friendly, fiscal consolidation,– restore normal lending to the economy,– promote growth and competitiveness,– tackle unemployment and the social consequences of the

crisis, and– modernise public administration.

action at national level5. The European Council discussed preliminary findings

and best practices relating to the implementation of the 2011 Country-Specific Recommendations and commitments under the Euro Plus Pact.

6. While important measures have been taken by all Member States, reforms in certain areas are lagging behind and implementation is uneven, as is described in the Commission's Annual Growth Survey and the Presidency's report on the European semester.

EUROpEAN COUNCIL – 1-2 mARCH 2012

The European Council discussed the implementation of the EU's economic strategy. This strategy pursues both continued fiscal consolidation and determined action to boost growth and jobs; sustainable growth and jobs cannot be built on deficits and excessive debt levels. The measures taken to stabilize the situation in the euro area are bearing fruit.

The European Council endorsed the five priorities for 2012 set out in the Commission's Annual Growth Survey. It looked at action that has to be taken at national level. Member States must make faster progress towards the targets of the Europe 2020 Strategy and step up efforts on the reforms taken up in the 2011 Country-Specific Recommendations. They are expected to indicate the measures they intend to take to that effect in their National Reform Programmes and their Stability of Convergence Programmes. The European Council also discussed action required at the EU level, pushing ahead with completing the Single Market in all its aspects, both internal and external, and boosting innovation and research.

In the margins of the European Council the participating Member States signed the Treaty on Stability, Coordination and Governance in the EMU.

The European Council set the EU's priorities for the forthcoming G20 meeting and UN Rio+20 Conference, with a particular emphasis on growth-enhancing measures and reforms. It took stock of developments concerning the Arab Spring and set guidelines for future EU action to support that process.

The European Council granted candidate status to Serbia.

It agreed that the Council should return to the issue of Bulgaria and Romania's accession to the Schengen area in order to adopt its decision in September

Finally, the European Council re-elected Herman Van Rompuy as its President.

* * *

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a view to strengthening the participation of young people, women and older workers.

11. The European Council looks forward to the Commission's forthcoming "employment package", focusing on strengthening growth through the mobilisation of Europe's workforce, promoting job creation in key sectors of the economy, improving management of skill requirements , promoting labour market transitions and improving geographic mobility. It stresses the importance of making progress on enhancing the mutual recognition of professional qualifications, reducing the number of regulated professions and removing unjustified regulatory barriers.

12. It is of the utmost importance that Member States fully ref lect these priorities and challenges through more precise, operational and measurable commitments in their National Reform Programmes and Stability or Convergence Programmes. The Member States that participate in the Euro Plus Pact should also include further commitments focused on a small number of essential, timely and measurable reforms to achieve the objectives of the Pact.

13. In this process, in which social partners and regions have an important role to play, full use will be made of the tools offered by the European Union's new economic governance. The European Council calls for the adoption by June of the two outstanding proposals aimed at further strengthening euro area surveillance.

action at the eu level14. In its meetings of October and December 2011, the

European Council set out a clear framework for a series of growth-enhancing proposals. The informal meeting of 30 January 2012 looked at some particularly urgent measures on which the Council will report next June. Work must continue on all fronts to press ahead with this package of measures.

15. In particular, efforts will continue in order to:− bring the Single Market to a new stage of development

by strengthening its governance and improving its implementation and enforcement; in this connection the European Council looks forward to the presentation next June of the Commission's communication on the Single Market and its report on the Services Directive as well as its report on the outcome of sectoral performance checks. It welcomes the Commission's intention to propose in the second half of this year a new round of measures designed to open up new growth areas in the Single Market. In this connection, the European Council stresses the importance of completing the Single Market and removing remaining barriers;

− complete the Digital Single Market by 2015, in particular by adopting measures to boost confidence in on-line trade and by providing better broadband coverage, including by reducing the cost of high-speed broadband infrastructure; the European Council looks forward to the forthcoming Commission proposals on copyright;

7. Furthermore, the Commission's recent Alert Mechanism Report, which constitutes the first step of the new procedure on the prevention and correction of macroeconomic imbalances, points to certain challenges and potential risks raised by macroeconomic imbalances in some Member States. The Council will examine the report closely. The European Council invites the Council and the Commission to fully, effectively and swiftly implement the procedure and Member States to act accordingly.

8. Fiscal consolidation is an essential condition to return to higher growth and employment. It must be differentiated according to Member States' circumstances . All Member States should continue to respect their commitments under the rules of the Stability and Growth Pact, which allow the automatic stabilisers to work around the agreed path of structural fiscal adjustment, while ensuring the long -term sustainability of public finances. Countries that are part of an assistance programme should stick to the targets and structural reforms agreed in the programme. Similarly, Member States under market pressure should meet agreed budgetary targets and stand ready to pursue further consolidation measures if needed. While pursuing consolidation efforts, particular care must be given to prioritising expenditure that constitutes an investment in future growth, with a particular emphasis on education, research and innovation.

9. Tax policy can contribute to fiscal consolidation and growth. In line with the Council conclusions of 21 February, and recognising Member States' competences in this area, the European Council invites Member States, where appropriate, to review their tax systems with the aim of making them more effective and efficient, removing unjustified exemptions, broadening the tax base, shifting taxes away from labour, improving the efficiency of tax collection and tackling tax evasion. The Council and the Commission are invited to rapidly develop concrete ways to improve the fight against tax fraud and tax evasion, including in relation to third countries, and to report by June 2012.

10. Bringing the employment rate to 75 % by 2020 requires resolute action. The guidelines set by the Heads of State or Government on 30 January provide further specific guidance to Member States, particularly on youth unemployment and the development of their National Job Plans in the framework of their NRPs. Tackling poverty and social exclusion requires the implementation of active inclusive strategies encompassing labour market activation measures. In line with the Council conclusions of 17 February 2012, and respecting the role of social partners and national systems for wage-formation, Member States should :

− increase efforts to make it easier and more attractive for employers to hire people, where necessary by improving wage-setting mechanisms;

− remove barriers to the creation of new jobs;− and implement active labour market policies, notably with

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– creating the best possible environment for entrepreneurs to commercialise their ideas and create jobs and making demand-led innovation a main driver of Europe's research and development policy; in particular, creating an effective EU-wide venture capital regime, including an "EU passport", a financing scheme in support of innovative SMEs, considering a "fund of funds" to provide cross-border risk capital and making more effective use of pre-commercial public procurement to support innovative and high- tech businesses;

– strengthening key enabling technologies which are of systemic importance for the innovativeness of industry and the whole economy.

19. As regards energy, it is important to implement the guidelines agreed in February and December 2011, delivering on the commitment to complete the internal energy market by 2014, including through the full implementation of the Third Energy Package in recognition of agreed deadlines, and to interconnect networks across borders. The European Council looks forward to the Commission's communication expected by next June assessing the degree of liberalisation and integration of the internal energy market.

20. The European Council stresses the important role played by industry in the area of European growth, competitiveness, exports and job creation and as a driver for productivity and innovation.

21. Work and discussions should be carried forward on the Commission proposals on energy taxation, on the common consolidated corporate tax base, on the financial transactions tax and on the revision of the Savings Tax Directive. The negotiating directives for savings taxation agreements with third countries should be rapidly adopted. The Council and the Commission will regularly report on the state of play in this field, starting in June 2012.

22. It is likewise important to rapidly complete the regulatory reform of the financial sector. Building on the political agreement recently achieved, the European Market Infrastructure Regulation should now be adopted as rapidly as possible. Furthermore, the proposals relating to bank capital requirements and to markets in financial instruments should be agreed, respectively, by June and December 2012, bearing in mind the objective of having a single rule book, and of ensuring timely and consistent implementation of Basel III. The amendments to the Regulation on Credit Rating Agencies should be adopted as soon as possible. The European Council looks forward to the outcome of the Commission's ongoing review of mandatory references to the ratings from credit rating agencies in EU legislation.

23. It is important to restore investor confidence in the EU banking sector and to ensure the f low of credit to the real economy, in particular through the strengthening of banks' capital positions without excessive deleveraging and, where required, measures to support bank access to funding. The Council will closely monitor the

− reduce the administrative and regulatory burdens at EU and national level; the European Council welcomes the Commission's intention to present a communication on further steps towards minimising regulatory burdens, including measures to support micro-enterprises. It invites the Commission to consider sectoral targets;

− remove trade barriers and ensure better market access and investment conditions in line with the conclusions of October 2011 and the statement of January 2012; the European Council welcomes the Commission's new report on trade and investment barriers. The European Council will next June review progress and discuss how the Union can deepen its trade and investment relationships with key partners.

16. The European Council considers that enhanced "peer pressure" can help raise ownership and responsibility at the level of Heads of State or Government as regards the Council's and individual Member States' role in developing the Single Market and complying with its rules. To that end , the European Council invites :

− the Commission to provide transparent scoreboards as a basis for appropriate bench-marking;

− the President of the European Council to promote regular monitoring by the European Council of progress achieved on key Single Market proposals in the various Council formations.

17. Promoting a more resource-efficient, greener and more competitive economy is crucial. The European Council calls for agreement to be reached on the Energy Efficiency Directive by June. Recalling its conclusions of December 2011, it also calls for rapid progress on the low-carbon 2050 strategy and on the implementation of the roadmap towards a resource-efficient Europe.

18. Innovation and research are at the heart of the Europe 2020 strategy. Europe has a strong science base but the ability to transform research into new innovations targeted at market demands needs to be improved. On the basis of a report presented by the Presidency, the European Council took stock of the progress achieved in implementing its conclusions of February 2011 and agreed that efforts must be stepped up with a view to:

– completing the European Research Area by 2014; in this connection the European Council welcomed the Commission's intention to propose an ER A framework in June 2012;

– improving the mobility and career prospects of researchers;

– rapidly establishing and implementing the inventory of EU-funded R&D and the single innovation indicator;

– an intellectual property rights valorisation instrument at the European level;

– ensuring that the participating Member States reach a final agreement in June 2012 at the latest on the last outstanding issue in the patent package;

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– the Conference should advance the global transition towards a green economy, thus promoting environmental protection, contributing to poverty eradication and stimulating low- carbon and resource-efficient growth;

– it should work towards clear operational targets and concrete actions at national and international level within agreed time frames;

– it should contribute to a strengthened global institutional framework for sustainable development which should include the upgrading of UNEP to a specialised agency;

– it should advance the work on global and coherent post-2015 goals for sustainable development, also having regard to the review process of the Millennium Development Goals.

III. FOREIGN POLICY

29. One year after the start of the Arab Spring, the European Council discussed emerging trends and lessons learnt from developments in the region and assessed the implementation of EU support to date. The EU is promoting and supporting the democratic transformation in its Southern Neighbourhood and across the wider Middle East and Gulf region. It remains committed to developing partnerships with the Southern Neighbourhood countries, based on differentiation, mutual accountability and the adherence to universal values, including the protection of religious minorities (including Christians). In line with the principles and objectives defined in its earlier declarations and in the Council conclusions of 20 June 2011, the European Council agreed that the following principles will guide the EU's further engagement with and contribution to the process:

– the EU encourages all countries in its Southern Neighbourhood to undertake significant political reforms designed to build and consolidate democracy, establish and strengthen the rule of law and to uphold respect for human rights and civil liberties with particular attention paid to women's and minorities' rights.

– bearing in mind the context of the economic and financial challenges facing many countries in the region, the EU will continue to mobilise its instruments, placing greater emphasis on assistance focused on governance and job creation and will continue its efforts in the framework of the "Task Force" meetings, including business stakeholders; the European Council called in this connection for a swift ratification of the extension of the EBRD's mandate;

– in this context the EU is determined to match support to the level of democratic reform, offering more support to those partners that make progress towards inclusive democratic systems, while reconsidering support to governments in cases of oppression or grave or systematic violations of human rights;

– the EU will continue to strengthen its partnership with civil society, including through the launch of the Neighbourhood Civil Society Facility;

implementation of decisions taken last October in this regard. The Commission is invited to consider the possible strengthening of the current framework relative to executive pay.

24. Given the need to stimulate the private financing of key infrastructure projects, work on the pilot phase of the Europe 2020 project bond initiative should be stepped up with a view to reaching agreement by June.

II. INTERNATIONAL SUMMITS

G20 and G825. The European Council agreed that the following priorities

should be pursued with a view to the G20 summit:– ensure effective coordination at the global level for strong,

sustainable and balanced growth and progress in the implementation of the Cannes Action Plan;

– implement the G20 commitments on financial market reform, including strict monitoring, to ensure a global level playing field;

– implement the 2011 Action Plan on Food Price Volatility and Agriculture; enhance transparency in commodity markets; further implement the Seoul Development Action plan focusing on infrastructure and green growth;

– promote green growth and sustainable development; combat climate change in particular, and mobilise sources of finance for measures to combat climate change ;

– fight protectionism and support an active WTO negotiation agenda, including for the least developed countries;

– address the social dimension of globalisation, in particular youth unemployment.

26. The European Council was informed of the discussions at the G20 level on the substantial increase in the IMF's resources. It recalled that euro area Member States have already pledged to provide EUR 150 billion through bilateral loans to IMF General Resources, and that other EU Member States have also indicated their willingness to take part in the process of reinforcing IMF resources. It encouraged G20 Finance Ministers to continue their work with a view to reaching agreement on an increase in the IMF's resources at their next meeting in April, in order to enhance the IMF's capacity to fulfil its systemic responsibilities in support of its global membership.

27. The European Council was informed of the state of play regarding preparations for the G8 summit.

rio+20 united nations Conference on Sustainable Development28. The European Council underlined its strong support for

an ambitious outcome at the Rio+20 UN Conference on Sustainable Development. It stressed the need for a strong participation from the private sector and civil society at the Conference. It set out some key principles that will guide the EU in its preparations:

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opposition in its struggle for freedom, dignity and democracy, recognises the Syrian National Council as a legitimate representative of Syrians and calls upon all members of the Syrian opposition to unite in its peaceful struggle for a new Syria, where all citizens enjoy equal rights. The European Union calls on all parties to promote a process aimed at a political solution.

35. The European Council stresses the responsibility of the Syrian authorities regarding the security of foreign nationals in Syria, including journalists, in particular by facilitating the evacuation of those who need it.

36. The European Council welcomes the Somalia Conference held in London on 23 February 2012. The European Council recalls the EU's Strategic Framework for the Horn of Africa adopted by the Council on 14 November 2011 and, building on the outcome of the London Conference, invites the Council, the Commission and the High Representative to maintain a comprehensive engagement with Somalia. In line with the EU Strategic Framework, the Foreign Affairs Council should report back to the European Council in October on the implementation of agreed actions.

37. The European Council welcomes the progress the Eastern Partnership has achieved in furthering political association and economic integration with the EU. The partnership is based on a commitment to common values, where those most committed to reforms will benefit more from their relationship with the EU. The European Council looks forward to the Eastern Partnership Roadmap with a view to the next Eastern Partnership Summit in the second half of 2013.

38. The European Council expresses its serious and deepening concern at the further deterioration of the situation in Belarus. It welcomes the decision reached at the Council to extend the list of those responsible for serious human rights violations or the repression of civil society and the democratic opposition or supporting or benefiting from the Lukashenko regime to be targeted by a travel ban and an asset freeze. The European Council invites the Council to proceed with its work on further measures. It reiterates the Union's commitment to strengthening its engagement with Belarusian civil society and to supporting the democratic aspirations of the Belarusian people.

IV. OTHER ISSUES39. The European Council endorses the Council conclusions

of 28 February 2012 on Enlargement and the Stabilisation and Association Process, and agrees to grant Serbia the status of candidate country.

40. The European Council, recalling its discussions in 2011, reiterates that all legal conditions have been met for the decision on Bulgaria's and Romania's accession to the Schengen area to be taken.

41. The European Council also acknowledges the continuous efforts undertaken by Bulgaria and Romania.

– rapid progress is needed in the ongoing trade negotiations and in the preparation of negotiations for Deep and Comprehensive Free Trade Agreements that will progressively integrate partners' economies into the EU Single Market and increase market access opportunities;

– the dialogues on migration, mobility and security will be extended with a view to fostering people-to-people contacts, business contacts and mutual understanding; in this context, joint efforts will be pursued also to prevent illegal immigration, in line with the EU's Global Approach to Migration.

30. The European Council invites the Commission and the High Representative to present by the end of this year a roadmap to define and guide the implementation of EU policy vis- à -vis our Southern Mediterranean partners, listing its objectives, instruments and actions and focusing on the synergies with the Union for the Mediterranean and other regional initiatives.

31. The European Council is appalled by the situation in Syria and endorses the Council Conclusions of 27 February 2012. In line with the United Nations Human Rights Council resolution of 1 March, it demands that Syrian authorities immediately stop the massive violence and the human rights abuses inf licted on the civilian population. The European Council remains determined to ensure that those responsible for the atrocities being committed in Syria are held accountable for their actions and will coordinate closely with and assist those working to document these appalling crimes. The European Council confirms its commitment to further increasing the pressure on the Syrian regime as long as the violence and the human rights abuses continue, and invites the Council to prepare further targeted restrictive measures against the regime. It calls on President Assad to step aside to make room for a peaceful transition for the sake of the country. As soon as a democratic transition begins, the EU is ready to develop a new partnership and provide assistance.

32. The European Council reiterates the importance of full and unhindered access for independent humanitarian agencies so that assistance may be provided to those in need in line with humanitarian principles. The Union has already mobilised humanitarian funding and stands ready to step it up as soon as conditions on the ground allow humanitarian organisations to expand relief operations.

33. The European Council recalls its support for the efforts of the League of Arab States to end the violence in Syria, and lends its full support to the missions undertaken by former UN Secretary -General Kofi Annan as the Joint Special Envoy of the United Nations and League of Arab States on the Syrian crisis. It supports the launching of the Group of the Friends of the Syrian People and the conclusions of its first meeting on 24 February 2012.

34. The European Council calls once more on all members of the United Nations Security Council, particularly Russia and China, to work together in an effort to stop the violence. The European Union supports the Syrian

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and underlines, in particular, the importance of reaching a swift agreement on the Regulation on the establishment of an evaluation and monitoring mechanism to verify the application of the Schengen acquis. This mechanism should also address the required functioning of the institutions involved in the application of the Schengen acquis.

45 . The European Council re-elected Mr Herman Van Rompuy President of the European Council for the period from 1 June 2012 until 30 November 2014.

42. The European Council requests the Council, during the intervening period, to identify and implement measures which would contribute to the successful enlargement of the Schengen area to include Romania and Bulgaria.

43. The European Council asks the Council to return to this issue in order to adopt its decision at the meeting of the JHA Council in September 2012.

44. The European Council recalls its conclusions of June 2011, on the strengthening of Schengen area governance

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THE K INGDOM OF BELGIUM, THE R EPUBLIC OF BULGARIA, THE K INGDOM OF DENM A R K , THE FEDER A L R EPUBLIC OF GER M A N Y, THE R EPUBLIC OF ESTONI A, IR ELA ND, THE HELLENIC REPUBLIC, THE KINGDOM OF SPAIN, THE FRENCH REPUBLIC, THE ITALIAN R EPUBLIC, TH E R EPUBLIC OF CY PRUS, TH E R EPUBLIC OF L AT V I A , TH E R EPUBLIC OF LITHUA NI A , THE GR AND DUCHY OF LUX EMBOURG, HUNGARY, M A LTA, THE K INGDOM OF THE NETHER LANDS, THE R EPUBLIC OF AUSTRIA, THE R EPUBLIC OF POLAND, THE PORTUGUESE R EPUBLIC, ROM ANIA, THE R EPUBLIC OF SLOVENI A, THE SLOVAK R EPUBLIC, THE R EPUBLIC OF FINLAND AND THE K INGDOM OF SWEDEN,hereinafter referred to as "the Contracting Parties";CONSCIOUS of their obligation, as Member States of the European Union, to regard their economic policies as a matter of common concern;DESIRING to promote conditions for stronger economic growth in the European Union and, to that end, to develop ever-closer coordination of economic policies within the euro area;BEARING IN MIND that the need for governments to maintain sound and sustainable public finances and to prevent a general government deficit becoming excessive is of essential importance to safeguard the stability of the euro area as a whole, and accordingly, requires the introduction of specific rules, including a "balanced budget rule" and an automatic mechanism to take corrective action;CONSCIOUS of the need to ensure that their general government deficit does not exceed 3 % of their gross domestic product at market prices and that their general government debt does not exceed, or is sufficiently declining towards, 60 % of their gross domestic product at market prices;RECALLING that the Contracting Parties, as Member States of the European Union, are to refrain from any measure which could jeopardise the attainment of the Union's objectives in the framework of the economic union, particularly the practice of

accumulating debt outside the general government accounts;BEARING IN MIND that the Heads of State or Government of the euro area Member States agreed on 9 December 2011 on a reinforced architecture for economic and monetary union, building upon the Treaties on which the European Union is founded and facilitating the implementation of measures taken on the basis of Articles 121, 126 and 136 of the Treaty on the Functioning of the European Union;BEARING IN MIND that the objective of the Heads of State or Government of the euro area Member States and of other Member States of the European Union is to incorporate the provisions of this Treaty as soon as possible into the Treaties on which the European Union is founded;WELCOMING the legislative proposals made by the European Commission for the euro area, within the framework of the Treaties on which the European Union is founded,on 23 November 2011, on the strengthening of economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties with respect to their financial stability, and on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States, and TAKING NOTE of the European Commission's intention to present further legislative proposals for the euro area concerning, in particular, ex ante reporting of debt issuance plans, economic partnership programmes detailing structural reforms for Member States under an excessive deficit procedure as well as the coordination of major economic policy reform plans of Member States;EXPRESSING their readiness to support proposals which the European Commission might present to further strengthen the Stability and Growth Pact by introducing, for Member States whose currency is the euro, a new range for medium-term objectives in line with the limits established in this Treaty;TAKING NOTE that, when reviewing and monitoring the budgetary commitments under this Treaty, the European Commission will act within the framework of its powers, as provided by the Treaty on the Functioning of the European Union, in particular Articles 121, 126 and 136 thereof;

TreaTy on STabiliTy, CoordinaTion and GovernanCe

in The eConomiC and moneTary Union – 2 marCh 2012

TREATY ON STABILITY, COORDINATION AND GOVERNANCE IN THE ECONOMIC AND MONETARY UNION BETWEEN THE KINGDOM OF BELGIUM, THE REPUBLIC OF BULGARIA, THE KINGDOM OF DENMARK , THE FEDERAL REPUBLIC OF GERMANY, THE REPUBLIC OF ESTONIA, IRELAND, THE HELLENIC REPUBLIC, THE KINGDOM OF SPAIN, THE FRENCH REPUBLIC, THE ITALIAN REPUBLIC, THE REPUBLIC OF CYPRUS, THE REPUBLIC OF L AT VIA , THE REPUBLIC OF LITHUANIA , THE GRAND DUCHY OF LUXEMBOURG, HUNGARY, MALTA, THE KINGDOM OF THE NETHERLANDS, THE REPUBLIC OF AUSTRIA, THE REPUBLIC OF POLAND, THE PORTUGUESE REPUBLIC, ROMANIA, THE REPUBLIC OF SLOVENIA, THE SLOVAK REPUBLIC, THE REPUBLIC OF FINLAND AND THE KINGDOM OF SWEDEN,

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STRESSING that no provision of this Treaty is to be interpreted as altering in any way the economic policy conditions under which financial assistance has been granted to a Contracting Party in a stabilisation programme involving the European Union, its Member States or the International Monetary Fund;NOTING that the proper functioning of the economic and monetary union requires the Contracting Parties to work jointly towards an economic policy where, whilst building upon the mechanisms of economic policy coordination, as defined in the Treaties on which the European Union is founded, they take the necessary actions and measures in all the areas which are essential to the proper functioning of the euro area;NOTING, in particular, the wish of the Contracting Parties to make a more active use of enhanced cooperation, as provided for in Article 20 of the Treaty on European Union and Articles 326 to 334 of the Treaty on the Functioning of the European Union, without undermining the internal market, and their wish to have full recourse to measures specific to the Member States whose currency is the euro pursuant to Article 136 of the Treaty on the Functioning of the European Union, and to a procedure for the ex ante discussion and coordination among the Contracting Parties whose currency is the euro of all major economic policy reforms planned by them, with a view to benchmarking best practices;RECALLING the agreement of the Heads of State or Government of the euro area Member States, of 26 October 2011, to improve the governance of the euro area, including the holding of at least two Euro Summit meetings per year, to be convened, unless justified by exceptional circumstances, immediately after meetings of the European Council or meetings with the participation of all Contracting Parties having ratified this Treaty;RECALLING also the endorsement by the Heads of State or Government of the euro area Member States and of other Member States of the European Union, on 25 March 2011, of the Euro Plus Pact, which identifies the issues that are essential to fostering competitiveness in the euro area;STRESSING the importance of the Treaty establishing the European Stability Mechanism as an element of the global strategy to strengthen the economic and monetary union and POINTING OUT that the granting of financial assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned and, as soon as the transposition period referred to in Article 3(2) of this Treaty has expired, on compliance with the requirements of that Article;NOTING that the Kingdom of Belgium, the Federal Republic of Germany, the Republic of Estonia, Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, the Grand Duchy of Luxembourg, Malta, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Slovenia, the Slovak Republic and the Republic of Finland are Contracting Parties whose currency is the euro and that, as such, they will be bound by this Treaty from the first day of the month following the deposit of their instrument of ratification if the Treaty is in force at that date;

NOTING in particular that, in respect of the application of the "balanced budget rule" set out in Article 3 of this Treaty, that monitoring will be carried out through the setting up, for each Contracting Party, of country-specific medium-term objectives and of calendars of convergence, as appropriate;NOTING that the medium-term objectives should be updated regularly on the basis of a commonly agreed method, the main parameters of which are also to be reviewed regularly, ref lecting appropriately the risks of explicit and implicit liabilities for public finance, as embodied in the aims of the Stability and Growth Pact;NOTING that sufficient progress towards the medium-term objectives should be evaluated on the basis of an overall assessment with the structural balance as a reference, including an analysis of expenditure net of discretionary revenue measures, in line with the provisions specified under European Union law, in particular Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, as amended by Regulation (EU) No 1175/2011 of the European Parliament and of the Council of 16 November 2011 ("the revised Stability and Growth Pact");NOTING that the correction mechanism to be introduced by the Contracting Parties should aim at correcting deviations from the medium-term objective or the adjustment path, including their cumulated impact on government debt dynamics;NOTING that compliance with the Contracting Parties' obligation to transpose the "balanced budget rule" into their national legal systems, through binding, permanent and preferably constitutional provisions, should be subject to the jurisdiction of the Court of Justice of the European Union, in accordance with Article 273 of the Treaty on the Functioning of the European Union;RECALLING that Article 260 of the Treaty on the Functioning of the European Union empowers the Court of Justice of the European Union to impose a lump sum or penalty payment on a Member State of the European Union which has failed to comply with one of its judgments and RECALLING that the European Commission has established criteria for determining the lump sum or penalty payment to be imposed in the framework of that Article;RECALLING the need to facilitate the adoption of measures under the excessive deficit procedure of the European Union in respect of Member States whose currency is the euro and whose planned or actual ratio of general government deficit to gross domestic product exceeds 3 %, whilst strongly reinforcing the objective of that procedure, namely to encourage and, if necessary, compel a Member State to reduce a deficit which might be identified;RECALLING the obligation for those Contracting Parties whose general government debt exceeds the 60 % reference value to reduce it at an average rate of one twentieth per year as a benchmark;BEARING IN MIND the need to respect, in the implementation of this Treaty, the specific role of the social partners, as it is recognised in the laws or national systems of each of the Contracting Parties;

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(a) the budgetary position of the general government of a Contracting Party shall be balanced or in surplus;

(b) the rule under point (a) shall be deemed to be respected if the annual structural balance of the general government is at its country-specific medium-term objective, as defined in the revised Stability and Growth Pact, with a lower limit of a structural deficit of 0,5 % of the gross domestic product at market prices. The Contracting Parties shall ensure rapid convergence towards their respective medium-term objective. The time-frame for such convergence will be proposed by the European Commission taking into consideration country-specific sustainability risks. Progress towards, and respect of, the medium-term objective shall be evaluated on the basis of an overall assessment with the structural balance as a reference, including an analysis of expenditure net of discretionary revenue measures, in line with the revised Stability and Growth Pact;

(c) the Contracting Parties may temporarily deviate from their respective medium-term objective or the adjustment path towards it only in exceptional circumstances, as defined in point (b) of paragraph 3;

(d) where the ratio of the general government debt to gross domestic product at market prices is significantly below 60 % and where risks in terms of long-term sustainability of public finances are low, the lower limit of the medium-term objective specified under point (b) can reach a structural deficit of at most 1,0 % of the gross domestic product at market prices;

(e) in the event of significant observed deviations from the medium-term objective or the adjustment path towards it, a correction mechanism shall be triggered automatically. The mechanism shall include the obligation of the Contracting Party concerned to implement measures to correct the deviations over a defined period of time.

2. The rules set out in paragraph 1 shall take effect in the national law of the Contracting Parties at the latest one year after the entry into force of this Treaty through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes. The Contracting Parties shall put in place at national level the correction mechanism referred to in paragraph 1(e) on the basis of common principles to be proposed by the European Commission, concerning in particular the nature, size and time-frame of the corrective action to be undertaken, also in the case of exceptional circumstances, and the role and independence of the institutions responsible at national level for monitoring compliance with the rules set out in paragraph 1. Such correction mechanism shall fully respect the prerogatives of national Parliaments.

3. For the purposes of this Article, the definitions set out in Article 2 of the Protocol (No 12) on the excessive deficit procedure, annexed to the European Union Treaties, shall apply.

NOTING ALSO that the Republic of Bulgaria, the Kingdom of Denmark, the Republic of Latvia, the Republic of Lithuania, Hungary, the Republic of Poland, Romania and the Kingdom of Sweden are Contracting Parties which, as Member States of the European Union, have, at the date of signature of this Treaty, a derogation or an exemption from participation in the single currency and may be bound, as long as such derogation or exemption is not abrogated, only by those provisions of Titles III and IV of this Treaty by which they declare, on depositing their instrument of ratification or at a later date, that they intend to be bound;

HAVE AGREED UPON THE FOLLOWING PROVISIONS:

TITLE I

PURPOSE AND SCOPE

ARTICLE 11. By this Treaty, the Contracting Parties agree, as Member

States of the European Union, to strengthen the economic pillar of the economic and monetary union by adopting a set of rules intended to foster budgetary discipline through a fiscal compact, to strengthen the coordination of their economic policies and to improve the governance of the euro area, thereby supporting the achievement of the European Union's objectives for sustainable growth, employment, competitiveness and social cohesion.

2. This Treaty shall apply in full to the Contracting Parties whose currency is the euro. It shall also apply to the other Contracting Parties to the extent and under the conditions set out in Article 14.

TITLE II

CONSISTENCY AND RELATIONSHIP WITHTHE LAW OF THE UNION

ARTICLE 21. This Treaty shall be applied and interpreted by the

Contracting Parties in conformity with the Treaties on which the European Union is founded, in particular Article 4(3) of the Treaty on European Union, and with European Union law, including procedural law whenever the adoption of secondary legislation is required.

2. This Treaty shall apply insofar as it is compatible with the Treaties on which the European Union is founded and with European Union law. It shall not encroach upon the competence of the Union to act in the area of the economic union.

TITLE III

FISCAL COMPACT

ARTICLE 31. The Contracting Parties shall apply the rules set out in

this paragraph in addition and without prejudice to their obligations under European Union law:

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Contracting Parties whose currency is the euro commit to supporting the proposals or recommendations submitted by the European Commission where it considers that a Member State of the European Union whose currency is the euro is in breach of the deficit criterion in the framework of an excessive deficit procedure. This obligation shall not apply where it is established among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the Treaties on which the European Union is founded, without taking into account the position of the Contracting Party concerned, is opposed to the decision proposed or recommended.

ARTICLE 81. The European Commission is invited to present in due

time to the Contracting Parties a report on the provisions adopted by each of them in compliance with Article 3(2). If the European Commission, after having given the Contracting Party concerned the opportunity to submit its observations, concludes in its report that such Contracting Party has failed to comply with Article 3(2), the matter will be brought to the Court of Justice of the European Union by one or more Contracting Parties. Where a Contracting Party considers, independently of the Commission's report, that another Contracting Party has failed to comply with Article 3(2), it may also bring the matter to the Court of Justice. In both cases, the judgment of the Court of Justice shall be binding on the parties to the proceedings, which shall take the necessary measures to comply with the judgment within a period to be decided by the Court of Justice.

2. Where, on the basis of its own assessment or that of the European Commission, a Contracting Party considers that another Contracting Party has not taken the necessary measures to comply with the judgment of the Court of Justice referred to in paragraph 1, it may bring the case before the Court of Justice and request the imposition of financial sanctions following criteria established by the European Commission in the framework of Article 260 of the Treaty on the Functioning of the European Union. If the Court of Justice finds that the Contracting Party concerned has not complied with its judgment, it may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0,1 % of its gross domestic product. The amounts imposed on a Contracting Party whose currency is the euro shall be payable to the European Stability Mechanism. In other cases, payments shall be made to the general budget of the European Union.

3. This Article constitutes a special agreement between the Contracting Parties within the meaning of Article 273 of the Treaty on the Functioning of the European Union.

The following definitions shall also apply for the purposes of this Article:

(a) "annual structural balance of the general government" refers to the annual cyclically-adjusted balance net of one-off and temporary measures;

(b) "exceptional circumstances" refers to the case of an unusual event outside the control of the Contracting Party concerned which has a major impact on the financial position of the general government or to periods of severe economic downturn as set out in the revised Stability and Growth Pact, provided that the temporary deviation of the Contracting Party concerned does not endanger fiscal sustainability in the medium-term.

ARTICLE 4When the ratio of a Contracting Party's general government debt to gross domestic product exceeds the 60 % reference value referred to in Article 1 of the Protocol (No 12) on the excessive deficit procedure, annexed to the European Union Treaties, that Contracting Party shall reduce it at an average rate of one twentieth per year as a benchmark, as provided for in Article 2 of Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure, as amended by Council Regulation (EU) No 1177/2011 of 8 November 2011. The existence of an excessive deficit due to the breach of the debt criterion will be decided in accordance with the procedure set out in Article 126 of the Treaty on the Functioning of the European Union.

ARTICLE 51. A Contracting Party that is subject to an excessive deficit

procedure under the Treaties on which the European Union is founded shall put in place a budgetary and economic partnership programme including a detailed description of the structural reforms which must be put in place and implemented to ensure an effective and durable correction of its excessive deficit. The content and format of such programmes shall be defined in European Union law. Their submission to the Council of the European Union and to the European Commission for endorsement and their monitoring will take place within the context of the existing surveillance procedures under the Stability and Growth Pact.

2. The implementation of the budgetary and economic partnership programme, and the yearly budgetary plans consistent with it, will be monitored by the Council of the European Union and by the European Commission.

ARTICLE 6With a view to better coordinating the planning of their national debt issuance, the Contracting Parties shall report ex-ante on their public debt issuance plans to the Council of the European Union and to the European Commission.

ARTICLE 7While fully respecting the procedural requirements of the Treaties on which the European Union is founded, the

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whose currency is the euro share with regard to the single currency, other issues concerning the governance of the euro area and the rules that apply to it, and strategic orientations for the conduct of economic policies to increase convergence in the euro area.

3. The Heads of State or Government of the Contracting Parties other than those whose currency is the euro, which have ratified this Treaty, shall participate in discussions of Euro Summit meetings concerning competitiveness for the Contracting Parties, the modification of the global architecture of the euro area and the fundamental rules that will apply to it in the future, as well as, when appropriate and at least once a year, in discussions on specific issues of implementation of this Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.

4. The President of the Euro Summit shall ensure the preparation and continuity of Euro Summit meetings, in close cooperation with the President of the European Commission. The body charged with the preparation of and follow up to the Euro Summit meetings shall be the Euro Group and its President may be invited to attend such meetings for that purpose.

5. The President of the European Parliament may be invited to be heard. The President of the Euro Summit shall present a report to the European Parliament after each Euro Summit meeting.

6. The President of the Euro Summit shall keep the Contracting Parties other than those whose currency is the euro and the other Member States of the European Union closely informed of the preparation and outcome of the Euro Summit meetings.

ARTICLE 13As provided for in Title II of Protocol (No 1) on the role of national Parliaments in the European Union annexed to the European Union Treaties, the European Parliament and the national Parliaments of the Contracting Parties will together determine the organisation and promotion of a conference of representatives of the relevant committees of the European Parliament and representatives of the relevant committees of national Parliaments in order to discuss budgetary policies and other issues covered by this Treaty.

TITLE VI

GENER AL AND FINAL PROVISIONS

ARTICLE 141. This Treaty shall be ratified by the Contracting Parties

in accordance with their respective constitutional requirements. The instruments of ratification shall be deposited with the General Secretariat of the Council of the European Union ("the Depositary").

2. This Treaty shall enter into force on 1 January 2013, provided that twelve Contracting Parties whose currency is the euro have deposited their instrument of ratification,

TITLE IV

ECONOMIC POLICY COORDINATION AND CONVERGENCE

ARTICLE 9Building upon economic policy coordination, as defined in the Treaty on the Functioning of the European Union, the Contracting Parties undertake to work jointly towards an economic policy that fosters the proper functioning of the economic and monetary union and economic growth through enhanced convergence and competitiveness. To that end, the Contracting Parties shall take the necessary actions and measures in all the areas which are essential to the proper functioning of the euro area in pursuit of the objectives of fostering competitiveness, promoting employment, contributing further to the sustainability of public finances and reinforcing financial stability.

ARTICLE 10In accordance with the requirements of the Treaties on which the European Union is founded, the Contracting Parties stand ready to make active use, whenever appropriate and necessary, of measures specific to those Member States whose currency is the euro, as provided for in Article 136 of the Treaty on the Functioning of the European Union, and of enhanced cooperation, as provided for in Article 20 of the Treaty on European Union and in Articles 326 to 334 of the Treaty on the Functioning of the European Union on matters that are essential for the proper functioning of the euro area, without undermining the internal market.

ARTICLE 11With a view to benchmarking best practices and working towards a more closely coordinated economic policy, the Contracting Parties ensure that all major economic policy reforms that they plan to undertake will be discussed ex-ante and, where appropriate, coordinated among themselves. Such coordination shall involve the institutions of the European Union as required by European Union law.

TITLE VGOVERNANCE OF THE EURO AREA

ARTICLE 121. The Heads of State or Government of the Contracting

Parties whose currency is the euro shall meet informally in Euro Summit meetings, together with the President of the European Commission. The President of the European Central Bank shall be invited to take part in such meetings.

The President of the Euro Summit shall be appointed by the Heads of State or Government of the Contracting Parties whose currency is the euro by simple majority at the same time as the European Council elects its President and for the same term of office.

2. Euro Summit meetings shall take place when necessary, and at least twice a year, to discuss questions relating to the specific responsibilities which the Contracting Parties

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shall be effective upon depositing the instrument of accession with the Depositary, which shall notify the other Contracting Parties thereof. Following authentication by the Contracting Parties, the text of this Treaty in the official language of the acceding Member State that is also an official language and a working language of the institutions of the Union, shall be deposited in the archives of the Depositary as an authentic text of this Treaty.

ARTICLE 16Within five years, at most, of the date of entry into force of this Treaty, on the basis of an assessment of the experience with its implementation, the necessary steps shall be taken, in accordance with the Treaty on the European Union and the Treaty on the Functioning of the European Union, with the aim of incorporating the substance of this Treaty into the legal framework of the European Union.Done at Brussels this second day of March in the year two thousand and twelve.This Treaty, drawn up in a single original in the Bulgarian, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Irish, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each text being equally authentic, shall be deposited in the archives of the Depositary, which shall transmit a certified copy to each of the Contracting Parties.

or on the first day of the month following the deposit of the twelfth instrument of ratification by a Contracting Party whose currency is the euro, whichever is the earlier.

3. This Treaty shall apply as from the date of entry into force amongst the Contracting Parties whose currency is the euro which have ratified it. It shall apply to the other Contracting Parties whose currency is the euro as from the first day of the month following the deposit of their respective instrument of ratification.

4. By derogation from paragraphs 3 and 5, Title V shall apply to all Contracting Parties concerned as from the date of entry into force of this Treaty.

5. This Treaty shall apply to the Contracting Parties with a derogation, as defined in Article 139(1) of the Treaty on the Functioning of the European Union, or with an exemption, as referred to in Protocol (No 16) on certain provisions related to Denmark annexed to the European Union Treaties, which have ratified this Treaty, as from the date when the decision abrogating that derogation or exemption takes effect, unless the Contracting Party concerned declares its intention to be bound at an earlier date by all or part of the provisions in Titles III and IV of this Treaty.

ARTICLE 15This Treaty shall be open to accession by Member States of the European Union other than the Contracting Parties. Accession

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Euro area Heads of State or Government appointed Herman Van Rompuy as President of the Euro Summit. They welcome the progress made on the new Greek programme, and notably the agreement reached by the Eurogroup on the policy package and the offer made to private creditors. The objective of the programme is to put the Greek economy back on a sustainable footing, to ensure debt sustainability and restore competitiveness. They also welcome the legislation on the agreed prior actions by the Greek authorities which will enable the formal adoption of the programme in the coming days.Further strengthening of Greece's institutional capacity and enhanced on-site monitoring are essential for the full implementation and the success of the second Greek program. Therefore, Euro area Heads of State or Government support the actions being taken by the Commission to strengthen its presence in Greece in order to improve the monitoring of the programme and the provision of technical assistance through the work of its

Task Force. They also support the concrete and specific measures to enhance growth outlined by the Prime Minister of Greece and the President of the Commission, including EU structural fund support for key infrastructure projects, and measures to improve the business environment, boost liquidity for SMEs and promote employment and training.They confirm their commitment to re-assess the adequacy of the overall ceiling of the EFSF/ ESM by the end of the month. In addition, they agree to accelerate, in full respect of national parliamentary procedures, the payment of the paid-in capital for the ESM, starting with the payment of 2 tranches in 2012. A revised timeframe for the payment of the remaining tranches will be agreed upon by the end of the month1. Euro area Heads of State or Government recall their determination to do whatever is needed to ensure the financial stability of the euro area as a whole, and their readiness to act accordingly.

STATEmENT OF THE EURO AREA

HEADS OF STATE OR GOvERNmENT — 2 mARCH 2012

1 The Prime Minister of Slovakia indicated that her government does not have a mandate to make such a commitment.

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I. CONSOLIDATING THE ECONOMIC AND MONETARY UNION

The economic and monetary union (EMU) was established to bring prosperity and stability across Europe. It is a cornerstone of the European Union. Today the EMU is facing a fundamental challenge. It needs to be strengthened to ensure economic and social welfare. This report, prepared by the President of the European Council in collaboration with the President of the Commission, the President of the Eurogroup and the President of the European Central Bank, aims at developing a vision for the EMU to ensure stability and sustained prosperity. It does so by proposing a strong and stable architecture in the financial, fiscal, economic and political domains, underpinning the jobs and growth strategy.

ChallengesAn effective vision has to confront the long-term challenges that the EMU faces. The euro area is diverse and policy-making at the national level is the most effective method for many economic decisions. Yet, national policies cannot be decided in isolation if their effects quickly propagate to the euro area as a whole. Therefore, such national policies must ref lect fully the realities of being in a monetary union. Maintaining an appropriate level of competitiveness, coordination and convergence to ensure sustainable growth without large imbalances is essential. This

should allow for the appropriate policy mix with the single monetary policy in pursuit of price stability. But to ensure stability and growth in the euro area, Member States have to act and coordinate according to common rules. There have to be ways on ensuring compliance when there are negative effects on other EMU members. This is necessary to guarantee the minimum level of convergence required for the EMU to function effectively.Overall, closer EMU integration will require a stronger democratic basis and broad support from citizens. For this reason, it is essential that already the process towards realising this vision is based on wide consultation and participation. Integration and legitimacy have to advance in parallel.The vision for the future of EMU governance laid out in this report focuses on the euro area Member States as they are qualitatively distinct by virtue of sharing a currency. Nevertheless, the process towards deeper economic and monetary union should be characterised by openness and transparency and be in full compatibility with the single market in all aspects.

VisionThe report proposes a vision for a stable and prosperous EMU based on four essential building blocks: – An integrated financial framework to ensure financial

stability in particular in the euro area and minimise the cost of bank failures to European citizens. Such a framework

It is my pleasure to hereby transmit to you the report which I prepared in close cooperation with the Presidents of the Commission, the Eurogroup and the European Central Bank.

This report sets out a vision for the future of the Economic and Monetary Union and how it can best contribute to growth, jobs and stability. The report proposes to move, over the next decade, towards a stronger EMU architecture, based on integrated frameworks for the financial sector, for budgetary matters and for economic policy. All these elements should be buttressed by strengthened democratic legitimacy and accountability.

This report is not meant to be a final blueprint: it identifies the building blocks and suggests a working method. I do however expect to reach a common understanding amongst us on the way forward for the EMU at our meeting at the end of the week. The current situation requires careful consideration of future work that will be necessary over the medium to long term. I am prepared to continue working, together with the Presidents of the Commission, the Eurogroup and the European Central Bank, to submit to the December 2012 European Council detailed proposals for a stage-based process towards a genuine Economic and Monetary Union, closely associating the Member States all along.

I am looking forward to our discussions on Thursday evening and Friday.

* * *

TOWARDS A GENUINE ECONOmIC AND mONETARY UNION

REpORT BY pRESIDENT vAN ROmpUY – 26 JUNE 2012


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elevates responsibility for supervision to the European level, and provides for common mechanisms to resolve banks and guarantee customer deposits.

– An integrated budgetary framework to ensure sound fiscal policy making at the national and European levels, encompassing coordination, joint decision-making, greater enforcement and commensurate steps towards common debt issuance. This framework could include also different forms of fiscal solidarity.

– An integrated economic policy framework which has sufficient mechanisms to ensure that national and European policies are in place that promote sustainable growth, employment and competitiveness, and are compatible with the smooth functioning of EMU.

– Ensuring the necessary democratic legitimacy and accountability of decision-making within the EMU, based on the joint exercise of sovereignty for common policies and solidarity.

These four building blocks offer a coherent and complete architecture that will have to be put in place over the next decade. All four elements are necessary for long-term stability and prosperity in the EMU and will require a lot of further work, including possible changes to the EU treaties at some point in time.

II. KEY BUILDING BLOCKS

1. An integrated financial frameworkThe financial crisis has revealed structural shortcomings in the institutional framework for financial stability. Addressing these shortcomings is particularly important for the euro area given the deep interdependences resulting from the single currency. However, this needs to be done whilst preserving the unity and integrity of the single market in the field of financial services. Therefore, an integrated financial framework should cover all EU Member States, whilst allowing for specific differentiations between euro and non-euro area Member States on certain parts of the new framework that are preponderantly linked to the functioning of the monetary union and the stability of the euro area rather than to the single market.Building on the single rulebook, an integrated financial framework should have two central elements: single European banking supervision and a common deposit insurance and resolution framework.Integrated supervision is essential to ensure the effective application of prudential rules, risk control and crisis prevention throughout the EU. The current architecture should evolve as soon as possible towards a single European banking supervision system with a European and a national level. The European level would have ultimate responsibility. Such a system would ensure that the supervision of banks in all EU Member States is equally effective in reducing the probability of bank failures and preventing the need for intervention by joint deposit guarantees or resolution funds. To this end, the European level would be given supervisory authority and pre-emptive intervention powers applicable to all banks. Its direct involvement would

vary depending on the size and nature of banks. The possibilities foreseen under Article 127(6) TFEU regarding the conferral upon the European Central Bank of powers of supervision over banks in the euro area would be fully explored. Building on existing and forthcoming Commission proposals, work should be taken forward on deposit insurance and resolution:A European deposit insurance scheme could introduce a European dimension to national deposit guarantee schemes for banks overseen by the European supervision. It would strengthen the credibility of the existing arrangements and serve as an important assurance that eligible deposits of all credit institutions are sufficiently insured. A European resolution scheme to be primarily funded by contributions of banks could provide assistance in the application of resolution measures to banks overseen by the European supervision with the aim of orderly winding-down non-viable institutions and thereby protect tax payer funds. The deposit insurance scheme and the resolution fund could be set up under the control of a common resolution authority. Such a framework would greatly reduce the need to make actual use of the guarantee scheme. Nevertheless, the credibility of any deposit guarantee scheme requires access to a solid financial backstop. Therefore, as regards the euro area, the European Stability Mechanism could act as the fiscal backstop to the resolution and deposit guarantee authority.

2. Towards an integrated budgetary framework The financial and debt crisis has underlined high levels of interdependence particularly within the euro area. The smooth functioning of the EMU requires not only the swift and vigorous implementation of the measures already agreed under the reinforced economic governance framework (notably the Stability and Growth Pact and the Treaty on Stability, Coordination and Governance), but also a qualitative move towards a fiscal union. In the context, within the euro area, of greater pooling of decision making on budgets commensurate with the pooling of risks, effective mechanisms to prevent and correct unsustainable fiscal policies in each Member State are essential. Towards this end, upper limits on the annual budget balance and on government debt levels of individual Member States could be agreed in common. Under these rules, the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval. Subsequently, the euro area level would be in a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping in mind the need to ensure social fairness. In a medium term perspective, the issuance of common debt could be explored as an element of such a fiscal union and subject to progress on fiscal integration. Steps towards the introduction of joint and several sovereign liabilities could be considered as long as a robust framework for budgetary discipline and competitiveness is in place to avoid moral hazard and foster responsibility and compliance. The process towards the issuance of common debt should be criteria-based and phased,

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of national institutions and foster national ownership of reforms could be taken where necessary, as this is a vital condition for the efficient implementation of growth enhancing reforms.

4. Strengthening democratic legitimacy and accountabilityDecisions on national budgets are at the heart of Europe's parliamentary democracies. Moving towards more integrated fiscal and economic decision-making between countries will therefore require strong mechanisms for legitimate and accountable joint decision-making. Building public support for European-wide decisions with a far-reaching impact on the everyday lives of citizens is essential. Close involvement of the European parliament and national parliaments will be central, in the respect of the community method. Protocol 1 TFEU on the role of national parliaments in the EU offers an appropriate framework for inter-parliamentary cooperation.

III. NEXT STEPS – PROPOSAL FOR

A WORKING METHOD

Further work is necessary to develop a specific and time-bound road map for the achievement of the genuine Economic and Monetary Union. A report could be submitted to the December European Council by the President of the European Council in close collaboration with the President of the Commission, the President of the Eurogroup and the President of the European Central Bank. There will be regular and informal consultations with the Member States and the EU institutions. An interim report could be presented in October 2012.

whereby progress in the pooling of decisions on budgets would be accompanied with commensurate steps towards the poolingof risks. Several options for partial common debt issuance have been proposed, such as the pooling of some short-term funding instruments on a limited and conditional basis, or the gradual roll-over into a redemption fund. Different forms of fiscal solidarity could also be envisaged.A fully-f ledged fiscal union would imply the development of a stronger capacity at the European level, capable to manage economic interdependences, and ultimately the development at the euro area level of a fiscal body, such as a treasury office. In addition, the appropriate role and functions of a central budget, including its articulation with national budgets, will have to be defined.

3. Towards an integrated economic policy frameworkIn an economic union, national policies should be orientated towards strong and sustainable economic growth and employment while promoting social cohesion. Stronger economic integration is also needed to foster coordination and convergence in different domains of policy between euro area countries, address imbalances, and ensure the capacity to adjust to shocks and compete in a globalised world economy. This is essential for the smooth functioning of the EMU and is an essential counterpart to the financial and fiscal frameworks.It is important, building on the principles spelled out in the European semester and the Euro Plus Pact, to make the framework for policy coordination more enforceable to ensure that unsustainable policies do not put stability in EMU at risk. Such a framework would be particularly important to guide policies in areas such as labour mobility or tax coordination. Measures to strengthen the political and administrative capacity

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I. GROWTH, INVESTMENT AND JOBS1. The European Union will continue to do everything

necessary to put Europe back on the path of smart, sustainable and inclusive growth. Recalling the importance of fiscal consolidation, structural reform and targeted investment for sustainable growth, the Heads of State or Government decided on a "Compact for Growth and Jobs", providing a coherent framework for action at national, EU and euro area levels, using all possible levers, instruments and policies (see annex).

They invited the Council to rapidly examine how to improve cooperation between the institutions in order to ensure the timely implementation of the provisions of this Compact requiring EU legislation.

2. The European Council generally endorsed the country-specific recommendations which Member States will translate into their forthcoming national decisions on budgets, structural reforms and employment policies, thus bringing the 2012 European Semester to a close.

3. Heads of State or Government of the participating Member States agreed on the solution for the last outstanding issue of the patents package, namely the seat of the Central Division of the Court of First Instance of the Unified Patent Court (UPC). That seat, along with

the office of the President of the Court of First Instance, will be located in Paris. The first President of the Court of First Instance should come from the Member State hosting the central division.

Given the highly specialised nature of patent litigation and the need to maintain high quality standards, thematic clusters will be created in two sections of the Central Division, one in London (chemistry, including pharmaceuticals, classification C, human necessities, classification A), the other in Munich (mechanical engineering, classification F).

Concerning actions to be brought to the central division, it was agreed that parties will have the choice to bring an infringement action before the central division if the defendant is domiciled outside the European Union. Furthermore if a revocation action is already pending before the central division the patent holder should have the possibility to bring an infringement action to the central division. There will be no possibility for the defendant to request a transfer of an infringement case from a local division to the central division if the defendant is domiciled within the European Union.

We suggest that Articles 6 to 8 of the Regulation implementing enhanced cooperation in the area of the

EUROpEAN COUNCIL – 28-29 JUNE 2012

INCLUDING "COmpACT FOR GROWTH AND JOBS"

During the last two and a half years, the European Union has taken important and far-reaching steps to overcome the crisis and improve the governance of the EMU. However, Europe is once again going through a period of heightened tensions. The crisis surrounding sovereign debt and the weakness of the financial sector, together with persistent low growth and macroeconomic imbalances, are slowing down economic recovery and creating risks for the stability of EMU. This is having a negative impact in terms of unemployment and may weigh down Europe's potential to benefit from a gradual improvement of the global economic outlook.

We are therefore committed to taking resolute action to address financial market tensions, restore confidence and revive growth. We reaffirm our commitment to preserve the EMU and put it on a more solid basis for the future. Strong, smart, sustainable and inclusive growth, based on sound public finances, structural reforms and investment to boost competitiveness, remains our key priority.

This is why today the Heads of State or Government decided on a "Compact for Growth and Jobs", encompassing action to be taken by the Member States and the European Union with the aim of re-launching growth, investment and employment as well as making Europe more competitive. We also endorsed the country-specific recommendations to guide Member States' policies and budgets. Finally we emphasised the role that the forthcoming Multiannual Financial Framework should play in strengthening growth and employment. The President of the European Council presented the report "Towards a Genuine Economic and Monetary Union".

We are determined to take the measures required to ensure a financially stable, competitive and prosperous Europe and thus enhance the welfare of citizens.

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implemented according to existing guidelines which detail the relevant procedures.

(b) Enlargement: the European Council endorsed the decision taken by the Council to open accession negotiations with Montenegro on 29 June 2012.

(c) Justice and Home Affairs: the European Council welcomed the progress achieved on the Dublin Regulation, the Directive on Reception Conditions and the Directive on Asylum Procedures, and in relation to resettlement. It reiterated its commitment to the completion of the Common European Asylum System by the end of 2012. It also underlined the importance of free movement within the Schengen area and noted the state of play on the proposals relating to its governance and to the Visa Regulation. It underlined the importance of solidarity and cooperation in the management of external borders, asylum and the fight against illegal immigration. It also emphasised the importance of enhancing cooperation with countries of the neighbourhood. It will return to these matters as necessary.

(d) Nuclear energy: the European Council invited Member States to ensure the full and timely implementation of the recommendations presented in the report from ENSREG further to the completion of the nuclear safety stress tests. The Commission and ENSREG have agreed that further work is needed. The European Council noted the Commission's intention to present a comprehensive communication later this year. It called for the rapid implementation of the recommendations of the Ad Hoc Group on Nuclear Security . It called for further efforts to enhance the EU's cooperation with all the EU's neighbours on nuclear safety and security.

(e) Syria: the European Council:– strongly condemned the brutal violence and massacres of

civilians and urged the Syrian regime to stop immediately its attacks against the civilian population;

– called for an international, transparent, independent and prompt investigation into violations of international law and human rights with a view to ensuring accountability for those responsible;

– called for a complete cessation of violence by all parties; reiterated that the main responsibility for achieving the cease fire, implementing the Special Envoy Kofi Annan's six-point plan, allowing full and unhindered humanitarian access and ensuring the safety of the United Nations observers in Syria lies with the regime;

– encouraged the Syrian opposition groups to agree on a set of shared principles for working towards an inclusive, orderly and peaceful transition in Syria to a future free of Assad and his brutal regime;

– recalled its full support to Kofi Annan's plan and welcomed his efforts to work with key international partners to move the political process forward;

– called for united action by the UN Security Council to add more robust and effective pressure, including the

creation of unitary patent protection to be adopted by the Council and the European Parliament be deleted.

II. REPORT ON EMU4. The report "Towards a Genuine Economic and

Monetary Union" presented by the President of the European Council, in cooperation with the Presidents of the Commission, Eurogroup and ECB, sets out "four essential building blocks" for the future EMU: an integrated financial framework, an integrated budgetary framework, an integrated economic policy framework and strengthened democratic legitimacy and accountability.

Following an open exchange of views, where various opinions were expressed, the President of the European Council was invited to develop, in close collaboration with the President of the Commission, the President of the Eurogroup and the President of the ECB, a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union, which will include concrete proposals on preserving the unity and integrity of the Single Market in financial services and which will take account of the Euro Area statement and, inter alia, of the intention of the Commission to bring forward proposals under Article 127.

They will examine what can be done within the current Treaties and which measures would require Treaty change. In order to ensure their ownership, Member States will be closely associated to the ref lections and regularly consulted. There will also be consultations with the European Parliament. An interim report will be presented in October 2012 and a final report before the end of the year.

III. MULTIANNUAL FINANCIAL FRAMEWORK

5. The European Council held an in-depth discussion with the President of the European Parliament on the future Multiannual Financial Framework.

6. The European Council welcomed the progress achieved under the Danish presidency, which provides a basis and orientations for the final stage of the negotiation during the incoming Cyprus presidency. The Negotiating Box will be further developed with a view to reaching an agreement by the end of 2012, while respecting the principle that nothing is agreed until everything is agreed. Work should also be accelerated on the relevant legislative texts with a view to rapid adoption, following the procedures enshrined in the Treaty. In this process, all competent institutions are invited to cooperate closely, in line with Treaty competences.

IV. OTHER ITEMS(a) The European Council welcomed the statement of

the Euro Area Summit of 29 June 2012 and the use of the existing EFSF/ESM instruments that will be

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2) In the implementation of the country-specific recommendations, Member States will put particular emphasis on the following aspects:

(a) pursuing differentiated growth-friendly fiscal consolidation, respecting the Stability and Growth Pact and taking into account country-specific circumstances; particular attention must be given to investment into future-oriented areas directly related to the economy's growth potential and ensuring the sustainability of pension systems. The Commission is monitoring the impact of tight budget constraints on growth enhancing public expenditure and on public investment. It will report on the quality of public spending and the scope for possible action within the boundaries of the EU and national fiscal frameworks;

(b) restoring normal lending to the economy and urgently completing the restructuring of the banking sector;

(c) promoting growth and competitiveness, notably by addressing deep-rooted imbalances and going further in structural reforms to unlock domestic potential for growth, including through opening up competition in network industries, promoting the digital economy, exploiting the potential of a green economy, removing unjustified restrictions on service providers and making it easier to start a business;

(d) tackling unemployment and addressing the social consequences of the crisis effectively; pursuing reforms to improve employment levels; stepping up efforts to increase youth employment, notably to improve young people's first work experience and their participation in the labour market, with the objective that within a few months of leaving school, young people receive a good quality offer of employment, continued education, an apprenticeship, or a traineeship, which can be supported by the ESF; and developing and implementing effective policies to combat poverty and support vulnerable groups. Member States will swiftly implement their National Job Plans and develop more ambitious and precise National Job Plans for the next European Semester ones. Member States should use the possibilities of financing temporary recruitment subsidies from the European Social Fund;

(e) modernising public administration, in particular by tackling delays in the judicial system, reducing administrative burdens and developing e-government services. Best practices in this respect should be shared.

THE CONTRIBUTION OF EUROPEAN POLICIES TO GROWTH AND EMPLOYMENT3) Further urgent measures are needed at the level of the

European Union in order to boost growth and jobs, enhance the financing of the economy in the short to medium term and make Europe more competitive as a location for production and investment.

(a) Deepening the Single Market by removing remaining barriers will be a key factor in promoting growth and jobs, in particular in digital and network industries. The Commission intends to present further growth-

adoption of comprehensive sanctions under Chapter VII; and, in this context, welcomed the adoption of additional restrictive measures by the Council of the EU and agreed to keep further measures under consideration.

(f) Iran: The European Council stressed its serious concerns about the nature of Iran's nuclear programme and the urgent need for Iran to comply with all its international obligations, including full implementation by Iran of UNSC and IAEA Board of Governors resolutions. The European Council fully endorses the High Representative and the E3+3 efforts in that regard. In light of the recent talks between the E3+3 and Iran in Istanbul, Baghdad and Moscow, the Council urges Iran to decide whether it is willing to commit to a serious negotiation process aimed at restoring the confidence in the exclusively peaceful nature of the Iranian nuclear programme. Iran has to engage constructively by focussing on reaching an agreement on concrete confidence-building steps and addressing the concerns of the international community. The European Council welcomes the full entry into force of the EU embargo on Iranian oil on 1 July 2012.

(g) Human rights and democracy: the European Council welcomed the adoption by the Council of the EU Strategic Framework for Human Rights and Democracy and the related Action Plan and underlined the importance of keeping human rights and democracy at the centre of EU foreign policy.

(h) ODA: the European Council welcomed the second annual report on European Union Official Development Assistance and reaffirmed its commitment to achieve development assistance targets by 2015 as set out in its June 2005 conclusions.

ANNEX

"COMPACT FOR GROWTH AND JOBS"

The Heads of State or GovernmentExpressing their determination to stimulate smart, sustainable, inclusive, resource-efficient and job-creating growth, in the context of the Europe 2020 Strategy,Stressing the need to mobilise at every level of governance in the European Union all levers, instruments and policies to that end, Recalling the importance of sound public finances, structural reform and targeted investment for sustainable growth,Have decided on the following Compact:ACTION TO BE TAKEN AT THE LEVEL OF THE MEMBER STATES1) All Member States remain fully committed to taking

the immediate action required at national level to achieve the objectives of the Europe 2020 Strategy. The European Union's new tools for economic governance must be applied fully and effectively and recourse to "peer pressure" should be enhanced. The pending proposals aimed at completing this framework (the "two-pack") must be adopted swiftly.

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The European Research Area must be strengthened, in particular by improving support to R&D and investment opportunities for innovative start-ups and SMEs. The future programme for the competitiveness of enterprises and SMEs (COSME) and the Horizon 2020 programme will help innovative SMEs access financing. It is of particular importance to strengthen key enabling technologies which are of systemic importance for the innovativeness and competitiveness of industry and the whole economy, including in areas such nanotechnology, biotechnology and advanced materials.

(f) For some countries, the reformed cohesion policy offers an opportunity to invest out of the crisis as it is a major tool for investment, growth and job creation at EU level and for structural reforms at national level. It accounts for an important share of public investments in the EU and contributes to deepening of internal market.

(g) The agreement reached today on the Unitary Patent will lead to considerably reduced costs for SMEs and give a boost to innovation, by providing an affordable, high quality patent in Europe, with a single specialised jurisdiction.

(h) It is crucial to boost the financing of the economy. EUR 120 billion (equivalent to around 1% of EU GNI) are being mobilised for fast-acting growth measures:

− The EIB's paid-in capital should be increased by EUR 10 billion, with the aim of strengthening its capital basis as well as increasing its overall lending capacity by EUR 60 billion, and thus unlock up to EUR 180 billion of additional investment, spread across the whole European Union, including in the most vulnerable countries. This decision should be taken by the EIB Board of Governors so as to ensure that it enters into force no later than 31 December 2012.

− The Project Bond pilot phase should immediately be launched, bringing additional investments of up to EUR 4.5 billion for pilot projects in key transport, energy and broadband infrastructure. Provided that the interim report and evaluation of the pilot phase are positive, the volume of such financial instruments could be developed further in all countries in the future, including in support to the Connecting Europe Facility.

− Where appropriate, and respecting de-commitment rules, Member States have the possibility under existing rules and practices to work with the Commission in using part of their Structural Funds allocation to share the EIB loan risk and provide loan guarantees for knowledge and skills, resource efficiency, strategic infrastructure and access to finance for SMEs. The Structural Funds have reallocated funds in support of research and innovation, SMEs and youth employment and a further EUR 55 billion will be devoted to growth enhancing measures in the current period. Support to SMEs should be further strengthened, including by ensuring their easier access to EU funds.

Member States also have the possibility to consider reallocations within their national envelopes, under existing rules and in cooperation with the Commission.

enhancing measures to that end in autumn 2012 as part of the second Single Market Act. Important progress has already been achieved on the measures which are part of the first Single Market Act, including the adoption of the proposal on standardisation and the agreement reached in the Council on the proposals on accounting, venture capital and social entrepreneurship funds and alternative dispute resolution and online dispute resolution. Agreement should be reached as soon as possible on the proposals on public procurement, e-signature and the recognition of professional qualifications. The Commission's communication to improve Single Market governance is welcomed. Member States and the Commission will ensure better implementation and enforcement of Single Market rules and the Commission will monitor performance, including through an annual report in the framework of the European Semester. The Commission communication on the implementation of the Services Directive is also welcomed and should be implemented immediately, including through rigorous peer review of national restrictions and swift action to remove unjustified barriers. Additional economic gains of up to EUR 330 billion could be reaped within the scope of this Directive. The European Council will review progress by the end of 2012.

(b) Swift progress is required to achieve a well-functioning Digital Single Market by 2015, which will provide new dynamism to the European economy. In particular, priority should be given to measures aimed at further developing cross-border online trade, including by facilitating the transition to e-invoicing, and promoting the cross-border use of e-identification and other e-services. It is also crucial to boost demand for the roll-out of high-speed internet, modernise Europe's copyright regime and facilitate licensing, while ensuring a high level of protection of intellectual property rights and taking into account cultural diversity.

(c) Further efforts are needed to reduce the overall regulatory burden at EU and national level. The Commission will present a communication on further steps in "smart regulation", including measures to support micro-enterprises, by the end of 2012.

(d) Fully completing the internal energy market by 2014 in accordance with the agreed deadlines and ensuring that that no Member State remains isolated from the European gas and electricity networks after 2015 will significantly contribute to the EU's competitiveness, growth and employment. Following the formal adoption of the Energy Efficiency Directive, Member States must rapidly implement it, making full use of its provisions in order to exploit the significant potential for job creation in this sector. Agreement should be rapidly reached on the proposal on trans-European energy infrastructure.

(e) Efforts must continue in order to ensure that research efforts are swiftly translated into innovations meeting market demands and thus strengthen Europe's competitiveness and help respond to societal challenges.

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of extending it to apprenticeships and traineeships should be examined as should further support for the preparatory "Your first EURES job" action. New EU instruments to better track new skills required should be developed, the recognition of professional qualifications and language skills improved, the number of regulated professions reduced and the acquisition and preservation of cross-border pension rights and other social security rights for EU workers strengthened. Work on the proposal on the enforcement of posted workers' rights should also be taken forward.

(m) Trade must be better used as an engine for growth. The European Union is determined to promote free, fair and open trade whilst at the same time asserting its interests, in a spirit of reciprocity and mutual benefit especially in relation to the world's largest economies. The proposal of the Commission on access to public procurement markets in third countries should be rapidly examined. Whilst strengthening the multilateral system remains a crucial objective, the ongoing and potential upcoming bilateral negotiations have a particularly high economic importance. More efforts should in particular be geared to the removal of trade barriers, better market access, appropriate investment conditions, the protection of intellectual property and the opening up of public procurement markets. Agreements which have been finalised must be rapidly signed and ratified. The Free Trade Agreements with Singapore and Canada should be finalised by the end of the year; negotiations with India need a new impulse from both sides, and work should continue towards the deepening of the EU's trade relationship with Japan. Heads of State or Government look forward to the recommendations of the EU-US High Level Working Group on Jobs and Growth and commit to working towards the goal of launching in 2013 of negotiations on a comprehensive transatlantic trade and investment agreement.

(n) Financial stability is a prerequisite for growth. The report "Towards a genuine Economic and Monetary Union" sketches out important ideas in that respect. There are areas where the Member States sharing a single currency, and others willing to join the effort, want to go further in their efforts to coordinate and integrate their financial, fiscal and economic policies within the European Union framework, fully respecting the integrity of the Single Market and of the European Union as a whole.

− The action of the European Investment Fund should be developed, particularly as regards its venture capital activity, in liaison with existing national structures.

(i) The European Union's budget must be a catalyst for growth and jobs across Europe, notably by leveraging productive and human capital investments. Within the future Multiannual Financial Framework, spending should be mobilised to support growth, employment, competitiveness and convergence, in line with the Europe 2020 Strategy.

(j) Tax policy should contribute to fiscal consolidation and sustainable growth. Work and discussions should be carried forward on the Commission proposals on energy taxation, on the common consolidated corporate tax base and on the revision of the Savings Tax Directive. As noted at the Council on 22 June 2012, the proposal for a Financial Transaction Tax will not be adopted by the Council within a reasonable period. Several Member States therefore will launch a request for an enhanced cooperation in this area, with a view to its adoption by December 2012. The Commission is pursuing work on concrete ways to improve the fight against tax fraud and tax evasion and will soon present an Action Plan including options to that end. Rapid agreement must be reached on the negotiating directives for savings taxation agreements with third countries. Member States participating in the Euro Plus Pact will continue their structured discussions on tax policy issues, notably to ensure the exchanges of best practices.

(k) Boosting employment, for both women and men, in particular for young people and the long-term unemployed, is a clear priority. The Council will swiftly examine and decide on the proposals contained in the Commission's "Employment package", putting emphasis on quality job creation, structural reform of labour markets and investment in human capital. It is crucial to address youth unemployment, in particular through the Commission's initiatives on youth guarantees and the quality framework for traineeships. It is also important to promote the reactivation of older workers. EU governance, including multilateral surveillance of employment policies, must be improved.

(l) Labour mobility within the EU should be facilitated. The EURES portal should be developed into a true European placement and recruitment tool; the possibility

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for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status. We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a f lexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be ref lected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.We task the Eurogroup to implement these decisions by 9 July 2012 .

We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution-specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally. We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain

STATEmENT BY THE EURO AREA mEmBER STATES – 29 JUNE 2012

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I. Integrated fInancIal framework

financial sector integration in the european Union has deepened significantly following the introduction of the single currency. However, supervision, crisis management and resolution of banks are still organized along national lines. as a result, the absence of common bank resolution tools has hampered effective crisis management, increasing the costs of financial sector support for the taxpayers as well as financial and fiscal stability risks. the crisis has brought about a fragmentation of the euro area financial market, with adverse implications for credit conditions. as mentioned in the bilateral consultations, the establishment of an integrated financial framework is necessary for the achievement of a genuine economic and monetary union. an integrated financial framework must comprise a single supervisory authority, a common resolution framework implemented by a common resolution authority, and national deposit guarantee schemes built on common standards.

Single Supervisory Mechanism the major regulatory overhaul carried out in 2010 created the european System of financial Supervision. the european Supervisory authorities, including the european Banking authority (eBa) and the european Systemic risk Board (eSrB), have been endowed mainly with coordinating functions, but essential decision-making powers have remained in national hands. new draft legislation put forward by the european commission now proposes to establish a single supervisory mechanism (SSm) hosted by the european central Bank,

covering the euro area and open to all member States. the adoption of the SSm is a matter of priority. In this respect, there are three important elements: first, a clear separation between ecB monetary policy and supervisory functions; second, a balance between rights and obligations for all member States participating in the new supervisory arrangements; third, appropriate accountability of the new single supervisor, including to the european Parliament. the SSm should operate in a manner that is fully consistent with the Single market. to this end, the existing european Banking authority will maintain its role and its focus on establishing and ensuring the implementation of a single rulebook in order to preserve the level playing field across the eU. It will also preserve its mediating role between the various supervisors. In this respect, the voting modalities of the eBa must be adapted to allow for fair representation and effective decision-making within the single market for financial services. finally, it is important that this centralised supervision allows a seamless continuity between micro-prudential and macro-prudential policy and contributes to reinforce the working of the eSrB.

Resolutionthe european commission has already proposed a recovery and resolution directive that will ensure (i) the use of best practice and superior bank resolution tools to protect taxpayers (e.g. bail-in, creation of bridge banks, etc.) and (ii) consistency of national schemes to facilitate home/host resolutions and cross-

TOWARDS A GENUINE ECONOMIC AND MONETARY UNION

INTERIM REPORT BY PRESIDENT VAN ROMPUY – 12 OCTOBER 2012

at the June european council “the President of the european council was invited to develop, in close collaboration with the President of the commission, the President of the eurogroup and the President of the ecB, a specific and time-bound road map for the achievement of a genuine economic and monetary Union”. This interim report for the european council builds largely on ideas and proposals that were expressed during a series of bilateral meetings in September with all eU member States and with the european Parliament and its President. The aim of this report is to highlight points of convergence and to outline areas that would require further work for the final report due in december.

Under the treaty, the Union has established an economic and monetary union whose currency is the euro. The views set out in this report focus on the euro area member States as they face specific challenges by virtue of sharing a currency. The process towards a deeper economic and monetary union should be characterised by openness and transparency and be fully compatible with the Single market in all aspects.

The report is structured around the essential building blocks identified in the report "towards a genuine economic and monetary union" presented to the June european council.

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be finalised urgently and be implemented thoroughly. This new governance framework will provide for ex ante coordination of annual budgets of euro area Member States and enhance the surveillance of those experiencing financial difficulties.

Fiscal capacityStrengthening discipline alone is however not sufficient. In the longer term, there is a need to explore the option to go beyond the current steps to strengthen economic governance by developing gradually a fiscal capacity for the EMU. Such a fiscal capacity could take several forms and various options would need to be explored more in detail in the run-up to the December European Council. It would support new fiscal functions which are not covered by the multiannual financial framework. Ways to develop this capacity within the framework of the EU and its institutions will have to be examined. One of the functions of such a new fiscal capacity could be to facilitate adjustments to country-specific shocks by providing for some degree of absorption at the central level. In the EMU, the response to a symmetric shock affecting all countries simultaneously should primarily be provided by monetary policy, whereas in the context of country-specific economic shocks, the response falls primarily on national budgets. The European Stability Mechanism is a crisis management instrument and was not designed to perform such a shock absorption function. Moreover, low levels of cross-country labour mobility and structural impediments to price f lexibility make economic adjustment mechanisms less effective than in other monetary unions. Asymmetric shock absorption at the central level would represent a form of limited fiscal solidarity exercised over economic cycles, improving the economic resilience of the EMU. Elements of fiscal risk sharing can and should be structured in such a way that they do not lead to permanent transfers across countries or undermine the incentive to address structural weaknesses. Another important function of such a fiscal capacity would be to facilitate structural reforms that improve competitiveness and potential growth in relation to an integrated economic policy framework (see section III below). A well-functioning shock absorption function would require a further degree of convergence between economic structures and policies of the Member States. Therefore, the two objectives of shock absorption and support to structural reforms are complementary and mutually reinforcing.The establishment of such a new fiscal capacity should not water down the compliance with fiscal rules and fiscal discipline in individual Member States. A key aspect of a future fiscal capacity, which would need to be examined carefully, would be its possible ability to borrow. In this respect, the balanced budget rule enshrined in both the Stability and Growth Pact and the Treaty on Stability, Coordination and Governance would need to apply to this fiscal capacity. A fully-f ledged integrated budgetary framework would require the establishment of a Treasury function with clearly defined fiscal responsibilities.

a safe and liquid financial asset for the euro areaIt has been suggested that establishing a genuine euro area safe and liquid asset could contribute to limiting the negative feedback

border crisis management. The national resolution funds that the directive proposes will also ensure that the cost of resolution is borne first and foremost by the private sector. In a context where supervision is effectively moved to a single supervisory mechanism, a common resolution authority with an appropriate backstop would come to be required so as to ensure that resolution decisions are taken swiftly, impartially and in the best interest of all. During the transition phase and after the establishment of an effective SSM, the ESM will have the possibility to recapitalise banks directly, relying on appropriate conditionality.

Deposit guarantee mechanismsCredible deposit guarantee schemes can play an important pre-emptive role in the stability of the financial system. The legislative proposal harmonising national deposit guarantee schemes is an important step towards achieving this objective. It establishes a strong general principle for such schemes to be sufficiently financed by contributions from the financial sector, while ensuring a level playing field across different schemes. Overall, the creation of an integrated financial framework has important fiscal, economic and political implications and therefore cannot be envisaged separately from steps towards more integrated fiscal and economic frameworks and more political accountability. Sharing banking sector risks without more effective fiscal discipline could otherwise lead to adverse incentives for sovereigns.

II. INTEGRATED BUDGETARY FRAMEWORK

The crisis has underlined the high level of interdependence between euro area countries and even beyond. It has shown that national budgetary policies are a matter of vital common interest. This points to the need to complement the current framework for the surveillance and coordination of budgetary policies with a more ex ante coordination framework, as proposed in the 'Two-Pack', and to move gradually towards a fully-f ledged integrated budgetary framework. This will ensure sound budgetary policies at the national and European levels and thereby contribute to sustainable growth and macroeconomic stability. The history of other currency unions shows that there are various ways of progressing towards fiscal union. The degree of centralisation of budgetary instruments and the arrangements for fiscal solidarity against adverse macroeconomic and financial shocks differ across currency unions. The EMU’s unique features would justify a specific approach.

Stronger economic governanceIn the near term, the priority is to complete and implement the new steps for stronger economic governance. Significant improvements to the rules-based framework for fiscal policies in the EMU have been enacted ('Six-Pack') or agreed (Treaty on Stability, Coordination and Governance) in the last couple of years, with greater focus on prevention of budgetary imbalances, more importance given to debt developments, better enforcement mechanisms and national ownership of EU rules. The other elements related to strengthening fiscal governance in the euro area ('Two-Pack'), which are still in the legislative process, should

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promoting structural reforms through arrangements of a contractual natureBeyond the completion of the Single Market, the smooth functioning of the EMU requires stronger coordination, convergence and enforcement in the field of economic policy. In this context, as mentioned in the bilateral consultations, an idea to be explored is for the euro area Member States to enter into individual arrangements of a contractual nature with the EU institutions on the reforms promoting growth and jobs these countries commit to undertake and their implementation. This could include supporting reform efforts through limited, temporary, f lexible and targeted financial incentives. Such arrangements could be linked to the reforms identified in the country-specific recommendations of the Council, and build on EU procedures, such as the corrective action plans under the excessive imbalances procedure or the economic partnership programmes. An integrated economic policy framework, including ex ante coordination of major economic policy reform plans with significant spillover effects on the euro area, would also help guide policies in areas such as labour mobility or tax coordination. Such coordination mechanisms could be open to the Member States that have not yet adopted the euro.

Strengthening macro-prudential policyFinally, an integrated economic policy framework contributes to avoiding the large and rapid build-up of imbalances that can be fuelled by inadequate financial conditions at the national level. A possible step, consistent with the development of an integrated financial framework, could be the enhanced use of macro-prudential policy tools. Providing such tools to a future single supervisor – as currently foreseen in the draft legislation on the single supervisory mechanism already presented by the Commission – would significantly improve the impact of macro-prudential policy. It could help in better managing the development of especially country-specific credit and asset price risks. In this context, the ESRB should play an increased role.

IV. DEMOCRATIC LEGITIMACY AND ACCOUNTABILITY

As a general principle, democratic control and accountability should occur at the level at which the decisions are taken. This implies relying on the European Parliament as regards accountability for decisions at European level but also maintaining and securing the pivotal role of national parliaments, as appropriate. The Lisbon Treaty has already introduced improvements to the EU's democratic accountability, both for the European Parliament and for national parliaments. A further strengthened role of EU institutions must be accompanied with a commensurate involvement of the European Parliament in the EU procedures. A number of concrete steps to increase the level of cooperation between national parliaments and the European Parliament can also be taken, building on Article 13 of the Treaty on Stability, Coordination and Governance and on Protocol 1 of the Treaty on the Functioning of the European Union, in the respect of the Community method. In this spirit, ways to ensure a debate

loops between banks and public finances, which has been one of the sources of contagion in the current crisis. In this context, the pooling of some short term sovereign funding instruments (e.g. treasury bills) on a limited and conditional basis could be examined further. This would require a greater degree of common decision-making on budgets, building on the provisions in the "Two-Pack" regarding the examination of draft budgetary plans and the ex ante coordination of debt issuance. Proposals have also been made to deal with the existing stock of sovereign debt on a conditional and temporary basis through the gradual roll-over into a redemption fund of the legacy debt that has been accumulated by most Member States in the run-up to and during the financial and debt crisis.

III. INTEGRATED ECONOMIC POLICY FRAMEWORK

In order to remain a highly attractive social market economy and to preserve the European social model, it is important for the Union to be globally competitive and for the monetary union to avoid excessive divergences in competitiveness between Member States so that each and every country is able to adjust smoothly and rapidly to shocks. This includes f lexibility in prices across the economy as well as the ability to handle asset and credit bubbles. A careful balance must be struck between, on the one hand, the need to maintain policy autonomy and adjustment capacity of Member States and, on the other hand, the enforceability of measures aiming to prevent the build-up of imbalances and to facilitate price and cost adjustments. This is essential to ensure that national policies are orientated towards strong and sustainable economic growth, competitiveness and employment and do not undermine the financial stability of the euro area as a whole.

The reforms of the eu surveillance frameworkThe crisis revealed the shortcomings of the previous economic policy framework and led to several reforms of the EU surveillance framework, culminating in the creation of an integrated European Semester with country specific recommendations and a new Macroeconomic Imbalances Procedure with sanctions, to detect and correct possibly harmful imbalances. Impetus was also given by the Euro Plus Pact, which has since been integrated into the European Semester. A complete assessment of the newly implemented surveillance mechanisms is premature. However, early evidence highlights a number of areas where these procedures could benefit from greater visibility, authority and impact. Institutional quality, labour market and business climate indicators show weaknesses across the EU and sizeable differences between Member States. Completing the Single Market is a powerful way to address some of these f laws. The rapid implementation of the measures included in the June 2012 Growth and Employment Compact is a top priority.

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V. NEXT STEPSBuilding on this interim report and taking into account the exchange of views at the 18-19 October European Council and its conclusions, a specific and time-bound roadmap for the achievement of a genuine Economic and Monetary Union will be presented at the 13-14 December European Council. During the preparatory process informal consultations with Member States and the European Parliament will continue. Exchanges of views with other major stakeholders may also take place.

in the European Parliament and in national parliaments on the recommendations adopted in the context of the European Semester should be explored.Governance within the euro area should be further improved building on the euro area summit statement of 26 October 2011 and the Treaty on Stability, Coordination and Governance. The governance framework would also benefit from an active and open social dialogue.

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We welcome progress made by Greece and the troika towards reaching an agreement on the policies underpinning the adjustment programme and looks forward to the conclusion of the on-going review. The Eurogroup will examine the outcome of the review in light of the troika report and will take the necessary decisions. We welcome the determination of the Greek government to deliver on its commitments and we commend the remarkable

efforts by the Greek people. Good progress has been made to bring the adjustment programme back on track. We expect Greece to continue budgetary and structural policy reforms and we encourage its efforts to ensure swift implementation of the programme. This is necessary in order to bring about a more competitive private sector, private investment and an effective public sector. These conditions will allow Greece to achieve renewed growth and will ensure its future in the euro area.

STATEmENT BY THE EURO AREA

HEADS OF STATE OR GOvERNmENT – 18 OCTOBER 2012

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EUR 180 billion over the next three years. Work is under way to ensure that the EUR 55 billion of Structural Funds are mobilised quickly and efficiently; the Commission will continue to help Member States to re-programme the Structural Funds to focus them better on growth and jobs. Adequate attention should be paid in order to ensure a fair access to financing for all Member States. The Project Bonds pilot phase is being implemented with EUR 100 million already authorised and the remaining EUR 130 million to be mobilised early next year, which in total should leverage investment of up to EUR 4.5 billion in the pilot phase. The European Council will devote a special meeting in November to reaching agreement on the next Multiannual Financial Framework and thus ensure that it is adopted by the end of the year. Recalling the need to pursue differentiated growth-friendly fiscal consolidation, the European Council looks forward to the Commission's report on the quality of public spending and the scope for possible action within the boundaries of the EU and national fiscal frameworks.

(b) Deepening the Single Market: progress has been made on the Single Market Act I, but more efforts are required to complete work on the outstanding proposals including on accounting, professional qualifications, public procurement and venture capital funds. The Commission's new communication on the Single Market Act II sets out 12 further key actions which should contribute much to sustainable European growth,

I. ECONOMIC POLICY1. The European economy is facing difficult challenges. It

is therefore essential for the European Union to make every effort rapidly to implement the measures agreed over recent months to relaunch growth, investment and employment, restore confidence and make Europe more competitive as a location for production and investment.

Compact for Growth and Jobs2. The European Council remains determined to stimulate

growth and jobs, in the context of the Europe 2020 Strategy. The Compact for Growth and Jobs, decided last June, constitutes the overall framework for action at national, euro and EU levels, mobilising all levers, instruments and policies. All the commitments it outlines must be fully and rapidly delivered. Significant progress has been achieved so far, as shown in the letter from the President of the European Council of 8 October 2012 as well as in the reports from the Presidency and the Commission. However, greater efforts are required in certain areas, as set out below.

(a) Investing in growth: significant progress is being made in implementing the EUR 120 billion financing package of the Compact. In particular, in the coming weeks the EIB is expected to adopt its EUR 10 billion capital increase with the aim of strengthening its capital basis as well as increasing its overall lending capacity by EUR 60 billion. This should in turn lead to additional investment of up to

EUROpEAN COUNCIL – 18-19 OCTOBER 2012

CONCLUSIONS

The European Council reiterated today its firm commitment to take resolute action to address financial market tensions, restore confidence and stimulate growth and jobs.

It closely reviewed the implementation of the Compact for Growth and Jobs. It welcomed progress made so far but also called for swift, determined and result-oriented action to ensure its full and rapid implementation.

Further to the presentation of the interim report on EMU, the European Council called for work to proceed on the proposals on the Single Supervisory Mechanism as a matter of priority with the objective of agreeing on the legislative framework by 1st January 2013 and agreed on a number of orientations to that end. It also took note of issues relating to the integrated budgetary and economic policy frameworks and democratic legitimacy and accountability which should be further explored. It agreed that the process towards deeper economic and monetary union should build on the EU's institutional and legal framework and be characterised by openness and transparency towards non-euro area Member States and respect for the integrity of the Single Market. It looked forward to a specific and time-bound roadmap to be presented at its December 2012 meeting, so that it can move ahead on all essential building blocks on which a genuine EMU should be based.

The European Council discussed relations with the EU's strategic partners and adopted conclusions on Syria, Iran and Mali.

* * *

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employment and social cohesion. The European Council welcomes the Commission's intention to present all key SMA II proposals by spring 2013 and calls for their rapid examination in order to allow their adoption by the end of the current parliamentary cycle at the latest. It is also important to take urgent action in line with the Commission's communications on implementation of the Services Directive and on Single Market governance.

(c) Connecting Europe: the future Connecting Europe Facility will constitute an important instrument to promote growth through investment in transport, energy and ICT links. In the field of transport, eliminating regulatory barriers and tackling bottlenecks and missing cross-border links is essential in order to guarantee the efficient operation of the Single Market and promote competitiveness and growth. Digital technologies and infrastructures are also an essential prerequisite. Recalling the need to complete the internal energy market fully by 2014 in accordance with the agreed deadlines and to ensure that no Member State remains isolated from the European gas and electricity networks after 2015, the European Council calls for rapid agreement on the proposal on energy TENs and looks forward to the forthcoming Commission communication and Action Plan to address the prevailing challenges.

(d) Achieving a fully functioning Digital Single Market by 2015: this could generate an additional growth of 4 % over the period up to 2020. The European Council therefore calls for work to be accelerated on the proposals on e-signature and collective rights management and looks forward to the forthcoming proposals on reducing the cost of the deployment of high speed broadband and on e-invoicing. The forthcoming mid-term review of the Digital Agenda should be used to identify areas where more work needs to be done. It is necessary to modernise Europe's copyright regime to facilitate access to content while upholding intellectual property rights and encouraging creativity and cultural diversity.

(e) Promoting research and innovation: it is important to ensure that research and innovation are translated into competitive gains. The European Council calls for rapid progress on the proposed new programmes for research and innovation (Horizon 2020) and for the competitiveness of enterprises and SMEs (COSME), stressing the importance of excellence in EU research and innovation policies while promoting broad access to participants in all Member States. It reiterates the need to finalise the European Research Area by the end of 2014 and stresses the importance of an integrated approach to key enabling technologies.

(f) Enhancing the competitiveness of industry: the Commission communication on a new EU industrial policy stresses the importance of developing an integrated approach in order to strengthen industrial competitiveness to underpin growth and jobs, whilst improving energy and resource efficiency. It is particularly

important for European industries to maintain and develop their technological lead and to facilitate investment in new key technologies in the early stages and for close-to-the-market actions.

(g) Creating the right regulatory framework for growth: it is particularly important to reduce the overall regulatory burden at EU and national levels, with a specific focus on SMEs and micro-enterprises, including by facilitating their access to funding. The European Council looks forward to the Commission communication expected in December, which will take stock of progress and signal further action to be taken by the end of the current parliamentary cycle at the latest, including the follow up on the top 10 most burdensome pieces of legislation for SMEs. Taking account of the particular priority to foster competitiveness, sustainable growth and employment, the European Council welcomes the Commission's intention to withdraw a number of pending proposals and to identify possible areas where the regulatory burden could be lightened.

(h) Developing a tax policy for growth: work and discussions should be carried forward on the proposals on energy taxation, on the common consolidated corporate tax base and on the revision of the savings tax Directive, and to reaching rapid agreement on the negotiating directives for savings taxation agreements with third countries. The European Council looks forward to the Commission communication to be submitted before the end of the year on good governance in relation to tax havens and aggressive tax planning. The European Council notes the requests from a number of Member States for enhanced cooperation to be launched on a Financial Transactions Tax, which the Commission intends to examine quickly with a view to making its proposal as soon as the conditions have been met.

(i) Boosting employment and social inclusion: work in this area remains a priority of the utmost importance. The Council is invited to pursue its work on the different elements of the Employment Package and to ensure rapid progress on the proposals relating to the acquisition and preservation of cross-border pension rights for EU workers and the enforcement of the posted workers Directive. The European Council looks forward to the forthcoming communication on education and skills and to the Youth Employment package, including developing initiatives on youth guarantees and quality traineeships and apprenticeships as well as improving the mobility of young people. Labour mobility throughout the EU should be facilitated. The European Council stresses the importance of further developing the EURES job vacancies portal and underlines the need to increase and broaden the participation of employment services across Member States. Member States' vocational training schemes play a particular role in addressing youth unemployment. It is also important to promote the reactivation of older workers. Member States should step up efforts to tackle the social consequences of the crisis

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Parliament on the different issues to be explored. The European Council looks forward to a specific and time-bound roadmap to be presented at its December 2012 meeting, so that it can move ahead on all essential building blocks on which a genuine EMU should be based.

5. The process towards deeper economic and monetary union should build on the EU's institutional and legal framework and be characterised by openness and transparency towards Member States which do not use the single currency and by respect for the integrity of the Single Market. The final report and roadmap should include concrete proposals for how to achieve this.

Integrated financial framework6. We need to move towards an integrated financial

framework, open to the extent possible to all Member States wishing to participate. In this context, the European Council invites the legislators to proceed with work on the legislative proposals on the Single Supervisory Mechanism (SSM) as a matter of priority, with the objective of agreeing on the legislative framework by 1 January 2013. Work on the operational implementation will take place in the course of 2013. In this respect, fully respecting the integrity of the Single Market is crucial.

7. There is a need to ensure a clear separation between ECB monetary policy and supervision functions, and the equitable treatment and representation of both euro and non-euro area Member States participating in the SSM. Accountability takes place at the level at which decisions are taken and implemented. The SSM will be based on the highest standards for bank supervision and the ECB will be able, in a differentiated way, to carry out direct supervision. It will also be in a position to use the effective powers conferred on it by the legislation as soon as it comes into force. In addition, it is of paramount importance to establish a single rulebook underpinning the centralised supervision.

8. It is important to ensure a level playing field between those Member States which take part in the SSM and those which do not, in full respect of the integrity of the single market in financial services. An acceptable and balanced solution is needed regarding changes to voting modalities and decisions under the European Banking Authority (EBA) Regulation, taking account of possible evolutions in the participation in the SSM, that ensures non-discriminatory and effective decision-making within the Single Market. On this basis, the EBA should retain its existing powers and responsibilities.

9. The European Council calls for the rapid adoption of the provisions relating to the harmonisation of national resolution and deposit guarantee frameworks based on the Commission's legislative proposals on bank recovery and resolution and on national deposit guarantee schemes. The European Council calls for the rapid conclusion of the single rule book, including agreement on the proposals on bank capital requirements (CRR/CRD IV) by the end of the year.

and to fight poverty and social exclusion in line with the objectives of the Europe 2020 Strategy.

(j) Implementing the Europe 2020 Strategy: the European Council recalls the need for determined implementation of the 2012 Country Specific Recommendations. It invites the Presidency to submit a "synthesis report" on the lessons learned from the 2012 European Semester process and calls for a number of improvements to be made for the 2013 exercise - more emphasis on specific guidance and implementation; new modalities to enhance Member States' ownership of the process, particularly through deeper and more continuous dialogue; building of a partnership with the European Parliament, national parliaments and social partners; and a stronger linkage between the work of relevant Council formations. Underlining the need for thorough preparation of the 2013 European Semester, the European Council looks forward to the early submission by the Commission of its Annual Growth Survey and the Alert Mechanism Report at the end of November, and invites the incoming Presidency to submit a roadmap on the organisation of work for the 2013 European Semester.

(k) Harnessing the potential of trade: stressing the fact that an ambitious trade agenda could lead in the medium term to an overall increase of 2 % in growth and the creation of over 2 million jobs, the European Council reiterates the EU’s determination to promote free, fair and open trade whilst at the same time asserting its interests, in a spirit of reciprocity and mutual benefit. In this spirit, it calls for an agreement to be reached on the negotiating directives for a Free Trade Agreement (FTA) with Japan with a view to launching negotiations in the months ahead and for the finalisation of FTA negotiations with Canada and Singapore in the coming months. It looks forward to the final report of the EU-US High Level Working Group and commits to working towards the goal of launching in 2013 of negotiations on a comprehensive transatlantic trade and investment agreement. It will return in greater depth to EU/US relations and to the contribution trade can make to the growth agenda in February 2013. It also calls for progress to be made in opening or advancing negotiations on Deep and Comprehensive Free Trade Agreements with the EU's neighbouring partners which are ready. The proposal of the Commission on access to public procurement markets in third countries should be rapidly examined.

Completing emu3. In the light of the fundamental challenges facing it, the

Economic and Monetary Union needs to be strengthened to ensure economic and social welfare as well as stability and sustained prosperity.

4. Following the interim report presented by the President of the European Council in close collaboration with the Presidents of the Commission, the Eurogroup and the European Central Bank (ECB), informal consultations will continue with Member States and the European

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reforms are discussed ex ante and, where appropriate, coordinated within the framework of the EU's economic governance, in line with Article 11 of the TSCG, should be explored by participating Member States. The euro area Heads of State or Government shall adopt rules of procedure for their meetings.

17. Strong mechanisms for democratic legitimacy and accountability are necessary. One of the guiding principles in this context is to ensure that democratic control and accountability take place at the level at which decisions are taken and implemented. In this spirit, ways to ensure a debate in the context of the European Semester, both within the European Parliament and national parliaments, should be explored. In this respect, the European Council notes the intention of the Member States parties to the TSCG to improve the level of cooperation between national parliaments and the European Parliament, building on Article 13 of the TSCG and Protocol 1 to the TFEU.

II. STRATEGIC PARTNERS18. The European Council held an exchange of views on the

EU's relations with its strategic partners. It called for the full implementation of the internal arrangements agreed in September 2010 to improve the EU's external relations.

III. OTHER ITEMS19. The European Council is appalled by the deterioration

of the situation in Syria. It endorses the conclusions adopted by the Council on 15 October and the additional restrictive measures against the Syrian regime and its supporters. It fully supports the efforts of Lakhdar Brahimi in finding a political solution to the Syrian crisis. All key actors, notably those in the region and all members of the United Nations Security Council, should uphold their responsibilities and lend their support to the Joint Representative's endeavours. The EU is committed to working closely and comprehensively with international partners to ensure rapid support to Syria once transition takes place. The EU also commits to strengthening its support in building the capacity of civil society to participate in a future Syria. All opposition groups should agree on a set of shared principles in order to achieve an inclusive, orderly and peaceful transition.

The European Council strongly condemns the shelling by Syrian forces of Turkish territory and calls on all to prevent escalation and on the Syrian authorities to fully respect the territorial integrity and sovereignty of all neighbouring countries. The EU will continue to provide humanitarian assistance and calls on all donors to increase their contributions to the latest UN appeals. The European Council urges all parties to respect international humanitarian law (including the inviolability of all medical facilities, medical personnel and vehicles). All parties should put an end to all forms of violence, take special measures to protect all vulnerable

10. In all these matters, it is important to ensure a fair balance between home and host countries.

11. The European Council notes the Commission's intention to propose a single resolution mechanism for Member States participating in the SSM once the proposals for a Recovery and Resolution Directive and for a Deposit Guarantee Scheme Directive have been adopted.

12. The Eurogroup will draw up the exact operational criteria that will guide direct bank recapitalisations by the European Stability Mechanism (ESM), in full respect of the 29 June 2012 euro area Summit statement. It is imperative to break the vicious circle between banks and sovereigns. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.

Integrated budgetary and economic policy frameworks and democratic legitimacy and accountability13. The European Council invites the legislators to find an

agreement with a view to adopting the "two-pack" by the end of 2012 at the latest. This is a key piece of legislation necessary for the reinforcement of the new economic governance in the EU, alongside the reinforced Stability and Growth Pact, the Treaty on Stability, Coordination and Governance (TSCG) and the "six-pack". It calls on national authorities and European institutions to implement all of these fully in accordance with their roles under the EU Treaties. Related to the ongoing regulatory work in the EU banking sector, the European Council takes note of the proposals of the high level expert group on the structure of the EU banking sector, which the Commission is now examining, including their possible impact on the objective of establishing a stable and efficient banking system.

14. An integrated budgetary framework is part of an economic and monetary union. In that context, further mechanisms, including an appropriate fiscal capacity, will be explored for the euro area. The process of exploration will be unrelated to the preparation of the next Multiannual Financial Framework.

15. The smooth functioning of EMU calls for stronger and sustainable economic growth, employment and social cohesion and requires stronger coordination, convergence and enforcement of economic policy. In this respect, the idea of the euro area Member States entering into individual arrangements of a contractual nature with the EU institutions on the reforms they commit to undertake and on their implementation will be explored. Such arrangements could be linked to the reforms identified in the country-specific recommendations adopted by the Council and build on EU procedures.

16. Governance within the euro area should be further improved, building on the TSCG and taking into account the euro area Summit statement of 26 October 2011. Ways to ensure that all planned major economic policy

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cooperation with international and regional partners. In particular, the EU will support Mali in its efforts to restore the rule of law and re-establish a fully sovereign democratic government with authority throughout Malian territory. The EU will gradually resume development cooperation as soon as a credible and consensual Roadmap is adopted for the restoration of constitutional order. In the meantime, the EU will step up its humanitarian response. Furthermore, the EU will examine support for the envisaged international military force in accordance with UN Security Council Resolution 2071 and speed up planning of a possible CSDP military operation to help reorganise and train the Malian defence forces. The EU will maintain the option to adopt targeted restrictive measures against those involved in the armed groups in northern Mali and those hindering the return to constitutional order.

* * *The European Council is grateful that the European Union was awarded the Nobel Prize for Peace. The Prize is an honour for all European citizens and for all EU Member States and institutions. The Nobel Committee rightly reminds how "the Union and its forerunners have for over six decades contributed to the advancement of peace and reconciliation, democracy and human rights in Europe". At a time of uncertainty, this tribute to past achievements is a strong appeal to safeguard and strengthen Europe for the next generation. Aware that advancing this community of peaceful interests requires constant care and an unwavering will, the members of the European Council regard it as their personal responsibility to ensure Europe remains a continent of progress and prosperity.

groups, allow full and safe access for the delivery of humanitarian aid in all parts of the country. Those responsible for violations of international human rights law must be held accountable.

20. The European Council stresses its serious and deepening concerns over Iran's nuclear programme and supports the recent resolution adopted by the IAEA Board of Governors. The European Council recalls that Iran is acting in f lagrant violation of its international obligations and is refusing to cooperate fully with the IAEA. The European Council therefore welcomes the conclusions and the adoption of the additional restrictive measures by the Council on 15 October with the aim of achieving a serious and meaningful engagement from the Iranian regime. The European Council reaffirms its commitment to the dual track approach and fully supports the efforts of the High Representative on behalf of the E3+3 to engage Iran in meaningful and constructive discussions. The Iranian regime can act responsibly and bring sanctions to an end, but as long as it does not do so, the EU remains determined to increase in close coordination with international partners, pressure on Iran in the context of the dual-track approach.

21. The European Council endorses the conclusions adopted by the Council on 15 October and expresses its serious concern over the continuing political, security and humanitarian crisis in Mali. This situation poses an immediate threat to the Sahel region as well as to West and North Africa and to Europe. The EU is determined to provide comprehensive support to Mali, in close

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The bilateral talks and the constructive discussion within the European Council show a sufficient degree of potential convergence to make an agreement possible in the beginning of next year.We should be able to bridge ex isting divergences of v iews. A European budget is important for the cohesion of the Union and for jobs and growth in all our countries.

The European Council gives its President the mandate together with the President of the European Commission to continue the work and pursue consultations in the coming weeks to find a consensus among the 27 over the Union's Multiannual Financial Framework for the period 2014-2020.

EUROpEAN COUNCIL – 22-23 NOvEmBER 2012

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The euro area is confronted with a rapidly evolving international environment characterised by the rise of large emerging economies. A more resilient and integrated EMU would buffer euro area countries against external economic shocks, preserve the European model of social cohesion and maintain Europe’s inf luence at the global level.Together, these challenges make indispensable a commitment to, and subsequent implementation of, a roadmap towards a genuine EMU. They underscore that ‘More Europe’ is not an end in itself, but rather a means for serving the citizens of Europe and increasing their prosperity. The actions deemed necessary to ensure the resilience of the EMU are presented therein as a staged-process. Irrespective of their time horizon, all policy proposals have been conceived and designed as elements of a path towards a genuine Economic and Monetary Union. Given the strong linkages between the building blocks, they should be examined as part of a mutually reinforcing comprehensive package. The creation of an integrated financial framework has important fiscal and economic implications and therefore cannot be envisaged separately. Similarly, the proposals put forward in the fiscal and economic policy sphere are closely intertwined. And, as all the proposals imply deeper integration, democratic legitimacy and accountability are essential to a genuine Economic and Monetary Union.

Overview of sequencingThe process could rest on the following three stages (see also diagram in annex):

Stage 1 (End 2012-2013)

ensuring fiscal sustainability and breaking the link between banks and sovereigns The completion of the first stage should ensure sound management of public finances and break the link between banks and sovereigns, which has been one of the root causes of the sovereign debt crisis. This stage would include five essential elements:

– The completion and thorough implementation of a stronger framework for fiscal governance ('Six-Pack'; Treaty on Stability, Coordination and Governance; 'Two-Pack').

At the June 2012 European Council, the President of the European Council was invited “to develop, in close collaboration with the President of the Commission, the President of the Eurogroup and the President of the ECB, a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union". Building on the Interim Report and the Conclusions of the October 2012 European Council, this Report provides the background to the roadmap presented at the December 2012 European Council. It suggests a timeframe and a stage-based process towards the completion of the Economic and Monetary Union (EMU) covering all the essential building blocks identified in the report “Towards a genuine Economic and Monetary Union” presented at the June European Council. It incorporates valuable input provided by the Commission in its communication "A Blueprint for a deep and genuine EMU – Launching a European Debate" of 28 November 2012. The European Parliament has also made a valuable contribution. As requested by the European Council, this report explores further mechanisms in the context of an integrated budgetary framework, including an appropriate fiscal capacity for the EMU, as well as the idea of euro area Member States entering into arrangements of a contractual nature with the EU institutions on the reforms they commit to undertake and their implementation.Under the Treaty, the Union has established an Economic and Monetary Union whose currency is the euro. The views set out in this report focus on the euro area Member States as they face specific challenges by virtue of sharing a currency. The process towards a deeper EMU should be characterised by openness and transparency and be fully compatible with the Single Market in all aspects. This report lays down the actions required to ensure the stability and integrity of the EMU and calls for a political commitment to implement the proposed roadmap. The urgency to act stems from the magnitude of the internal and external challenges currently faced by the euro area and its individual members.The euro area needs stronger mechanisms to ensure sound national policies so that Member States can reap the full benefits of the EMU. This is essential to ensure trust in the effectiveness of European and national policies, to fulfil vital public functions, such as stabilisation of economies and banking systems, to protect citizens from the effects of unsound economic and fiscal policies, and to ensure high level of growth and social welfare.


REpORT AND ROADmAp

BY pRESIDENT vAN ROmpUY – 7 DECEmBER 2012

In close collaboration with:José Manuel Barroso, President of the European Commission

Jean-Claude Juncker, President of the EurogroupMario Draghi, President of the European Central Bank

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– Establishment of a framework for systematic ex ante coordination of major economic policy reforms, as envisaged in Article 11 of the Treaty on Stability, Coordination and Governance (TSCG).

– The establishment of an effective Single Supervisory Mechanism (SSM) for the banking sector and the entry into force of the Capital Requirements Regulation and Directive (CRR/CRDIV).

– Agreement on the harmonisation of national resolution and deposit guarantee frameworks, ensuring appropriate funding from the financial industry.

– Setting up of the operational framework for direct bank recapitalisation through the European Stability Mechanism (ESM).

Stage 2 (2013-2014)

Completing the integrated financial framework and promoting sound structural policies This stage would consist of two essential elements:

– The completion of an integrated financial framework through the setting up of a common resolution authority and an appropriate backstop to ensure that bank resolution decisions are taken swiftly, impartially and in the best interest of all.

– The setting up of a mechanism for stronger coordination, convergence and enforcement of structural policies based on arrangements of a contractual nature between Member States and EU institutions on the policies countries commit to undertake and on their implementation. On a case-by-case basis, they could be supported with temporary, targeted and f lexible financial support. As this financial support would be temporary in nature, it should be treated separately from the multiannual financial framework.

Stage 3 (post 2014)

Improving the resilience of emu through the creation of a shock-absorption function at the central levelThis stage would mark the culmination of the process. Stage 3 would consist in:

– Establishing a well-defined and limited fiscal capacity to improve the absorption of country-specific economic shocks, through an insurance system set up at the central level. This would improve the resilience of the euro area as a whole and would complement the contractual arrangements developed under Stage 2. A built-in incentives-based system would encourage euro area Member States eligible for participation in the shock absorption function to continue to pursue sound fiscal and structural policies in accordance with their contractual obligations. Thereby the two objectives of asymmetric shock absorption and the promotion of sound economic policies would remain intrinsically linked, complementary and mutually reinforcing.

– This stage could also build on an increasing degree of

common decision-making on national budgets and an enhanced coordination of economic policies, in particular in the field of taxation and employment, building on the Member States' National Job Plans. More generally, as the EMU evolves towards deeper integration, a number of other important issues will need to be further examined. In this respect, this report and the Commission's "Blueprint" offer a basis for debate.

I. INTEGRATED FINANCIAL FRAMEWORK

The current European arrangements for safeguarding financial stability remain based on national responsibilities. This is inconsistent with the highly integrated nature of the EMU and has certainly exacerbated the harmful interplay between the fragilities of sovereigns and the vulnerabilities of the banking sector. The set-up of the Single Supervisory Mechanism (SSM) will be a guarantor of strict and impartial supervisory oversight, thus contributing to breaking the link between sovereigns and banks and diminishing the probability of future systemic banking crisis. In its October 2012 Conclusions, the European Council invited the legislators to proceed with work on the legislative proposals on the SSM as a matter of priority, with the objective of agreeing on the legislative framework by 1 January 2013. It called for the rapid conclusion of the single rule book, including agreement on the proposals on bank capital requirements by the end of the year. It also called for the rapid adoption of the provisions relating to the harmonisation of national resolution and deposit guarantee frameworks. The SSM will constitute a first step towards a financial market union. It is imperative that the preparatory work can start in earnest at the beginning of 2013, so that the SSM can be fully operational from 1 January 2014 at the latest. It will be crucial that the ECB is equipped with a strong supervisory toolkit, and that the ECB’s ultimate responsibility for banking supervision is coupled with adequate control powers. In this regard, establishing an appropriate framework for macro-prudential policy that takes due account of both national and Europe-wide dimension will be important. The ECB has confirmed that it will establish organisational arrangements guaranteeing a clear separation of its supervisory functions from monetary policy. Once an effective single supervisory mechanism is established, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. The legal and operational framework for ESM direct bank recapitalisation should be finalised by end-March 2013. In order to move towards an integrated financial framework, the SSM will need to be complemented by a single resolution mechanism, as well as more harmonised deposit guarantee mechanisms.

Single resolution mechanismSince the beginning of the crisis, support to financial institutions has been substantial. It has unduly weighed on public finances and reduced the ability to use fiscal policy to stave off the effects of the recession. A strong and integrated resolution framework would contribute to limiting the cost of bank failures to taxpayers.

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Under the single resolution mechanism, resolution actions should follow a least-cost strategy and could be financed according to a pecking order of bailing-in shareholders and some creditors, and relying on the banking industry. The latter would be organized through a European Resolution Fund, which would be a crucial element of the new resolution regime. It would be funded through ex ante risk-based levies on all the banks directly participating in the SSM. The single resolution mechanism should include an appropriate and effective common backstop. This could possibly be organized by means of an ESM credit line to the single resolution authority. This backstop should be fiscally-neutral over the medium-term, by ensuring that public assistance is recouped by means of ex post levies on the financial industry.

Deposit guarantee mechanismsThe history of financial crises has illustrated the destabilising effect uncertainty surrounding bank deposits could have on individual financial institutions and on entire banking systems. The proposal on the harmonisation of national deposit guarantee schemes includes provisions to ensure that sufficiently robust national deposit insurance systems are set up in each Member State, thereby limiting the spill-over effects associated with deposit f light between institutions and across countries, and

ensuring an appropriate degree of depositor protection in the European Union. A rapid adoption of this proposal is important.

II. InTEgraTEd bUdgETARy FraMEwoRkThe crisis has revealed the high level of interdependence and spill-overs between euro area countries. It has demonstrated that national budgetary policies are a matter of vital common interest. This points to the need to move gradually towards an integrated budgetary framework ensuring both sound national budgetary policies and greater resilience to economic shocks of the euro area as a whole. This would contribute to sustainable growth and macroeconomic stability. The october Interim Report stressed the need for stronger economic governance and suggested, as an additional step, the possibility to develop gradually a fiscal capacity for the EMU, which could facilitate adjustment to economic shocks. Following the conclusions of the october European Council, this section explores the options for a euro area fiscal capacity and its guiding principles.

Sound national budgetary policies are the EMU's cornerstoneThe near term priority is to complete and implement the new steps for stronger economic governance. In the past few years, significant improvements to the rules-based framework for

deposit guarantee Scheme directive have been adopted. This single resolution mechanism – built around a single resolution authority – should be established as the ECb assumes its supervisory responsibility in full. This mechanism covering all banks supervised by the SSM should be based on robust governance arrangements, including adequate provisions on independence and accountability, as well as an effective common backstop, which is indispensable to complete an integrated financial framework.

The current legislative proposal on recovery and resolution will ensure that harmonised tools necessary for orderly bank resolutions are available in all EU Member States, including early interventions, bailing-in and the creation of bridge banks. In a context where supervision is effectively moved to a single supervisory mechanism, it is however essential that the responsibility of dealing with bank resolution is also moved to the European level. The Commission has already announced its intention to propose a single resolution mechanism once the proposals for a Recovery and Resolution directive and for a

The need for a single resolution mechanism

Establishing a single resolution mechanism is indispensable to complete an integrated financial framework: • Itwouldensureatimelyandimpartialdecision-makingprocess,focusedontheEuropeandimension.Thiswouldmitigate

many of the current obstacles to resolution, such as national bias and cross-border cooperation frictions. This would reduce resolution costs, as early and prompt actions contribute to maintaining the economic value of banks that need to be resolved.

• Itwouldmakeresolutioncostsaslowaspossibleandbreakthebank-sovereignnexus.Astrongandindependentresolutionauthority, backed by an efficient resolution regime, would have the financial, legal and administrative capability as well as the necessary independence to carry out effective and least-cost resolution. by ensuring that the private sector bears the primary burden of bank resolution costs, the authority would increase market discipline, and minimise the residual costs for the taxpayers of bank failures.

• ThesingleresolutionmechanismwouldcomplementtheSSMbymakingcertainthatfailingbanksarerestructuredorclosed down swiftly. The SSM would provide a timely and unbiased assessment of the need for resolution, while the single resolution authority would ensure actual timely and efficient resolution.

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fiscal policies in the EMU have been enacted ('Six-Pack') or agreed (Treaty on Stability, Coordination and Governance), with greater focus on prevention of budgetary imbalances, on debt developments, on better enforcement mechanisms, and on national ownership of EU rules. The other elements related to strengthening fiscal governance in the euro area ('Two-Pack'), which are still in the legislative process, should be finalised urgently and be implemented thoroughly. This new governance framework will provide for ample ex ante coordination of annual budgets of euro area Member States and enhance the surveillance of those experiencing financial difficulties.

Towards a fiscal capacity for the emuThe history and experience of other currency unions shows that there are various ways of progressing towards a fiscal union and the EMU’s unique features would justify a specific approach. Yet, while the degree of centralisation of budgetary instruments and the arrangements for fiscal solidarity against adverse shocks differ, all other currency unions are endowed with a central fiscal capacity. In this respect, the European Council in October 2012 asked to explore further mechanisms, including an appropriate fiscal capacity, for the euro area. It would support new functions which are not covered by the multiannual financial framework from which it is clearly separated.In stage 2, structural reforms could, in specific cases, be supported through limited, temporary, f lexible and targeted financial incentives as Member States enter into arrangements of a contractual nature with EU institutions. These arrangements would be mandatory for euro area Member States and voluntary for the others (see section III below). The Commission intends to make a proposal on specific ways to put in place such contractual arrangements and on the means to support their implementation, building on EU procedures. The implementation of contractual arrangements and the associated incentives would support a convergence process, leading in stage 3 to the establishment of a fiscal capacity to facilitate adjustment to economic shocks. This could take the form of an insurance-type mechanism between euro area countries to buffer large country-specific economic shocks. Such a function would ensure a form of fiscal solidarity exercised over economic cycles, improving the resilience of the euro area as a whole and reducing the financial and output costs associated with macroeconomic adjustments. By contributing to macroeconomic stability, it would usefully complement the crisis management framework based on the European Stability Mechanism. Since a well-functioning shock absorption function would require a further degree of convergence between economic structures and policies of the Member States, the two objectives of supporting growth-enhancing structural reforms and cushioning country-specific economic shocks are complementary and mutually reinforcing.

economic rationale for such a fiscal capacityIn a common currency area, the burden of adjusting to country-specific economic shocks falls on labour and capital mobility, price and cost f lexibility, and fiscal policy. In order to protect against negative fiscal externalities, it is important that fiscal risks

are shared where economic adjustment mechanisms to country-specific shocks are less than perfect. This is clearly the case in the euro area, where labour mobility is comparatively low, capital f lows are susceptible to sudden swings that can undermine financial stability, and structural rigidities can delay or impede price adjustments and the reallocation of resources. In such cases, countries can easily find themselves pushed into bad equilibria with negative implications for the euro area as a whole. In this context, setting up risk-sharing tools, such as a common but limited shock absorption function, can contribute to cushioning the impact of country-specific shocks and help prevent contagion across the euro area and beyond. However, this needs to be complemented with a mechanism to induce stronger economic convergence, based on structural policies aiming at improving the adjustment capacity of national economies and avoiding the risk of moral hazard inherent to any insurance system. Hence, in addition to fulfilling their intrinsic purpose, successfully implementing reforms specified in a contractual arrangement could also serve as a criterion for participating in the asymmetric shock absorption function established in stage 3. This would provide countries with an additional strong incentive to implement sound economic policies both before and once they join the shock absorption mechanism. In the transition towards establishing this automatic stabilisation function, and depending on their specific circumstances, limited, temporary and f lexible financial incentives could be provided to Member States to promote structural reforms. In order to avoid the relapse or emergence of macroeconomic imbalances once countries have gained access to the shock absorption function, the contractual approach to reforms would continue. In addition, net transfers under the shock absorption function could be modulated to ref lect ongoing compliance with the commitments undertaken under the contractual arrangements.

options for the shock absorption function of the euro area fiscal capacity An EMU fiscal capacity with a limited asymmetric shock absorption function could take the form of an insurance-type system between euro area countries. Contributions from, and disbursements to, national budgets would f luctuate according to each country's position over the economic cycle. The specific design of such a function could follow two broad approaches. The first would be a macroeconomic approach, where contributions and disbursements would be based on f luctuations in cyclical revenue and expenditure items, or on measures of economic activity. The second could be based on a microeconomic approach, and be more directly linked to a specific public function sensitive to the economic cycle, such as unemployment insurance. In this case, the level of contributions/benefits from/to the fiscal capacity would depend directly on labour market developments. In this scenario, the fiscal capacity would then work as a complement or partial substitute to national unemployment insurance systems. Transfers could, for example, be limited to cyclical unemployment by covering only short term unemployment. Assessing the individual merits of each approach would require a more in-depth analysis. Importantly, the magnitude of the shock

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In the near term, it is essential to complete the Single Market as it provides a powerful tool to promote growth. In addition, there is a need for a thorough assessment of the performance of labour and product markets in the euro area. In the absence of exchange rate adjustments, a well functioning EMU requires efficient labour and product markets. This is essential to fight large scale unemployment, and to facilitate price and cost adjustments that are key for competitiveness and growth. Urgent attention should be paid to promoting labour mobility across borders and addressing skills mismatch in the labour market.

III. INTEGRATED ECONOMIC POLICY FRAMEWORK

The sovereign debt crisis painfully exposed that the unsustainable economic policies pursued by some euro area countries in the past and the rigidities existing in their economies have negative repercussions for all members of the EMU. An integrated economic policy framework is necessary to guide at all times the policies of Member States towards strong and sustainable economic growth to produce higher levels of growth and employment.

Financial resources of the fiscal capacity and ability to borrowSpecific resources would have to be raised to finance both functions – promoting structural reforms and absorbing asymmetric shocks. These resources could take the form of national contributions, own resources, or a combination of both. In a longer term perspective, a key aspect of a future fiscal capacity, which would need to be examined carefully, would be its possible ability to borrow. A euro area fiscal capacity could indeed offer an appropriate basis for common debt issuance without resorting to the mutualisation of sovereign debt. The question of applying a fiscal golden rule, such as the balanced budget rule enshrined in both the Stability and Growth Pact and the Treaty on Stability, Coordination and Governance, to this fiscal capacity should then be explored. Finally, an integrated budgetary framework would require the establishment of a Treasury function with clearly defined responsibilities.

absorption function assigned to the fiscal capacity would depend largely on its size, and the financial implications for national budgets would depend on its precise design and parameters. However, it will be important to ensure that, irrespective of the approach that is followed, establishing this function does not affect the overall level of public expenditure and tax pressure in the euro area. Equally, the exact conditions and thresholds for the activation of transfers would need to be studied carefully, as only country-specific shocks of a sufficient magnitude should be absorbed centrally. For example, in the case of the microeconomic approach, unemployment-related transfers could be activated only once the increase in short-term unemployment exceeds a certain threshold.

Guiding principles for the shock absorption function of an EMU fiscal capacity

Irrespective of the approach – macro or micro-economic – the design of such a shock absorption function should rest on a number of guiding principles ref lecting also the EMU’s specific features:

• Elementsoffiscalrisk-sharingrelatedtotheabsorptionofcountry-specificshocksshouldbestructuredinsuchawaythatthey do not lead to unidirectional and permanent transfers between countries, nor should they be conceived as income equalisation tools. Over time, each euro area country, as it moves along its economic cycle, would in turn be a net recipient and a net contributor of the scheme.

• Suchafunctionshouldneitherunderminetheincentivesforsoundfiscalpolicymakingatthenationallevel,northeincentives to address national structural weaknesses. Appropriate mechanisms to limit moral hazard and foster structural reforms should be built in the shock absorption function. Linking it tightly to compliance with the broad EU governance framework, including possible arrangements of a contractual nature (see section III below), should be envisaged.

• ThefiscalcapacityshouldbedevelopedwithintheframeworkoftheEuropeanUnionanditsinstitutions.Thiswouldguarantee its consistency with the existing rules-based EU fiscal framework and procedures for the coordination of economic policies.

• Thefiscalcapacityshouldnotbeaninstrumentforcrisismanagement,astheEuropeanStabilityMechanism(ESM)hasalready been established for that purpose. By contrast, the fiscal capacity's role should be to improve the overall economic resilience of the EMU and euro area countries. It would contribute to crisis prevention and make future ESM interventions less likely.

• Thedesignofthefiscalcapacityshouldbeconsistentwiththeprincipleofsubsidiarity,anditsoperationstransparentand subject to appropriate democratic control and accountability. Equally, it should be cost-effective and not lead to the undue development of costly administrative procedures or unnecessary centralisation. It should not lead to an increase in expenditure or taxation levels.

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The Commission could undertake this assessment as a matter of priority. Finally, a framework for systematic ex-ante coordination of major economic policy reforms, as envisaged in Article 11 of the Treaty on Stability Convergence and Governance (TSCG), should be put in place.In order to remain a highly attractive social market economy and to preserve the European social models, it is important for the Union to be globally competitive and to avoid excessive divergences in competitiveness among EMU members. The reforms introduced to the EU surveillance framework through the creation of the European Semester with country-specific recommendations and of a new Macroeconomic Imbalances Procedure with possible sanctions are a step in the right direction. But there is a need to go further and to put in place a stronger framework for coordination, convergence and enforcement of structural policies. In this context, the October European Council Conclusions called for further exploration of the idea of arrangements of a contractual nature between Member States and the EU institutions on reforms promoting competitiveness, growth and jobs that countries commit to implement. A staged approach would be used to put in place these arrangements.

arrangements of a contractual nature need to address vulnerabilities at an early stageMacroeconomic imbalances tend to build up slowly and are often masked by favourable economic growth and liquidity conditions. But given structural rigidities in labour, product and services markets, and institutional settings, once identified they are often difficult to correct quickly. It is therefore important to address the root causes of imbalances at an early stage, including by ensuring that these essential markets can adjust quickly to shocks and that national frameworks facilitate growth and employment. Contractual arrangements would thus need to focus on microeconomic, sectoral and institutional bottlenecks, and aim at enhancing the competitiveness and growth potential of the economy. The future contractual arrangements should therefore be mandatory for all euro area countries, but voluntary for other Member States.

Contractual arrangements need to focus on key weaknessesNot all economic inefficiencies represent a burden for the functioning of the EMU. Also, the degree of competitiveness and growth challenge varies across countries. Content and breadth of the reform agreements would ref lect this diversity and would adapt to country-specific needs (e.g. efficient labour market to fight youth unemployment; improve judicial systems). However, for these arrangements to take this heterogeneity into account, an intense dialogue between each Member State and the EU institutions, both at technical and political levels, would be essential. This would take the form of an in-depth analysis by both parties, providing the basis for a tailor-made and detailed agreement on some specific reforms. Depending on the type of measures necessary, the length of these agreements would

vary for each country, but would likely be of a multiannual nature. In order to maintain the focus on key weaknesses, such arrangements would need to allow for some f lexibility to deal with major shocks and changing economic circumstances and priorities. Depending on the specific situation of each country, in stage 2, this could be supported by targeted, limited and f lexible financial support under the fiscal capacity.

Contractual arrangements need to be integrated into existing eu processes The crisis has led to a strengthening of the EU economic governance framework. Every year, integrated country-specific recommendations by the Council, based on a proposal by the Commission, are addressed to all Member States. In addition, a Macroeconomic Imbalances Procedure (MIP) has been put in place to detect and correct imbalances at an early stage. To avoid inconsistencies and duplication, contractual arrangements should be included in the European Semester. They should be consistent with and support the overall policy mix resulting from the Annual Growth Survey and should be based on the country-specific recommendations. In accordance with the objective of early detection, the in-depth reviews would be generalised to all EMU countries. In-depth reviews would need to be based on a very thorough and on-the-ground dialogue and on analysis of Member States' economies. Based on the conclusions of the in-depth review, the Commission's country-specific recommendations would be the basis for a dialogue with each country on the specific and detailed measures contained in the reform arrangements, including a timeframe for implementation. For Member States under the corrective arm of the MIP, the agreement would be the corrective action plan, and as foreseen in the current regulation non-compliance would lead to sanctions.

Contractual arrangements need to benefit from full domestic and european ownership and accountability National ownership is pivotal to implementation of structural reforms. A national debate on the priority measures and approval of reform agreements by national parliaments are essential to ensure national ownership. The Commission should be able to inform the European and national parliaments of the necessity of these measures from an EMU perspective. Both contractual parties would be responsible for content and implementation of their part of the convergence and competitiveness agreement, and for reporting to their respective parliaments (national and European) on progress achieved. Full accountability of both parties can only be ensured if the agreed reform agenda is specific, detailed and measurable. This requires ex ante agreement on concrete timelines, on the specific modalities for monitoring and on access to information. The agreements and compliance reports would be published on a regular and timely basis. Significant economic changes or altering political circumstances, such as the election of a new government, could lead to a renegotiation of the precise measures and steps to reach the reform objectives.

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parliaments on the recommendations adopted in the context of the European Semester. New mechanisms to increase the level of cooperation between national and European parliaments, for example building on Article 13 of the TSCG and Protocol 1 of the Treaty, could contribute to enhancing democratic legitimacy and accountability. Their precise organisation and modalities are a responsibility of the European Parliament and national parliaments to determine jointly.Third, the creation of a new fiscal capacity for the EMU should also lead to adequate arrangements ensuring its full democratic legitimacy and accountability. The details of such arrangements would largely depend on its specific features, including its funding sources, its decision-making processes and the scope of its activities. Finally, the crisis has shown the need to strengthen not only the EMU's surveillance framework but also its ability to take rapid executive decisions to improve crisis management in bad times and economic policymaking in good times. Some intergovernmental arrangements have been created as a result of the shortcomings of the previous architecture but these would ultimately need to be integrated into the legal framework of the European Union. This is already foreseen under the Treaty on Stability, Coordination and Governance, and could be envisaged also for other cases. Reinforcing the capacity of the European level to take executive economic policy decisions for the EMU is essential. Finally, as the EMU evolves towards banking, fiscal and economic union, its external representation should also be unified. Ultimately, these far-reaching changes undertaken by the European Union in general and the Economic and Monetary Union in particular require a shared sense of purpose amongst Member States, a high degree of social cohesion, a strong participation of the European and national parliaments and a renewed dialogue with social partners. The openness and transparency of the process as well as the outcome are crucial to move towards a genuine Economic and Monetary Union.

IV. DEMOCRATIC LEGITIMACY AND ACCOUNTABILITY

In its October Conclusions the European Council stressed the need for strong mechanisms for democratic legitimacy and accountability. One of the guiding principles is that democratic control and accountability should occur at the level at which the decisions are taken. The implementation of this guiding principle is key to ensuring the effectiveness of the integrated financial, budgetary and economic policy frameworks. This implies the involvement of the European Parliament as regards accountability for decisions taken at the European level, while maintaining the pivotal role of national parliaments, as appropriate. Decisions on national budgets are at the heart of Member States' parliamentary democracies. At the same time, the provisions for democratic legitimacy and accountability should ensure that the common interest of the union is duly taken into account; yet national parliaments are not in the best position to take it into account fully. This implies that further integration of policy making and a greater pooling of competences at the European level should first and foremost be accompanied with a commensurate involvement of the European Parliament in the integrated frameworks for a genuine EMU. First, in an integrated financial framework: while accountability of both the European Central Bank as single supervisor and of a future single resolution authority should take place at the European level, this should be complemented by strong mechanisms for information, reporting and transparency to national parliaments of the participating Member States.Second, in the context of integrated budgetary and economic policy frameworks: Members States should ensure the appropriate involvement of their national parliaments in the proposed reform arrangements of a contractual nature and more broadly in the context of the European Semester. In this spirit, the European Council asked in October to explore ways to ensure debates in the European Parliament and national

Key elements of arrangements of a contractual nature on structural reforms

In summary, such arrangements embedded in the EU governance framework could rest on the following principles:• TheywouldbeembeddedintheEuropeanSemester,beconsistentwithandsupporttheoveralleuroareapolicymix;they

would be mandatory for euro area Member States but voluntary for the others, on the basis of thorough, on-the-ground reviews of the main bottlenecks to growth and employment. These reviews would be conducted by the Commission.

• Theywouldcoveramultiannual,specificandmonitorablereformagendajointlyagreedwiththeEUinstitutionsandfocussed on competitiveness and growth that are crucial for the smooth functioning of the EMU.

• MemberStatesandtheCommissionwouldbeaccountable,respectively,tonationalparliamentsandtheEuropeanParliament on the content and implementation of their duties under the agreements.

• StructuralreformswouldbesupportedthroughfinancialincentivesandwouldresultintemporarytransferstoMemberStates with excessive structural weaknesses. This targeted support should be financed through specific resources.

• Compliancewiththeagreementscanbeensuredbyanincentive-basedframework.Compliancecouldbeoneofthecriteria for participating in the shock absorption function of the fiscal capacity. In addition, national contributions to the fiscal capacity could be increased in case of non-compliance.

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deeper integration and reinforced solidarity for the euro area Member States.

4. The process of completing EMU will build on the EU's institutional and legal framework. It will be open and transparent towards Member States not using the single currency. Throughout the process the integrity of the Single Market will be fully respected, including in the different legislative proposals which will be made. It is also important to ensure a level playing field between Member States which take part in the SSM and those which do not.

5. The immediate priority is to complete and implement the framework for stronger economic governance, including the "six-pack", the Treaty on Stability, Coordination and Governance (TSCG) and the "two-pack". Following the decisive progress achieved on the key elements of the "two-pack", the European Council calls for its rapid adoption by the co-legislators.

6. It is equally urgent to advance towards a more integrated financial framework, which will help restore normal lending, improve competitiveness and help bring about the necessary adjustment to our economies.

7. The Single Supervisory Mechanism constitutes a major qualitative step towards a more integrated financial framework. The European Council welcomes the agreement reached within the Council on 13 December and calls on the co-legislators to rapidly agree so as to allow its implementation as soon as possible. It also reiterates the importance of the new rules on capital requirements for banks (CRR/CRD), which are of the utmost priority so as to develop a single rule book, and calls on all parties to work towards their agreement and rapid adoption.

I. ECONOMIC POLICY

Roadmap for the completion of EMU1. In the light of the fundamental challenges facing it, the

Economic and Monetary Union needs to be strengthened to ensure economic and social welfare as well as stability and sustained prosperity. Economic policies must be fully geared towards promoting strong, sustainable and inclusive economic growth, ensuring fiscal discipline, enhancing competitiveness and boosting employment, and in particular youth employment, in order for Europe to remain a highly competitive social market economy and to preserve the European social model.

2. The consolidation of EMU rests not only on completing its architecture but also on pursuing differentiated, growth-friendly and sound fiscal policies. While fully respecting the Stability and Growth Pact, the possibilities offered by the EU's existing fiscal framework to balance productive public investment needs with fiscal discipline objectives can be exploited in the preventive arm of the SGP.

3. Further to the interim report submitted in October 2012, the President of the European Council, in close collaboration with the Presidents of the Commission, the European Central Bank and the Eurogroup, has drawn up a specific and time-bound road map for the achievement of genuine Economic and Monetary Union. The European Council notes the "Blueprint" issued by the Commission which provides a comprehensive analysis of the relevant issues combined with an assessment of their legal aspects. It also notes the contributions made by the European Parliament. The European Council sets out the next steps in the process of completing EMU, based on

EUROpEAN COUNCIL – 13-14 DECEmBER 2012

CONCLUSIONS

The European Council agreed on a roadmap for the completion of the Economic and Monetary Union, based on deeper integration and reinforced solidarity. This process will begin with the completion, strengthening and implementation of the new enhanced economic governance, as well as the adoption of the Single Supervisory Mechanism and of the new rules on recovery and resolution and on deposit guarantees. This will be completed by the establishment of a single resolution mechanism. A number of other important issues will be further examined by the June 2013 European Council, concerning the coordination of national reforms, the social dimension of EMU, the feasibility and modalities of mutually agreed contracts for competitiveness and growth, and solidarity mechanisms and measures to promote the deepening of the Single Market and to protect its integrity. Throughout this process, democratic legitimacy and accountability will be ensured.The European Council launched work on the 2013 European Semester on the basis of the Commission's Annual Growth Survey. It decided to launch work on the further development of the EU's Common Security and Defence Policy and will return to this issue in December 2013.

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8. The European Council urges the co-legislators to agree on the proposals for a Recovery and Resolution Directive and for a Deposit Guarantee Scheme Directive before June 2013; the Council for its part should reach agreement by the end of March 2013. Once adopted, these Directives should be implemented by the Member States as a matter of priority.

9. The European Council looks forward to the Commission's rapid follow up to the proposals of the high level expert group on the structure of the EU banking sector.

10. It is imperative to break the vicious circle between banks and sovereigns. Further to the June 2012 euro area Summit statement and the October 2012 European Council conclusions, an operational framework, including the definition of legacy assets, should be agreed as soon as possible in the first semester of 2013, so that when an effective single supervisory mechanism is established, the European Stability Mechanism will, following a regular decision, have the possibility to recapitalise banks directly. This will be done in full compliance with the Single Market.

11. In a context where bank supervision is effectively moved to a single supervisory mechanism, a single resolution mechanism will be required, with the necessary powers to ensure that any bank in participating Member States can be resolved with the appropriate tools. Therefore, work on the proposals for a Recovery and Resolution Directive and for a Deposit Guarantee Scheme Directive should be accelerated so that they can be adopted in line with paragraph 8. In these matters, it is important to ensure a fair balance between home and host countries. The Commission will submit in the course of 2013 a proposal for a single resolution mechanism for Member States participating in the SSM, to be examined by the co-legislators as a matter of priority with the intention of adopting it during the current parliamentary cycle. It should safeguard financial stability and ensure an effective framework for resolving financial institutions while protecting taxpayers in the context of banking crises. The single resolution mechanism should be based on contributions by the financial sector itself and include appropriate and effective backstop arrangements. This backstop should be fiscally neutral over the medium term, by ensuring that public assistance is recouped by means of ex post levies on the financial industry.

12. In order for the EMU to ensure economic growth, competitiveness in the global context and employment in the EU and in particular in the euro area, a number of other important issues related to the coordination of economic policies and economic policy guidelines of the euro area will need to be further examined, including measures to promote the deepening of the Single Market and to protect its integrity. To this end, the President of the European Council, in close cooperation with the President of the Commission, after a process of consultations with the Member States, will present to the

June 2013 European Council possible measures and a time-bound roadmap on the following issues:

a) coordination of national reforms: the participating Member States will be invited to ensure, in line with Article 11 of the TSCG, that all major economic policy reforms that they plan to undertake will be discussed ex ante and, where appropriate, coordinated among themselves. Such coordination shall involve the institutions of the EU as required by EU law to this end. The Commission has announced its intention to make a proposal for a framework for ex ante coordination of major economic policy reforms in the context of the European Semester;

b) the social dimension of the EMU, including social dialogue;

c) the feasibility and modalities of mutually agreed contracts for competitiveness and growth: individual arrangements of a contractual nature with EU institutions could enhance ownership and effectiveness. Such arrangements should be differentiated depending on Member States' specific situations. This would engage all euro area Member States, but non euro Member States may also choose to enter into similar arrangements;

d) solidarity mechanisms that can enhance the efforts made by the Member States that enter into such contractual arrangements for competitiveness and growth.

13. Governance within the euro area should be further improved, building on the TSCG and taking into account the euro area Summit statement of 26 October 2011. The euro area Heads of State or Government will be invited to adopt rules of procedure for their meetings at their meeting in March 2013, fully respecting Article 12.3 TSCG.

14. Throughout the process, the general objective remains to ensure democratic legitimacy and accountability at the level at which decisions are taken and implemented. Any new steps towards strengthening economic governance will need to be accompanied by further steps towards stronger legitimacy and accountability. At national level, moves towards further integration of the fiscal and economic policy frameworks would require that Member States ensure the appropriate involvement of their parliaments. Further integration of policy making and greater pooling of competences must be accompanied by a commensurate involvement of the European Parliament. New mechanisms increasing the level of cooperation between national parliaments and the European Parliament, in line with Article 13 of the TSCG and Protocol No 1 to the Treaties, can contribute to this process. The European Parliament and national parliaments will determine together the organisation and promotion of a conference of their representatives to discuss EMU related issues.

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the proposals by the Commission to reduce regulatory burdens and scrap regulations that are no longer of use as part of its overall approach to "Smart Regulation". It looks forward to concrete progress and a report back at its March 2013 meeting.

19. Recalling the January 2012 Statement of Heads of State or Government and the conclusions of its meetings in March, June and October, the European Council welcomes the progress made during the year towards a comprehensive EU approach to youth employment. It calls on the Council to give consideration to the proposals of the Youth Employment Package without delay, in particular with a view to adopting the recommendation on a Youth Guarantee at an early date in 2013 while taking into account national situations and needs. It invites the Commission to rapidly finalise the quality framework for traineeships, establish the Alliance for Apprenticeships as well as propose the new EURES regulation. The Council, the Member States, and the Commission should ensure rapid follow-up to the Commission communication on "Rethinking Education".

II. OTHER ITEMS

Common Security and Defence Policy20. The European Council recalls its conclusions of

December 2008 and notes that in today's changing world the European Union is called upon to assume increased responsibilities in the maintenance of international peace and security in order to guarantee the security of its citizens and the promotion of its interests.

21. In this regard, the European Council remains committed to enhancing the effectiveness of the Common Security and Defence Policy (CSDP) as a tangible EU contribution to international crisis management. The EU plays an important role in its neighbourhood and globally. The European Council recalls that CSDP missions and operations are an essential element of the EU's comprehensive approach in crisis regions, such as the Western Balkans, the Horn of Africa, the Middle East, Sahel, Afghanistan and the South Caucasus and remains committed to increasing their operational effectiveness and efficiency. It also recalls that CSDP missions and operations should be carried out in close cooperation with other relevant international actors, such as the UN, NATO, the OSCE and the African Union, as well as partner countries, as called for in each specific situation. Enhancing the cooperation with interested partners in Europe's neighbourhood is of particular importance in this regard.

22. To deliver on security responsibilities, the European Council underlines that EU Member States must be ready to provide future-oriented capabilities, both in the civilian domain and in the field of defence. The European Council stresses that current financial constraints highlight the urgent necessity to strengthen European cooperation in order to develop military capabilities and fill the critical gaps, including those identified in recent operations. It

Annual Growth Survey15. The European Council welcomes the timely submission

of the Annual Growth Survey (AGS) by the Commission, which launches the 2013 European semester. It agrees that efforts at national and European level in 2013 should continue to focus on the five priorities agreed last March, namely to:

– pursue differentiated, growth-friendly, fiscal consolidation,

– restore normal lending to the economy,– promote growth and competitiveness,– tackle unemployment and the social consequences of the

crisis, and– modernise public administration.

16. The Council will examine in further detail the AGS package in accordance with the roadmap presented by the incoming Presidency and following the recommendations outlined in the Presidency report on lessons learned from the 2012 European Semester, with a view to providing its views to the March 2013 European Council. The European Council will then agree on the required guidance for Member States' Stability and Convergence Programmes and National Reform Programmes as well as for the implementation of the EU's f lagship initiatives. The Commission is invited to include in its next Annual Growth Survey an assessment of the performance of labour and product markets with a view to promoting jobs and growth.

17. The completion of the Single Market can contribute much to growth and jobs and constitutes a key element of the EU's response to the financial, economic and social crisis. The European Council took stock of the state of play as regards the priority proposals of the Single Market Act I and welcomed the agreement reached among participating Member States on the Unitary Patent as well as the agreement on Alternative Dispute Resolution and Online Dispute Resolution for consumer disputes. It calls on the co-legislators to conclude the remaining SMA I files as a matter of urgency. In particular, work should be speeded up on professional qualifications, public procurement, posting of workers and e-signature and e-identification. As regards the Single Market Act II, the European Council calls on the Commission to present all key proposals by the spring of 2013. It invites the Council and the European Parliament to give these proposals the highest priority with a view to their adoption by the end of the current parliamentary cycle at the latest. It is also important to take urgent action in line with the Commission's communications on implementation of the Services Directive and on Single Market governance. The European Council will keep progress on all single market proposals under close review.

18. The European Council calls for the rapid examination of the Commission's communication on "Smart Regulation" and looks forward to the publication of the first SME scoreboard. The European Council welcomes

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defence market, in particular through the effective implementation of the directives on public procurement and on intra-EU transfers, open to SMEs and benefiting from their contributions.

25. The European Council will in December 2013 review progress achieved in pursuing these goals, assess the situation and, on the basis of recommendations by its President, provide guidance, including by setting priorities and timelines, to ensure the effectiveness of EU efforts aimed at meeting Europe's security responsibilities.

regional Strategies26. Recalling its June 2011 conclusions, and subject to the

evaluation of the concept of macro regional strategies as foreseen in the Council conclusions of 13 April 2011, the European Council looks forward to the presentation by the Commission of a new EU Strategy for the Adriatic and Ionian region before the end of 2014. It also calls for the prompt implementation of the revised EU strategy for the Baltic Sea. In order to enhance co-operation with the neighbouring countries the European Council encourages the Council to take further action to make full use of the Northern Dimension and its partnerships.

enlargement and the Stabilisation and association process27. The European Council welcomes and endorses the

conclusions adopted by the Council on 11 December on Enlargement and the Stabilisation and Association Process.

Syria28. The European Council is appalled by the increasingly

deteriorating situation in Syria. It endorses the conclusions adopted by the Council on 10 December. The European Council also welcomes the results of the 4th Ministerial meeting of the Group of Friends of the Syrian people, held in Marrakech on the 12th of December 2012. The European Council tasks the Foreign Affairs Council to work on all options to support and help the opposition and to enable greater support for the protection of civilians. The European Council repeats its view that political transition is necessary in Syria towards a future without President Assad and his illegitimate regime. We support a future that is democratic and inclusive with full support for Human Rights and the rights of minorities. The European Council will continue to address the situation in Syria as a matter of priority.

also underlines the benefits such cooperation may have for employment, growth, innovation and industrial competitiveness within the European Union.

23. The European Council invites the High Representative, notably through the European External Action Service and the European Defence Agency, as well as the Commission, all acting in accordance with their respective responsibilities and cooperating closely as required, to develop further proposals and actions to strengthen CSDP and improve the availability of the required civilian and military capabilities, and to report on such initiatives, at the latest by September 2013, with a view to the December 2013 European Council. Member States will be closely involved throughout this process.

24. To that end, the European Council underlines i.a. the following issues:

Increase the effectiveness, visibility and impact of CSDp by− further developing the comprehensive approach to

conf lict prevention, crisis management and stabilisation, including by developing the ability to respond to emerging security challenges;

− strengthening the EU's ability to deploy the right civilian and military capabilities and personnel rapidly and effectively on the whole spectrum of crisis management action.

enhance the development of defence capabilities by− identifying current redundancies and capabilities

shortfalls and prioritising future requirements for European civilian and military capabilities;

− facilitating a more systematic and longer term European defence cooperation, including through "pooling and sharing" of military capabilities; and in this regard, systematically considering cooperation from the outset in national defence planning by Member States;

− facilitating synergies between bilateral, sub-regional, European and multilateral initiatives, including the EU's "pooling and sharing" and NATO's "smart defence".

Strengthen europe's defence industry by− developing a more integrated, sustainable, innovative

and competitive European defence technological and industrial base;

− developing greater synergies between civilian and military research and development; promoting a well-functioning

Photo credits

© European UnionPage 113. © La Moncloa, Spanish Government4. © Andy Wenzel, BKA/HBF, 20125. © SIP/Charles Caratini, all rights reserved7. © Avo Seidelberg, Estonian Parliament, 20128. © Toms Norde, Latvian State Chancellery 11. © ANP – Lampen, Jerry12. © Maciej Śmiarowski/KPRMPage 18© Yves Logghe/Associated Press/ReportersPage 221. © Andy Rain/PA Wire – Prime Minister Office2. © Greek Government, New Democracy, 20123. © Finnish Prime Minister Office6. © Gergely Botár, kormany.hu8. © Andy Wenzel, BKA/HBF, 2012

General Secretariat of the Council


Luxembourg: Publications Office of the European Union

2013 — 75 pp. — 21.0 x 29.7 cm

ISBN 978-92-824-3756-8doi:10.2860/58191ISSN 1977-3110


JANUARY 2013

doi:10.2860/58191

ISSN 1977-3110

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