Central and Eastern Europe: Czechs and balances

The Czech Republic holds its first European Union (EU) presidency in the first half of 2009. Due to the ongoing global financial crisis, planned European Parliament elections and new European Commission appointment, this period is being seen by many as a very important one. With motto 'A Europe without Barriers' and key priorities being the three Es (economy, energy and Europe) in the world, the Czech Republic aims to contribute to an economically strong and cohesive EU without internal boundaries, building on its values and roots and able to address complex global issues and challenges.

Economy

Following the urgent measures that have already been taken, the new global economic situation requires implementation of further steps in order to enhance transparency and stability of the financial markets and confidence of economic agents. Coping with the economic recession will be an important goal in the upcoming period - the Czech Republic will coordinate implementation of the European Economic Recovery Plan, a E200bn (£186bn) fiscal stimulus package agreed by the European Council in December last year.

The presidency emphasises the need to simplify legislation, remove barriers and support free competition without protectionism and uncontrolled subsidies. The single market with its principles is one of the greatest achievements of the European integration and continues to be one of the main tools in overcoming current economic difficulties. The EU needs to maintain true unity in order to promote its further growth and prosperity.

Financial services

The crucial issue in this area will be negotiation of - and finally the adoption of - the Solvency II Directive. This Directive has an ambition to harmonise and transform the insurance market within Europe. The draft of the Directive mainly sets out new rules regarding two capital requirements - Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR). The SCR will be calculated on the basis of a risk-based approach and the MCR is expected to be between 25% and 45% of the SCR. Although the respective European Parliament Committee has agreed on the draft of this Directive, there are still concerns about the cross-border supervision authority, as a large number of states are afraid of national authorities losing power over the insurance sector.

Another important matter is the revision of the two existing EU directives on capital requirements. The new regulation will improve the stability of the financial system, considerably mitigate risk exposure and increase supervision of banks which operate in more than one EU member state. Under the proposed rules, banks will be restricted from lending beyond a certain limit (25%) to any one party. Furthermore, 'colleges of supervisors' will be established for banking groups that operate in multiple EU countries and changes will affect the banks' capital and risk liquidity management. Rules on securitised debt will also be tightened and originators will be required to retain 5% of the amount they issue in securities. The revision proposal introducing these changes is planned to be adopted in April 2009.

The amendment of the EU Directive on Deposit Guarantee Schemes has already been adopted by the Council in February 2009. The new rules are designed to improve depositor protection and to maintain the confidence of depositors in the financial safety net. The main aspects are: (i) the reduction of the time period within which the scheme pays the depositors of a failed bank to three days; (ii) the increase of the coverage level up to E50,000 (£46,672) and within a few years up to E100,000 (£93,345); and (iii) the abandonment of the co-insurance system, where the depositor bears part of the losses.

In November 2008, the European Commission proposed a new regulation on credit rating agencies. It imposes a number of new rules on credit rating agencies to ensure that the ratings are not affected by conflicts of interest and that they act in a transparent manner. They will be forbidden from rating companies in which their analysts or directors own shares or financial products. The credit rating agencies will also be forced to register in a central European database and to comply with certain disclosure obligations. Adoption of this regulation, which was approved by the Committee of Permanent Representatives (COREPER) at the beginning of March 2009, is expected to take place by June 2009.

The Czech presidency is also dealing with negotiations on modification of the 2001 regulation on cross-border Euro payments. The European Commission has passed a proposal, which extends the principle of charges equality to direct debit payments; it also enhances protection of consumers in this area. The Council reached a consensus on the launch of direct debit within the Single Euro Payments Area in February 2009 and negotiations with the European Parliament will follow. If accepted, the existing wording should be replaced as of November 2009.

Another important directive within this area, for consideration by the European Parliament during the first half of 2009, is the Commission's proposal to revise the e-money legislation within the EU. The proposal introduces a modern and coherent legal framework for issuing electronic money. It contains a new, technologically neutral and simpler definition of "electronic money", which includes e-money held on payment devices in the holder's possession (e.g. pre-paid cards) or stored remotely on a server (e.g. network money). The proposal also enables market entrance for smaller players than the current legislation does (due to lower initial capital requirement), introduces a new prudential regime and clarifies the application of redemption requirements.

Internal market

In the area of the internal market, the Czech presidency will focus especially on the need for a correct, timely and coherent transposition of the Directive on Services in the Internal Market, together with other issues concerning free movement of services. The implementation will also include several practical arrangements, such as the Points of Single Contact, electronic procedures and an operational network of administrative cooperation through the internal market information system.

Regarding the protection of consumers inside the EU, the Commission proposed a new Consumer Rights Directive (CRD) in October 2008, which simplifies the four existing EU directives and strengthens consumer protection in particular against late and non-delivery. The CRD covers contracts on sale of goods and services between traders and consumers. The main provisions require the trader to provide the consumer with clear pre-contractual information; stipulate rules on delivery (maximum 30 days) and passing of risk to the consumer, cooling off periods (14 days in distance sales); and introduces a standard withdrawal form, standard guarantees for repairs and replacement and a harmonised black list of Unfair Contract Terms. The CDR also updates protection in the area of online auctions and pressure selling. It has currently been passed to the European Parliament for review.

In addition to these issues, the European institutions will also deal with tax issues including VAT reform and Consolidated Corporate Tax Base, evaluation of the way in which the EC Merger Regulation functions, negotiation of the Anti-Counterfeiting Trade Agreement, the so-called Telecommunication Package and Defence Package.

Energy

Energy is the fuel of the economy. The Czech presidency will in particular strive for balance between environment, competitiveness and energy security. Due to the EU's dependence on energy imports, it is important to diversify suppliers and the range of utilised sources to enhance utilisation of renewable resources and create a truly unified internal energy market in the EU. With respect to the recent gas situation in Central and Southern Europe, the presidency will also focus on external energy relations, especially with Russia, Ukraine and the Caspian Sea region.

Another key issue is climate protection - the Climate Action and Renewable Energy Package adopted in December 2008 will be implemented. A further challenge will be final negotiations on legislation regulating the internal market in gas and electricity - so-called third liberalisation package. A discussion over the Directive on Renewable Sources of Energy, Emission Trading Schemes and other instruments will also take place during the first half of this year.

European Union in the world

The EU is a significant global player with matching responsibilities. Foreign policy priorities of the presidency will have an Eastern dimension (directed towards the EU's neighbours and Russia) and a Western one (addressing the United States and its new administration). The EU will also continue accession negotiations with Croatia and Turkey.

Probably the most important issue for the EU's future is the Lisbon Treaty, which needs to be ratified by all member states. Because of the Irish veto, the Czech presidency needs to find solutions enabling possible future acceptance of the Treaty and appropriate legal solutions for the EU's continued functioning during the transitional period.

Many important statesmen believe that the success of the Czech EU presidency will largely depend on whether the Czech Republic ratifies the Lisbon Treaty. The Czech Chamber of Deputies ratified it on 18 February, 2009, but the complete ratification still requires the Senate's consent; the question is also of President Vaclav Klaus' attitude, which has been quite ambivalent so far.