AEIP Newsletter • Week 29

19 – 23 July 2010

Table of Contents

EU Financial Services
EU FINANCIAL SERVICES............................................................................................................................... 1
I. AGREEMENT ON “SUPERVISION” PACKAGE SUBJECT TO EXTENT OF BINDING DECISIONS FROM FUTURE
EUROPEAN AUTHORITIES ..................................................................................................................................... 2
II. MICHEL BARNIER HAILS UNITED STATES' APPROVAL OF FINANCIAL REFORM ................................................ 3
EU INTERNAL MARKET .................................................................................................................................. 3
I. CONSULTATION OVER SERVICES DIRECTIVE .................................................................................................... 3
EU HEALTH ......................................................................................................................................................... 4
I. HEALTH AND CONSUMER POLICY COMMISSIONER TO GIVE SPEECH AT OPENING OF INTERNATIONAL AIDS
CONFERENCE ....................................................................................................................................................... 4
EU SOCIAL AFFAIRS......................................................................................................................................... 4
I. TOWARDS A “GREEN JOB” CREATION STRATEGY .............................................................................................. 4
II. DUTCH SCHEME SLASHES UNCONDITIONAL INDEXATION BY 20%................................................................... 5
III. ECJ RULING FORCES GERMAN LOCAL AUTHORITIES TO TENDER PENSION SERVICES...................................... 5
IV. ILMARINEN, OP HENKIVAKUUTUS TAKE OVER MANAGEMENT OF FINLAND'S ALKO ..................................... 6
V. CSABA ÖRY'S REPORT CALLS FOR MORE AND BETTER JOBS ............................................................................ 6
VI. ADVOCATE GENERAL TAKES VIEW THAT SUPPLEMENTARY PENSION SCHEME FOR FORMER HAMBURG
MUNICIPAL EMPLOYEES TREATS MARRIED COUPLES MORE FAVOURABLY THAN SAME SEX COUPLES .................. 7
VII. SLOVAKIAN PENSION FUNDS RETURN 0.6% IN FIRST HALF ........................................................................... 7
VIII. OECD CALLS FOR BETTER COUNTER-CYCLICAL FUNDING REGULATIONS FOR DB SCHEMES ...................... 8
ECONOMY ........................................................................................................................................................... 8
I. NO ASSISTANCE TO HUNGARY'S BALANCE OF PAYMENT LOAN FOR TIME BEING............................................... 8
EVENTS AND COURT OF DE JUSTICE CALENDAR ................................................................................. 9
I. NO UPCOMING EVENTS .................................................................................................................................... 9
III. COURT OF JUSTICE CALENDAR ...................................................................................................................... 9

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EU Financial Services
I. Agreement on “supervision” package subject to extent of binding
decisions from future European authorities
On Thursday 22 July, national ambassadors to the European Union will again tackle the
issue of the legislative package for reforming the European financial supervisory system
(EUROPE 10182). Negotiations between the Council and European Parliament (the two
co-legislating institutions) have entered their final phase and are mainly focused on the
extent of the powers the future European Financial Supervisors (EFS) will have. Member
states now accept that the three EFS have binding powers on their national authorities,
indeed, a financial institution, in the following three cases: infringement of European
legislation; emergency situation and agreement between national supervisors. This is an
“obvious advance” to the benefit of the EP and which is putting the texts on the table
that are “very close to the Commission's initial proposal”, underlined a source close to
this European institution. Although the principle of a binding decision-making power for
the EFS is noted, the extent of such a power still needs to be worked out for emergency
situations and when there are disagreements between national supervisors.
Unsurprisingly, the Council wants to limit the EFS' field of action, whereas MEPs favour
extended competencies. During an emergency situation on which only the Council can
decide, the EP would like the EFS to be able to make decisions on rectifying any kind of
market tension. According to member states, any EFS competency must first of all be
included in European sectoral legislation. Modification in the sense of directives on
banking capital requirements (Basel II), insurers' solvability (Solvability II) and markets
in financial instruments directive (MiFID), as well as market abuses, would therefore
prove necessary and would delay the application of entry for the EFS' binding powers.
The situation appears similar for disagreements between national supervisors. The EP
wants the EFS to be able to take decisions in all situations involving cooperation between
supervisors from the countries of origin for cross border financial institutions and those
hosting them. The Council is proving rather reluctant on the question of giving the EFS a
“blank cheque” and prefers limited powers to be given to the European authorities, which
will have to be included in sectoral legislation beforehand.
Supervision of pan-European undertakings. In its initial proposal, the Commission
will suggest granting an EFS powers for supervising pan-European undertakings. As well
as the financial rating agencies for whom the principle of European supervision is already
noted and the legislative proposal on the table (EUROPE 10151), the clearing houses will
be the subject of a Commission legislative inactive in September. The Council opposes
the EP and is rejecting any clause that would make the transfer of an exclusive
supervisory power of these pan-European undertakings to a European level. This expert
underlines the Commission's power of initiative and pointed out that this certainly
involves a political but, above all, “symbolic” problem. Seeking balance, the European
institutions are looking at the possibility of granting this supervisory power over pan-
European bodies to certain kinds of EFS only. The ban at a European level of certain
financial products or practices, such as short selling, was also the subject of bitter
discussions. The Council was initially opposed but now agrees giving the EFS such a
remit, although only in urgent situations and when European sectoral legislation
stipulates. Financial institutions of systemic importance will not be supervised at a
European level as sought by the EP, particularly because of reasons linked to Community
jurisprudence according to which a European regulatory authority cannot have such
powers if sectoral legislation does not stipulate this. MEPs managed to get bank and
insurance sector EFS involved in the supervision of systemic risk and the ESRB will be in

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charge of detection in this connection. The two ESFs will take part in “enhanced
supervision” exercises of financial institutions of system importance by participating in
the updating of appropriate methodology (including the carrying out of stress tests and
developing quantitative and qualitative indicators). A budgetary safeguard clause will also
added, according to which any decision by an ESF will not be able to encroach on
national budgetary sovereignty - such as the provision drafted by the Council and sought
by the EP, which is aimed at preventing any abuse by member states. (19/07/2010
Agence Europe)

II. Michel Barnier hails United States' approval of financial reform

EU Internal Market Commissioner Michel Barnier believes that the financial market
reforms endorsed by the United States last week make progress in implementing the G20
commitments and will make the US and the international financial systems “more solid”.
Barnier said that there are differences between the United States' approach and that
followed in the EU and this was understandable because the financial and institutional
systems are different. He explained in a press release that close cooperation between the
US and EU authorities would continue to avoid any distortions in international
competition. The US financial reforms, the biggest since the 1930s, include giving
consumers greater protection, restricting the most risky forms of trading and giving
supervisors greater power to restructure ailing financial institutions. It will be
accompanied by detailed measures. Commissioner Barnier listed the measures under way
in the European Union, like the draft legislation expected to be unveiled in September on
derivatives and naked short-selling. (22/07/2010 Agence Europe)
EU Internal Market

EU Internal Market
I. Consultation over Services Directive
The European Commission has launched a public consultation exercise that will run until
Monday 13 September on various measures connected with the freedom of establishment
and the cross-border supply of services governed by EU Directive 2006/123/EC on
services in the single market (the Services Directive). In terms of freedom of
establishment, it wants to collect views on national measures transposing the Services
Directive or measures that have remained in force since the entry into force of relevant
EU rules on 31 December 2009 on authorisation systems for the binding and compulsory
procedure whereby suppliers of services have to be given a formal document or decision
in order to supply their services; eight demands that hinder the freedom of establishment
(quantitative or territorial restrictions on the supply of services, the obligation to have a
company in a specific legal form, the ban on being established in more than one member
state, minimum staff numbers, the obligation to apply certain prices, the obligation to
supply the service along with other services and restrictions on the supply of
multidisciplinary services. Interested parties' views are also sought on the compatibility
of the Services Directive with national measures restricting the cross-border supply of
services, like measures requiring physical establishment in the country where the
services are supplied; the obtaining of authorisation and/or the duty to register
beforehand with a competent authority; notifying the host member state of plans to
supply a service; the signing of special contracts by the supplier and beneficiary in order
to limit the supply of services by anybody else; and use of special equipment. The
Commission has provided information for each member state about the existence of
restrictions on the supply of services. The consultation is the final part of the peer

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assessment of national rules by the member states. The Commission will be publishing a
report on the peer assessment at the end of the year. (22/07/2010 Agence Europe)

EU Health

EU Health
I. Health and Consumer Policy Commissioner to give speech at opening
of International AIDS Conference
On Sunday 18 July, the 18th International AIDS conference will open in Vienna. It will
run until 23rd of July and its overarching theme will be "Rights here, Right now". In his
speech at the opening session of the conference this Sunday, John Dalli, Commissioner
for Health and Consumer Policy, will stress the importance of engagement from the
international community to reach agreed targets in tackling HIV/AIDS. He will emphasise
the need to prioritise HIV/AIDS research, to intensify prevention and to invest all possible
resources to come closer to universal access to treatment and care and support to all in
need. Tackling major drivers of the epidemic, such as stigmatisation and discrimination of
key populations at higher risk and people living with HIV/AIDS will be highlighted. The
conference is organised by the International AIDS Society in partnership with a number
of international bodies and local partners. It brings together more than 20.000
participants - policy makers, people working in the field of HIV/AIDS, persons living with
HIV/AIDS and others who are committed to the response to the AIDS epidemic.
(ec.europa.eu)
EU Social Affairs

EU Social Affairs
I. Towards a “green job” creation strategy
Adopting a draft report on Wednesday 14 July (by 43 to 1 with 3 abstentions) by
Elisabeth Schroedter (Greens/EFA, Germany), the European Parliament's employment
and social affairs committee asked the European Commission to come up with a strategy
before the end of the year, accompanied with legislation and non-legislative measures, to
encourage the creation of “green jobs” and to draw up specific policies to make it easier
to change to a green economy by re-training workers and helping EU industry take
account of the environment. The MEPs on the employment and social affairs committee
say that the EU 2020 Strategy for Growth and Employment missed an ideal opportunity
to expand on the potential of jobs in a sustainable new economy. A European Parliament
press release explains that the Schroedter Report recommends the following: (1)
Member states should use the European Globalisation Adjustment Fund to introduce EU
targets and promote new skills, including new, sustainable, green and high quality jobs;
(2) Regions should use the EU Structural Funds and Cohesion Funds to create sustainable
new jobs; (3) National education and training systems have to change to retrain workers
affected by the transition to the new, sustainable economy; and (4) Incentives are
needed to encourage companies to invest in clean technology. Effective funding systems
and tax relief should be introduced to help small businesses move towards employment
strategies that respect the environment, guarantee innovation and ensure
environmentally-friendly manufacture and production. The report will be voted on in the
first plenary in September. (16/07/2010 Agence Europe)

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II. Dutch scheme slashes unconditional indexation by 20%

The €1.8bn occupational pension plan for physiotherapists, Stichting Pensioenfonds voor
Fysiotherapeuten (SPF), has slashed its unconditional indexation by 20% to raise its
coverage ratio. The decrease of its fixed indexation from 2.5% to 2%, combined with its
11.7% returns in 2009, led to a funding ratio increase of 24 percentage points to almost
118% at year-end, according to its annual report. The result even enabled the scheme to
grant its 26,150 participants an additional 1% conditional compensation for inflation, it
said. However, the scheme's coverage ratio has decreased to just over 101% in June,
after including provisions for increased longevity and 2% unconditional indexation, a
spokesman said. He said the pension fund for physios applied an unconditional indexation
to prevent new entrants from profiting from conditional indexation for which they had not
paid. However, participants have the option to increase their pension rights voluntarily by
paying an additional 11%, 22% or 33% of their mandatory contribution. SPF attributed
the 34.6% return on its equity portfolio largely to a strong outperformance in Europe and
the US in particular. Its fixed income holding of 45.7% returned 13.4%, with the scheme
profiting considerably from undervalued company loans, after having divested
government bonds. The scheme said its investments in direct and indirect property
generated an 8.4% loss, falling 5 percentage points short of the benchmark, after its
decision to spread its holding over sectors, managers and geographical regions. It added
that its tactical asset allocation and country policy – with an underweight position in
Japan – had contributed 0.06% to the pension fund's total return. Infrastructure and
commodities returned 1.6% and 19.8%, respectively. Officials attributed the 1.7% on
hedge funds to disappointing results of its commodity trading advisers manager, who had
also taken up future positions in currencies, fixed income and equity. (16/07/2010
IPE.com)

III. ECJ ruling forces German local authorities to tender pension services
The European Court of Justice (ECJ) has ruled that large German local authorities must
tender occupational pension services – and Denmark fears it might be next. The
European Commission (EC) had taken Germany to court over its collective agreement for
local authorities, according to which Zusatzversorgungswerke, or supplementary pension
schemes, are automatically chosen as occupational pension vehicles. But the ECJ has
agreed that local authorities of a certain size – with more than 2,042 employees in 2006-
07 – have breached EU regulations on free trade in services by not tendering mandates
for occupational pension provision. The pressure is now on the union ver.di, which
represents public employees, and the association of local authorities to change the
collective agreement to include a tendering process. However, given that the ruling
applies to large towns only, German industry representatives believe many local
authorities will be unaffected. Still, in future, Zusatzversorgungswerke will have to take
part in the tendering process on pension provision for larger towns. Hagen Hügelschäffer,
managing director of the local and church pension scheme association AKA, told IPE: "We
are confident about winning these tenders, as we are on a par with other providers." He
added that research by a German consumer platform for testing financial products had
shown that Zusatzversorgungswerke were providing "good services". Meanwhile, Danish
pension fund managers have been trying to reassure clients that the ruling will not
automatically be transferable. Denmark and Sweden had supported Germany in the court
case, as their local authorities are also exempt from a tendering process for occupational
pension services. Peter Damgaard Jensen, chief executive of PKA, one of the largest
Danish pension providers, said: "The verdict was on German occupational pensions, not
the Danish, and there are many fundamental differences between the systems." He
added that while Germany had country-wide regulations on the subject, the agreements
on pension provision services were made on a contractual basis in Denmark and that

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these contracts included the name of the provider. He called on unions and Danish
pension funds to "defend the well-functioning Danish system". (20/07/2010 IPE.com)

IV. Ilmarinen, OP Henkivakuutus take over management of Finland's

Alko
The pension fund for Finland's Alko, the state-owned alcoholic beverage retailer, has
transferred the management of its statutory and supplementary pension provision to two
insurance companies. From 1 December, Ilmarinen, one of the largest pension providers
in the country, will be responsible for the €140m statutory fund, while OP Henkivakuutus,
one of the largest life insurers in Finland, will manage the €240m supplementary fund.
The supplementary fund was created for employees who joined Alko before 1 January
1992. The Alko fund covers more than 2,600 employees and 1,900 pensioners. With the
news of the transfer, Alko follows a trend set by a number of other employee-sponsored
funds in the country. In recent months, several companies – including Rautaruukki,
Kemira, Evli, Autotarvike and Finnish Fur Sales, Neste Oil, Kesko, PlusTerveys and the
pension fund for the Finnish state railways, VR – have all closed their statutory funds and
transferred the liabilities to insurance-based pensions providers. Jaakko Uotila, chief
executive of Alko and chairman of the fund's board, said that, by transferring the
management of the pensions to insurance providers, the company could focus on its core
business and staff development. He said Ilmarinen was selected because of its customer-
service resources, including internet-based channels. In addition, its solvency and long-
term investment returns were deemed as best within the industry. OP was selected
because of its strength of experience, expertise and technological know-how. In addition,
Ilmarinen and OP have a cooperation agreement that enables customers to manage their
pensions in one place. (21/07/2010 IPE.com)

V. Csaba Öry's report calls for more and better jobs

In its adoption on 14 July, by 40 votes in favour, 2 against and 7 abstentions, of the
report by Csaba Öry (EPP, Hungary) on the guidelines on employment, the
employment/social affairs committee of the European Parliament is calling: A) On the
member states to: 1) reduce unemployment rates and raise the employment rate to 75%
by 2020, by setting themselves the goal of full employment and paying particular
attention to the most vulnerable groups. An EP press release stresses that the
parliamentary committee has added sub-targets to the proposal of the Commission, as
follows: - the proportion of women and men aged between 15 and 24 in education, in
training or carrying out professional activities should reach at least 90%; - the
employment rate should rise by 10% by 2014, targeting specific groups such as young
people aged between 15 and 24, workers aged between 50 and 64, unqualified active
women, people living with disability and immigrants; 2) high minimum standards must
be guaranteed for the quality of jobs, in order to eradicate poverty among workers. The
member states should set their own national targets in order to reduce by 25% the
number of Europeans living below the national poverty lines, which would allow 20
million people out of this situation, paying particular attention to the growing group of
poor workers, the EP states in a press release. B) On the Commission to set in place
legislative proposals for atypical forms of employment such as part-time work, precarious
employment, temporary work and fixed-term employment. The text will be voted on at
the first plenary session of September in Strasbourg. The Belgian Presidency of the EU
will formally adopt guidelines for employment in October. (19/07/2010 Agence Europe)

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VI. Advocate General takes view that supplementary pension scheme for
former Hamburg municipal employees treats married couples more
favourably than same sex couples
In a opinion delivered on Thursday 15 July in case C-147/08, the advocate general says
that the City of Hamburg law governing the retirement pensions of former city employees
(the “RGG”) favours married and temporarily separated pensioners over those of the
same sex who have formed a civil partnership. The law does not allow people living in
same sex couples to receive the same supplementary pensions as those who are
married, infringing Directive 200/78/EC on equal treatment in employment and
occupation, and national law which treats people living in same sex relationships in the
same way as married people in terms of this said pension. The advocate general was
responding to questions put by the judge in the Hamburg Labour Court, to which a
former city employee, Jürgen Römer, took his case after forming a civil partnership.
Römer asked the City of Hamburg to recalculate his supplementary pension so that he
fell within the same tax bracket as married pensioners. His request was turned down.
The judge asked if treating married pensioners more favourably than those with same
sex partners infringed the directive on equal treatment in employment and occupation or
the general principle of equal remuneration enshrined in the EC Treaty. The advocate
general said that, in this particular case, the national judge would have to determine
whether a life partner was in a legal and factual situation comparable to that of a married
pensioner in receipt of a supplementary retirement pension as provided for under the
occupational benefit scheme run by the City of Hamburg. Comparison of the two -
marriage and life partnership - should be focused on the rights and obligations of the
spouses and the partners, as deriving respectively from the internal provisions that apply
to marriage and to a registered partnership which are relevant given the conditions on
which payment of the pension on question are dependent. Even if this comparison were
to exclude the existence of any direct discrimination on the grounds of sexual orientation,
there would be at least indirect discrimination in the sense of Directive 2000/78 if
provisions, such as those of the rules at issue were to: - provide for a method of
calculating supplementary retirement pension that treats a married, temporarily
separated pensioners more favourably; - disadvantage a pensioner who has formed a
registered civil partnership; - not objectively respond to a legitimate purpose or not form
a means that is both appropriate and necessary to achieve such a purpose, the advocate
general said. The Hamburg Labour Court judge will, then, have to consider these points
and ensure that the principle of non-discrimination on the grounds of sexual orientation
and equality of treatment contained in EU law is fully applied. (20/07/2010 Agence
Europe)

VII. Slovakian pension funds return 0.6% in first half

The International Monetary Fund (IMF) has called on Slovakia to create a more stable
environment for second-pillar pensions, as pension funds in the country returned just
0.6% over the first six months. In its latest consultation paper on Slovakia, the IMF
demanded the creation of "a stable legal and regulatory environment" to match the
objectives of second-pillar pension funds. The debate on whether or not to pull money
from the second pillar to boost the state pension system has been recently renewed,
threatening the existence of pension funds. Meanwhile, the six pension funds in the
mandatory second pillar reported 0.6% growth for the first half of 2010. Year-on-year,
the return was 1.35%, similar to the full-year result of 2009 of 1.2%. Managed assets in
the mandatory system grew from €2.9bn at year-end 2009 to €3.3bn by the end of June
2009. (22/07/2010 IPE.com)

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VIII. OECD calls for better counter-cyclical funding regulations for DB

schemes
Governments and policymakers must do more to make defined benefit (DB) pension
schemes' funding regulations more counter-cyclical in the wake of the financial crisis,
according to the Organisation for Economic Co-operation and Development (OECD). The
OECD said long-term viability, stability and security of member benefits were the three
"essential goals" of pension-plan funding, and that making DB schemes more counter-
cyclical by reforming funding regulations would go a long way toward achieving those
goals. In a working paper on private pensions published today, the OECD said regulators
should do more to encourage deficit-reduction contributions and the build-up of surpluses
when plan sponsor finances were strong. It also said regulation should help maintain
predictable costs and dampen volatility, as well as give plan sponsors more control to
manage risks and costs. In particular, Juan Yermo and Clara Severinson, the authors of
the paper, said governments should try to avoid relying on current market values when
determining contributions. They also said policymakers should allow "appropriate levels
of over-funding in good economic times" by creating more flexible tax ceilings, spanning
a multi-year period, for example, instead of being set on an annual basis. Further, they
said regulators should restrict the extent to which sponsors are able to take contribution
holidays, offer additional benefits or withdraw a portion of a pension fund surplus – "only
allowing them when a certain level of funding above the minimum level is reached", for
example. While the authors of the report conceded international standardisation of
funding regulations was unlikely and potentially "ill-fitting" across multiple jurisdictions,
they maintained that "some convergence of overarching funding principles" to promote
counter-cyclical features could strengthen DB systems worldwide. (22/07/2010 IPE.com)
Economy

Economy
I. No assistance to Hungary's balance of payment loan for time being
On Saturday 17 July, the European Commission announced that it had suspended
consultations with Hungary on the 2008 aid programme to the country, to enable the
latter to overcome the financial crisis. As long as the assessment remains incomplete,
Hungary will not be able to access assistance to the balance of payments loan - €1 billion
out of a total amount of €6.5 billon. Up to now Hungary has received three instalments of
the EU €6.5 billion balance of payments loan: two instalments of €2 billion each on 9
December 2008 and 26 March 2009 and a further €1.5 billion on 6 July 2009. EU aid is
part of an international aid package of around €25.1 billion. The International Monetary
Fund has also postponed consultations conclusions. On 6-17 July, European Commission
experts carried out a mission to analyse the economic programme implemented by
Hungary. “Useful” discussions took place on the new government's intentions on
economic policy for 2010 and beyond. The mission welcomed the government's
commitment to the agreed budget deficit target of 3.8% of GDP for 2010. It stressed
that continued fiscal adjustment in line with agreed fiscal targets is essential to ensure a
reduction in the government debt ratio, improve financing conditions and support
sustainable growth, and to support credibility in Hungary's public finances. It recognised
that following the budgetary slippage in the first half of this year, a number of steps were
taken to correct the situation, including sizeable revenue-enhancing and expenditure-
saving measures. However, the corrective measures considered so far fall somewhat
short of the required adjustment and are largely of a temporary nature. Hence, the

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government has to make increased efforts to bring the deficit below 3% of GDP, on a
sustainable basis, in 2011. While noting that the planned financial sector levy would help
in meeting short-term budgetary commitments, the Commission services considered that
the levy in its current form could have a significantly negative impact on the country's
investment climate and economic growth. The mission urged the authorities to review
some features of the levy in this regard. "Hungary has returned to a positive economic
growth path and now has one of the lowest budget deficits in the EU. I welcome the
authorities' commitment to the 2010 deficit target," said Olli Rehn, Commissioner for
Economic and Monetary Affairs. "However, the correction of the excessive deficit by next
year will require tough decisions, notably on spending. Care will also be needed to ensure
a stable environment for both domestic and international investors." Hungary needs to
maintain its security net EU loan. Furthermore it needs the IMF to guarantee the
confidence of the markets from where it obtained the loan. The country remains
vulnerable, given the high level of its public debt (80% of GDP and its dependency on
foreign financing). Romania had to make tough decisions last month to ensure the
release of IMF aid and to reassure the markets. (19/07/2010 Agence Europe)
Events and Court of de Justice Calendar

Events and Court Cases

I. No Upcoming Events

III. Court of Justice Calendar

No hearings are planned for the following period: 19/7/2010 - 23/7/2010