The ECOFIN Council met informally in Nice on 12 September, and again formally in Luxembourg on 7 October 2008. The Chancellor of the exchequer attended both meetings for the UK. The following items were discussed:

Preparation of the European Council on 15-16 October

(i) Economic situation, including EMU@10

Following an informal discussion at the ECOFIN meeting in Nice, Ministers agreed a set of Council conclusions on the current economic situation in the EU. The text covers the shocks caused to the European economy by financial instability and the rise in commodity prices, and appropriate responses. The UK welcomes these conclusions, which stress the need to continue with economic reform in Europe, and call on the European Investment Bank to provide greater funding to SMEs.

(ii) Situation of the financial markets and European supervision

In addition to the discussion outlined above, Ministers held a follow-up discussion to the informal ECOFIN on the causes and possible policy responses to ongoing financial turbulence. ECOFIN agreed a set of conclusions which complement the short-term actions agreed, and which will form the basis of discussions by Heads of State and Government.

(iii) Volatility of oil and raw material prices: political response

As requested by Heads of State and Government at the European Council in June, Ministers discussed developments in oil prices and possible measures to be taken in response on the basis of work prepared by the European Commission and the presidency. The UK welcomes measures to facilitate transparency in oil markets, including greater producer-consumer dialogue, and to promote energy efficiency as longer-term measures to improve market functioning.

Other items discussed at the 7 October meeting

(i) Immediate responses to the financial turmoil

Due to developments in financial markets, ECOFIN Ministers devoted a significant amount of their time to developing a co-ordinated set of principles to guide actions. The principles, which the UK fully supports, stress that member states should:

Ensure that any interventions are to be timely, with the support being, in principle, temporary;

Be watchful regarding taxpayers' interests;

Protect the legitimate interests of competitors by having regard to state aid and competition rules;

Avoid possible negative spill-over effects.

(ii) Financial services: draft directive on the solvency of insurance undertakings (Solvency II)

Finance Ministers discussed the draft Solvency II directive, which will set prudential requirements for insurance and reinsurance companies. Discussion focused particularly on prudential capital requirements and supervision of cross-border insurance groups. The UK supports work that will ensure more effective supervision of pan-European insurance groups, and which will ensure a sufficient prudential framework. The issue will be returned to at the next meeting of the ECOFIN Council in November.

(iii) Taxation: combating VAT fraud

Ministers agreed the outline of an improved system of targeted information exchange to combat VAT fraud.

(iv) Reduced VAT rates

Following a discussion over breakfast at the informal ECOFIN, Ministers will held an exchange of views on the principles underlying the application of reduced rates of VAT across the EU, with the European Commission presenting analysis designed to facilitate the discussion. The UK believes that member states should be allowed flexibility in applying reduced rates of VAT as long as they do not have detrimental effects on the single market. ECOFIN will return to this issue at its meeting in November.