EU countries lost almost EUR 150 billion in Value-Added Tax (VAT) revenues in 2016, according to a new Commission study published on 21 September. In view of the recent data, the Commission is urging Member States to move forward as soon as possible on the broad VAT reform it proposed last year. The reform would improve and modernise the system for governments and businesses alike, while making it more robust and simpler to use for companies. The so-called 'VAT Gap' shows the difference between expected VAT revenue and the amount actually collected. In nominal terms, the VAT Gap decreased by EUR 10.5 billion to EUR 147.1 billion in 2016, a drop to 12.3% of total VAT revenues compared to 13.2% the year before. Member States’ individual performance still varies widely, however. The gap decreased in 22 Member States with Bulgaria, Latvia, Cyprus, and the Netherlands displaying a decrease in each case of more than 5 percentage points in VAT losses. In contrast, the VAT Gap increased in six Member States: Romania, Finland, the UK, Ireland, Estonia, and France. While Member States have taken measures to improve VAT collection, the current figures show that reform of the current EU VAT system combined with better cooperation at the EU level are needed.

“…a loss of EUR 150 billion per year for national budgets remains unacceptable, especially when EUR 50 billion of this is lining the pockets of criminals, fraudsters and probably even terrorists…I urge Member States to move forward on the definitive VAT system before the European Parliament elections in 2019.”

Staff from the European Commission, in liaison with staff from the European Central Bank and the International Monetary Fund, visited Athens from 10-14 September for the first post-programme mission to Greece. Staff from the European Stability Mechanism (ESM) participated in the meetings in the context of its Early Warning System. Following the completion of the ESM programme, Greece has been reintegrated into the European Semester of economic policy coordination. The Commission has also activated the enhanced surveillance instrument for Greece. The mission held discussions on the situation and key challenges facing the Greek economy in the post-programme period, as well as the status of reforms launched under the programme. This included discussions on the fiscal situation and outlook, as well as on the implementation of the Non-Performing Loans resolution strategy. The former discussions will feed into the preparation of Greece’s Draft Budgetary Plan for 2019, to be submitted to the Commission by 15 October. The first quarterly enhanced surveillance report will be issued in November, together with the Commission’s Autumn Package under the European Semester.

On 14 September, the Commission signed a Memorandum of Understanding with Ukraine in Kyiv for Macro-Financial Assistance (MFA) of up to EUR 1 billion in the form of medium- and long-term loans. With this assistance, the EU will continue to support economic stabilisation in the country, including through structural and governance reforms. The proposed new Macro-Financial Assistance complements three previous MFA programmes, through which the EU has supported Ukraine with a total of EUR 2.8 billion since the onset of the crisis in 2014, and a programme of the International Monetary Fund (IMF). Funds will be disbursed in two instalments conditional on the implementation of specific policy measures agreed between Ukraine and the EU in the MoU, such as the fight against corruption, public finance management, the governance of state-owned enterprises and banks, and key social policies. Disbursements will also depend on the fulfilment of political preconditions which require Ukraine to continue to respect the rule of law and democratic mechanisms, including a multi-party parliamentary system, as well as to guarantee respect for human rights.

The EU's approach to the World Trade Organisation (WTO) reform outlined in a document published on 18 September was presented to EU partners in Geneva on 20 September during a meeting on that subject convened by Canada. The approach put forward by the Commission encompasses an initial set of ideas to modernise the WTO and to make international trade rules fit for the challenges of the global economy. The EU's concept paper presents ideas relating to three key areas: updating the rule book on international trade to account for today's global economy; strengthening the monitoring role of the WTO; and overcoming the imminent deadlock on the WTO dispute settlement system. The EU has already started to engage with other WTO partners such as the US, Japan and China. The European Council of 28-29 June gave the Commission a mandate to pursue WTO modernisation in order to adapt to a changing world and to strengthen the WTO’s effectiveness.

The EU economic and financial landscape – and especially economic governance – has evolved dramatically since the first issue of ECFIN e-news was published in December 2009. With publication of this 183rd issue, we would like to kindly ask you once again to contribute your views and suggestions. What do you like about the newsletter? What could be improved? Thank you for sharing your thoughts by spending just a few minutes to answer the online questionnaire. We appreciate your feedback.