Wednesday, 19 November 2008

General Council of the European Central Bank

The European Central Bank (ECB) and the national central banks of the euro area form the European System of Central Banks (ESCB), or the Eurosystem. But at this moment twelve (soon eleven) EU member states are (still) outside the Eurozone.

The General Council of the European Central Bank is the transitional link between the Eurosystem and the EU members with a national currency and a so called derogation.

This blog post is dedicated to our readers in Bulgaria, the Czech Republic, Denmark, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia, Sweden and the United Kingdom.


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Current treaty

The current Treaty establishing the European Community (TEC) sets out Transitional provisions in Chapter 4 of Title VII Economic and monetary policy, in Part Three Community policies (in the latest codified version of the treaties, Official Journal 29.12.2006 C 321 E/93─101).

Chapter 4 Transitional provisions contains Articles 116 to 124 TEC.

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General Council of the ECB

Article 123(3) TEC sets up the General Council of the ECB as a transitional body:

Article 123(3) TEC

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3. If and as long as there are Member States with a derogation, and without prejudice to
Article 107(3) of this Treaty, the General Council of the ECB referred to in Article 45 of the
Statute of the ESCB shall be constituted as a third decision-making body of the ECB.
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ECB decision-making bodies

Since the General Council of the ECB is seen as a transitory exception to the institutional framework of the European Central Bank, the referral to Article 107(3) TEC reminds us of the ordinary decision-making bodies of the ECB:

Article 107(3) TEC

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3. The ESCB shall be governed by the decision-making bodies of the ECB which shall be the Governing Council and the Executive Board.

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General Council tasks

At the start of the second stage of economic and monetary union (EMU), the European Monetary Institute (EMI) was established to prepare the establishment of the European Central Bank (ECB) and the introduction of the euro currency (third stage of EMU).

Article 117(2) TEC mentions a number of EMI’s tasks. EMI has been replaced by the ECB.

Article 117(2) TEC

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2. The EMI shall:

— strengthen cooperation between the national central banks,

— strengthen the coordination of the monetary policies of the Member States, with the aim of ensuring price stability,

— monitor the functioning of the European Monetary System,

— hold consultations concerning issues falling within the competence of the national central banks and affecting the stability of financial institutions and markets,

— take over the tasks of the European Monetary Cooperation Fund, which shall be dissolved; the modalities of dissolution are laid down in the Statute of the EMI,

— facilitate the use of the ecu and oversee its development, including the smooth functioning of
the ecu clearing system.
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ESCB Statute

Protocol (No 18) on the Statute of the European System of Central Banks and of the European Central Bank (1992), in the latest consolidated version of the treaties OJ 29.12.2006 C 321 E/256, has a Chapter IX Transitional and other provisions for the ESCB.

Article 43 General provision excludes member states with a derogation from enumerated rights and obligations.

Article 44 Transitional tasks of the ECB confers the tasks of the EMI on the ECB and sets out the advisory task of the ECB during the preparation of abrogation of derogations.

Article 45 The General Council of the ECB institutes the General Council as a third decision-making body of the ECB and sets out the institutional basics. Since Article 45 of the ESCB Statute is referred to in Article 123(3) TEC, here is the wording:

Article 45 ESCB Statute
The General Council of the ECB

45.1. Without prejudice to Article 107(3) of this Treaty, the General Council shall be constituted as a third decision-making body of the ECB.

45.2. The General Council shall comprise the President and Vice-President of the ECB and the Governors of the national central banks. The other members of the Executive Board may participate, without having the right to vote, in meetings of the General Council.

45.3. The responsibilities of the General Council are listed in full in Article 47 of this Statute.


Article 46 Rules of Procedure of the General Council.

Article 47 Responsibilities of the General Council.

Article 48 Transitional provisions for the capital of the ECB.

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Article 53 Applicability of the transitional provisions states that as long as there are member states with a derogation, Articles 43 to 48 shall be applicable.

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Draft Constitution

The euro currency had been introduced, and the euro banknotes and coins were in circulation, when the European Convention deliberated institutional reform of the European Union. It is hardly surprising that the Convention proposed a reworked section with the aim to simplify and to clarify the transitional provisions.

Section 4 Transitional provisions comprises Articles III-91 to III-96 of the draft Constitution (OJ 18.7.2003 C 169/45─46).

Article III-93 of the draft Constitution is a consolidation and update of the treaty provisions we looked at above:

SECTION 4
Transitional provisions

Article III-93 Draft Constitution

1. If and as long as there are Member States with a derogation, and without prejudice to Article III-79(3), the General Council of the European Central Bank referred to in Article 45 of the Statute of the European System of Central Banks and the European Central Bank shall be constituted as a third decisionmaking body of the European Central Bank.

2. If and as long as there are Member States with a derogation, the European Central Bank shall, as regards those Member States:

(a) strengthen cooperation between the national central banks;

(b) strengthen the coordination of the monetary policies of the Member States, with the aim of ensuring price stability;

(c) monitor the functioning of the exchange-rate mechanism;

(d) hold consultations concerning issues falling within the competence of the national central banks and affecting the stability of financial institutions and markets;

(e) carry out the former tasks of the European Monetary Cooperation Fund, previously taken over by the European Monetary Institute.



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Finland

The Finnish government reported on the results of the European Convention in Valtioneuvoston selonteko Eduskunnalle konventin tuloksista ja valmistautumisesta hallitusten väliseen konferenssiin (VNS 2/2003 vp). Finland had adopted the euro. A section discussed economic and monetary policy (8.5 Talous. ja rahapolitiikka) on pages 65 to 67, but I found nothing specific about Article III-93 of the draft Constitution.

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Sweden

Ahead of the intergovernmental conference, the Swedish government presented its views in a memorandum, Regeringens skrivelse 2003/04:13 Europeiska konventet om EU:s framtid (2 October 2003).

Sweden had not negotiated an opt-out from the treaty obligation to introduce the euro currency, but still the government had arranged a referendum on the adoption. The negative referendum result, which left Sweden in legal limbo, was fresh.

If the updated Article III-93 of the draft Constitution had little practical significance for Finland, the cursory treatment of transitional monetary provisions by the Swedish government may have had other reasons. Anyway, I found no specific mention of draft Constitution Article III-93 in the memorandum.

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de Poncins


Étienne de Poncins presented the text of Article III-93 in Vers une Constitution européenne (Éditions 10/18, 2003), page 315, without comment.

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Constitutional Treaty

The transitional EMU provisions of the intergovernmental conference (IGC 2004) are found in Section 5 Transitional provisions, comprising Articles III-197 to 202 of the Treaty establishing a Constitution for Europe (OJ 16.12.2004 C 310/86─90).

Article III-199 Constitution

1. If and as long as there are Member States with a derogation, and without prejudice to Article III-187(1), the General Council of the European Central Bank referred to in Article 45 of the Statute of the European System of Central Banks and of the European Central Bank shall be constituted as a third decision-making body of the European Central Bank.

2. If and as long as there are Member States with a derogation, the European Central Bank shall, as regards those Member States:

(a) strengthen cooperation between the national central banks;

(b) strengthen the coordination of the monetary policies of the Member States, with the aim of ensuring price stability;

(c) monitor the functioning of the exchange-rate mechanism;

(d) hold consultations concerning issues falling within the competence of the national central banks and affecting the stability of financial institutions and markets;

(e) carry out the former tasks of the European Monetary Cooperation Fund which had subsequently been taken over by the European Monetary Institute.

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Let us see it our standard references contribute anything towards our understanding of the provision.

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Sweden

The government of Sweden, still outside the eurozone as a member state with a derogation, offered a short and bland description of the aims of economic and monetary union (EMU) in the draft ratification bill, Lagrådsremiss Fördraget om upprättande av en konstitution för Europa (2 June 2005), page 171:

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”Den ekonomiska och monetära unionen (EMU) är ett samarbete inom EU som syftar till att samordna medlemsländernas ekonomiska politik och att införa en gemensam valuta. EMU har genomförts i tre etapper. Den sista etappen inleddes 1999 och innebär en fullbordad valutaunion med gemensam centralbank (Europeiska centralbanken) samt gemensam valuta och penningpolitik. En förutsättning för valutaunionen har varit och är att de deltagande ländernas ekonomier befinner sig på ungefär samma nivå. Ett antal ekonomiska krav som ett land måste uppfylla för att få delta i valutaunionen har därför ställts upp, de s.k. konvergenskriterierna. För att säkerställa sunda offentliga finanser inom unionen har därför EU inrättat den s.k. stabilitets- och tillväxtpakten.”

The Swedish government did not mention Article III-199 of the Constitution specifically, although the national central bank (Sveriges Riksbank) participates in the General Council of the European Central Bank.

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Finland

In Finland, the government’s ratification bill, Hallituksen esitys Eduskunnalle Euroopan perustuslaista tehdyn sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta (HE 67/2006 vp), mentioned Article III-199 of the Constitution on page 185. The government remarked on the essential similarity of Article III-199 with Article 123(3) TEC and Article 117(2) TEC save for technical adjustments. The Finnish government mentioned that Article III-199 applies to the states, which have not yet adopted the euro:


”III-199 artikla vastaa asiasisällöltään SEY 123 artiklan kolmatta kohtaa sekä SEY 117 artiklan toista kohtaa teknisiä muutoksia lukuun ottamatta. III-199 artikla koskee Euroopan keskuspankin yleisneuvostoa sekä Euroopan keskuspankin tehtäviä niihin valtioihin liittyen, jotka eivät ole vielä ottaneet euroa käyttöön.”


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Original Lisbon Treaty

In Article 2, point 103, of the original Treaty of Lisbon (ToL) the intergovernmental conference (IGC 2007) managed to adopt the substance of the Convention and Constitution proposals, but the amendments were inserted in the ‘usual’, i.e. unreadable manner adopted by the IGC 2007 (OJ 17.12.2007 C 306/79).

This is the wording the EU citizens were offered until the belated publication of the consolidated versions of the Lisbon Treaty:
103) Article 118 shall be repealed. A new Article 118a shall be inserted as follows:

(a) paragraph 1 thereof shall take over the text of Article 123(3); the words ‘of this Treaty’ shall be deleted;

(b) paragraph 2 thereof shall take over the text of the first five indents of Article 117(2); the five indents shall be amended as set out below and shall be preceded by the following introductory words:

‘If and as long as there are Member States with a derogation, the European Central Bank shall, as regards those Member States:’

(i) in the third indent, the words ‘European Monetary System’ shall be replaced by ‘exchange-rate mechanism’;

(ii) the fifth indent shall be replaced by the following:

‘— carry out the former tasks of the European Monetary Cooperation Fund which had subsequently been taken over by the European Monetary Institute.’.


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Renumbering

The Treaty on the Functioning of the European Union (TFEU) table of equivalences confirms that the new Article 118a TFEU (ToL) in the original Treaty of Lisbon was to be renumbered Article 141 TFEU in the consolidated version, under the title ‘Economic and monetary policy’, renumbered Title VIII, and in the renumbered Chapter 5 ‘Transitional provisions’ (OJ 17.12.2007 C 306/215).

(In the consolidated version of the Lisbon Treaty, OJ 9.5.2008 C 115, the Tables of equivalences start on page 361, but the ToL numbers have been omitted.)

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Consolidated Lisbon Treaty: TFEU

A readable Article 141 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/110:

Part Three Union policies and internal actions

Title VIII Economic and monetary policy

Chapter 5 Transitional provisions

Article 141 TFEU
(ex Articles 123(3) and 117(2) first five indents, TEC)

1. If and as long as there are Member States with a derogation, and without prejudice to Article 129(1), the General Council of the European Central Bank referred to in Article 44 of the Statute of the ESCB and of the ECB shall be constituted as a third decision-making body of the European Central Bank.

2. If and as long as there are Member States with a derogation, the European Central Bank shall, as regards those Member States:

— strengthen cooperation between the national central banks,

— strengthen the coordination of the monetary policies of the Member States, with the aim of ensuring price stability,

— monitor the functioning of the exchange-rate mechanism,

— hold consultations concerning issues falling within the competence of the national central banks and affecting the stability of financial institutions and markets,

— carry out the former tasks of the European Monetary Cooperation Fund which had subsequently been taken over by the European Monetary Institute.

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ESCB Statute ─ transitional provisions

In the consolidated versions of the Lisbon Treaty, the Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Banks sets out the transitional EMU provisions in more detail in Chapter IX Transitional and other provisions for the ESCB (OJ 9.5.2008 C 115/247─250):

CHAPTER IX
TRANSITIONAL AND OTHER PROVISIONS FOR THE ESCB

Article 42 (ex Article 43)
General provisions

42.1. A derogation as referred to in Article 139 of the Treaty on the Functioning of the European Union shall entail that the following Articles of this Statute shall not confer any rights or impose any obligations on the Member State concerned: 3, 6, 9.2, 12.1, 14.3, 16, 18, 19, 20, 22, 23, 26.2, 27, 30, 31, 32, 33, 34, and 49.

42.2. The central banks of Member States with a derogation as specified in Article 139(1) of the Treaty on the Functioning of the European Union shall retain their powers in the field of monetary policy according to national law.

42.3. In accordance with Article 139 of the Treaty on the Functioning of the European Union, ‘Member States’ shall be read as ‘Member States whose currency is the euro’ in the following Articles of this Statute: 3, 11.2 and 19.

42.4. ‘National central banks’ shall be read as ‘central banks of Member States whose currency is the euro’ in the following Articles of this Statute: 9.2, 10.2, 10.3, 12.1, 16, 17, 18, 22, 23, 27, 30, 31, 32, 33.2 and 49.

42.5. ‘Shareholders’ shall be read as ‘central banks of Member States whose currency is the euro’ in Articles 10.3 and 33.1.

42.6. ‘Subscribed capital of the ECB’ shall be read as ‘capital of the ECB subscribed by the central banks of Member States whose currency is the euro’ in Articles 10.3 and 30.2.


Article 43 (ex Article 44)
Transitional tasks of the ECB

The ECB shall take over the former tasks of the EMI referred to in Article 141(2) of the Treaty on the Functioning of the European Union which, because of the derogations of one or more Member States, still have to be performed after the introduction of the euro.

The ECB shall give advice in the preparations for the abrogation of the derogations specified in Article 140 of the Treaty on the Functioning of the European Union.


Article 44 (ex Article 45)
The General Council of the ECB

44.1. Without prejudice to Article 129(3) of the Treaty on the Functioning of the European Union, the General Council shall be constituted as a third decision-making body of the ECB.

44.2. The General Council shall comprise the President and Vice-President of the ECB and the Governors of the national central banks. The other members of the Executive Board may participate, without having the right to vote, in meetings of the General Council.

44.3. The responsibilities of the General Council are listed in full in Article 46 of this Statute.


Article 45 (ex Article 46)
Rules of Procedure of the General Council

45.1. The President or, in his absence, the Vice-President of the ECB shall chair the General Council of the ECB.

45.2. The President of the Council and a Member of the Commission may participate, without having the right to vote, in meetings of the General Council.

45.3. The President shall prepare the meetings of the General Council.

45.4. By way of derogation from Article 12.3, the General Council shall adopt its Rules of Procedure.

45.5. The Secretariat of the General Council shall be provided by the ECB.

Article 46 (ex Article 47)
Responsibilities of the General Council

46.1. The General Council shall:

— perform the tasks referred to in Article 43;

— contribute to the advisory functions referred to in Articles 4 and 25.1.

46.2. The General Council shall contribute to:

— the collection of statistical information as referred to in Article 5;

— the reporting activities of the ECB as referred to in Article 15;

— the establishment of the necessary rules for the application of Article 26 as referred to in Article 26.4;

— the taking of all other measures necessary for the application of Article 29 as referred to in Article 29.4;

— the laying down of the conditions of employment of the staff of the ECB as referred to in Article 36.

46.3. The General Council shall contribute to the necessary preparations for irrevocably fixing the exchange rates of the currencies of Member States with a derogation against the euro as referred to in Article 140(3) of the Treaty on the Functioning of the European Union.

46.4. The General Council shall be informed by the President of the ECB of decisions of the Governing Council.


Article 47 (ex Article 48)
Transitional provisions for the capital of the ECB

In accordance with Article 29.1, each national central bank shall be assigned a weighting in the key for subscription of the ECB's capital. By way of derogation from Article 28.3, central banks of Member States with a derogation shall not pay up their subscribed capital unless the General Council, acting by a majority representing at least two thirds of the subscribed capital of the ECB and at least half of the shareholders, decides that a minimal percentage has to be paid up as a contribution to the operational costs of the ECB.


Article 48 (ex Article 49)
Deferred payment of capital, reserves and provisions of the ECB

48.1. The central bank of a Member State whose derogation has been abrogated shall pay up its subscribed share of the capital of the ECB to the same extent as the central banks of other Member States without a derogation, and shall transfer to the ECB foreign reserve assets in accordance with Article 30.1. The sum to be transferred shall be determined by multiplying the euro value at current exchange rates of the foreign reserve assets which have already been transferred to the ECB in accordance with Article 30.1, by the ratio between the number of shares subscribed by the national central bank concerned and the number of shares already paid up by the other national central banks.

48.2. In addition to the payment to be made in accordance with Article 48.1, the central bank concerned shall contribute to the reserves of the ECB, to those provisions equivalent to reserves, and to the amount still to be appropriated to the reserves and provisions corresponding to the balance of the profit and loss account as at 31 December of the year prior to the abrogation of the derogation. The sum to be contributed shall be determined by multiplying the amount of the reserves, as defined above and as stated in the approved balance sheet of the ECB, by the ratio between the number of shares subscribed by the central bank concerned and the number of shares already paid up by the other central banks.

48.3. Upon one or more countries becoming Member States and their respective national central banks becoming part of the ESCB, the subscribed capital of the ECB and the limit on the amount of foreign reserve assets that may be transferred to the ECB shall be automatically increased. The increase shall be determined by multiplying the respective amounts then prevailing by the ratio, within the expanded capital key, between the weighting of the entering national central banks concerned and the weighting of the national central banks already members of the ESCB. Each national central bank's weighting in the capital key shall be calculated by analogy with Article 29.1 and in compliance with Article 29.2. The reference periods to be used for the statistical data shall be identical to those applied for the latest quinquennial adjustment of the weightings under Article 29.3.


Article 49 (ex Article 52)
Exchange of banknotes in the currencies of the Member States

Following the irrevocable fixing of exchange rates in accordance with Article 140 of the Treaty on the Functioning of the European Union, the Governing Council shall take the necessary measures to ensure that banknotes denominated in currencies with irrevocably fixed exchange rates are exchanged by the national central banks at their respective par values.


Article 50 (ex Article 53)
Applicability of the transitional provisions

If and as long as there are Member States with a derogation, Articles 42 to 47 shall be applicable.

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Sweden

Even if Sweden is one of the EU member states with a derogation, the most artificial one at that, I found nothing about Article 118a TFEU (ToL) in the Lisbon Treaty ratification bill of the Swedish government, Regeringens proposition 2007/08:168 Lissabonfördraget (3 July 2008).

Have they confounded the properties of EMU, the economic and monetary union, with those of emu, the bird?


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Priollaud and Siritzky

In ‘Le traité de Lisbonne ; Commentaire, article par article, des nouveaux traités européens (TUE et TFUE)’ (La Documentation Française, 2008), François-Xavier Priollaud and David Siritzky present the Lisbon Treaty provisions of Chapter 5 (Dispositions transitoires) on page 260 to 261. Their characterization of Articles 141 to 144 TFEU is succinct:

« Les art. 141 à 144 TFUE comprennent les dispositions applicables aux États membres faisant l’objet d’une dérogation, sans changement notable. »

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United Kingdom FCO

‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon (Cm 7311, 21 January 2008) offers the following comment on Article 141 TFEU (on page 13):

“Draws on and updates Articles 123(3) and 117(2) TEC.”

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UK House of Commons Library

The UK House of Commons Library presented the amending treaty in ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Communities’ (Research paper 07/86, 6 December 2007. There was a short explanation of Article 118a TFEU (ToL), on page 64:

“A new Article 118a (Constitution Article III-199) updates present Articles 117(2) and 123(3), providing for Member States with a derogation from EMU the institutional machinery (including the European Monetary Institute and the General Council of the ECB) to monitor their progress towards the adoption of the euro.”


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Ironies

One of the ironies uncovered during this research was that the government of the EU member state most peculiarly affected by the transitional EMU provisions, i.e. Sweden, had nothing to say about the General Council of the European Central Bank in voluminous legislative materials.

Another irony is that the Lisbon Treaty, although not in force, is sometimes clearer and more up-to-date in its consolidated versions than the existing treaties, even where there are no ‘institutional innovations’ to speak of.

In other words, it is advisable to use the Treaty of Lisbon and commentaries on it as references, even if you study the EU treaties in force.



Ralf Grahn