Category Archives: Institutional and economic framework of the euro

So far, 17 of the 27 Member States of the European Union have introduced the single currency. The European Central Bank and the national central banks together form the Eurosystem which aims to maintain price stability within the euro zone and protect the euro’s purchasing power. Member States wishing to introduce the euro must meet certain economic criteria (“convergence criteria”). The United Kingdom and Denmark have negotiated opt-out clauses and do not participate in the single currency.

Towards adoption of the euro in 2008: Cyprus and Malta

Towards adoption of the euro in 2008: Cyprus and Malta

Outline of the Community (European Union) legislation about Towards adoption of the euro in 2008: Cyprus and Malta

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Towards adoption of the euro in 2008: Cyprus and Malta

Acts

Report from the Commission of 16 May 2007: Convergence Report 2007 on Cyprus, prepared in accordance with Article 122(2) of the Treaty at the request of Cyprus [COM(2007) 255 final – not published in the Official Journal].

Report from the Commission of 16 May 2007: Convergence Report 2007 on Malta, prepared in accordance with Article 122(2) of the Treaty at the request of Malta [COM(2007) 258 final – not published in the Official Journal].

Summary

The European Commission concludes in these convergence reports, prepared at the request of Cyprus (13 February 2007) and Malta (27 February 2007), that the two Member States fulfil the “convergence criteria” for being able to introduce the euro as from 1 January 2008. It therefore proposes to the Council of the European Union that a decision be adopted accordingly.

Determining the state of convergence: the Treaty provisions

The convergence criteria are listed in Article 121(1) of the Treaty establishing the European Community (EC Treaty). They are set out in more detail in the protocol on the convergence criteria. The criteria relate to:

  • price stability: a sustainable degree of price stability and an average rate of inflation, observed over a period of one year before the examination, that does not exceed by more than 1.5 % that of the three best-performing Member States in terms of price stability;
  • government budgetary position: absence of excessive deficit (reference value: 3 % of GDP) and public debt in line with the reference value of 60 % of GDP;
  • exchange rate stability: the national currencies have for two years kept within the fluctuation margins provided for by the exchange-rate mechanism of the European Monetary System (EMS II) without experiencing severe tension and without devaluation against any other Member State’s currency;
  • long-term interest rates: a long-term interest rate that does not exceed by more than 2 % that of the three best-performing Member States in terms of price stability.

In addition, national legislation, including the statutes of the national central banks, must be compatible with the requirements of the EC Treaty and the Statute of the European System of Central Banks (ESCB ).

Applying the convergence criteria to Cyprus and Malta

The reference value for inflation (price stability) was fixed at 3 % in March 2007, with Finland, Poland and Sweden the three Member States posting the best results.

Cyprus. Cyprus’ 12-month average inflation rate has been below the reference value since August 2005. In March 2007, the average rate was 2.0 % – well below the 3 % reference value. In addition, according to the Commission’s spring 2007 forecast, the 12-month average inflation rate in Cyprus will fall to 1.3 % in December 2007, against a reference value of 2.8 %. Government debt followed an upward trend between 2000 and 2004 but has been on a declining path since 2005. It decreased to 65.3 % of GDP in 2006, and according to the Commission services’ Spring 2007 Forecast, will continue to decline in 2007, reaching some 61.5 % of GDP. Cyprus thus satisfies the price stability criterion.

Malta. The 12-month average inflation rate has been around or below the reference value since July 2005, apart from the period between May and October 2006. In March 2007, the average rate was 2.2 % – well below the reference value of 3 %. The Commission forecasts that average inflation in Malta will fall to 1.4 % in December 2007. Malta thus satisfies the price stability criterion.

To be able to introduce the euro, a country has to have a budgetary position without an excessive deficit.

Cyprus. At the time this report was written, Cyprus was no longer the subject of a Council decision on the existence of an excessive deficit. Its deficit peaked at 6.3 % of GDP in 2003, but since then it has shrunk considerably and stabilised at 1.5 % of GDP. Forecasts for 2007 are for it to remain steady at 1.4 % of GDP. Cyprus therefore satisfies the criterion on the government budgetary position.

Malta. At the time this report was written, Malta was the subject of a decision on the existence of an excessive deficit [Council Decision 2005/186/EC of 5 July 2004 – Official Journal L 62 of 9.3.2005]. From a peak of about 10 % of GDP in 2003, the budget deficit fell considerably to 2.6 % of GDP in 2006. According to Commission forecasts, it will represent 2.1 % of GDP in 2007. The Commission believes that the excessive deficit has been corrected in a credible way below the 3 % threshold and that the debt ratio (66.5 % of GDP in 2006) is coming down towards the reference value of 60 % of GDP (65.9 % of GDP forecast for 2007). As a result, it recommends that the Council repeal the decision on the existence of an excessive deficit in Malta. The Council halted the excessive deficit procedure against Malta at its meeting of 5 June 2007 [PDF ].

As regards the criterion on exchange rate stability, Member States have to have participated in the European exchange rate mechanism (ERM II) for at least two years without experiencing severe tension.

Cyprus. The Cyprus pound has participated in the European exchange rate mechanism (ERM II) since 2 May 2005. Over these two years, it has always been in the upper part of the fluctuation margin, close to the central rate, and has not seen significant fluctuations.

Malta. The Maltese lira has been part of the European exchange rate mechanism (ERM II) since 2 May 2005. Over these two years, it has been stable against the central rate and has not experienced severe tension.

In March 2007, the reference value for the long-term interest rate was fixed at 6.4 %.

Cyprus. The average long-term interest rate was 4.2 % over the year ending in March 2007. Average long-term interest rates have been below the reference value since November 2005. Cyprus satisfies the convergence criterion on long-term interest rates.

Malta. The average long-term interest rate was 4.3 % over the year ending in March 2007. Average long-term interest rates have been below the reference value since accession to the European Union in May 2004. Malta satisfies the convergence criterion on long-term interest rates.

In addition, national legislation in Cyprus and Malta, particularly as regards the national central banks, is compatible with the requirements of the EC Treaty and the ESCB statutes.

“Thumbs up” for the introduction of the euro in Cyprus and Malta

In the light of its evaluation of the country’s compliance with the convergence criteria, the Commission gives its “thumbs-up” to the introduction of the euro in Cyprus. The same applies to Malta, subject to the Council following the Commission’s recommendation to end the excessive deficit procedure. The Council did so at its meeting of 5 June 2007. [Council Decision of 5 June 2007 abrogating Decision 2005/186/EC on the existence of an excessive deficit in Malta – OJ L 176 of 6.7.2007].

Background

The report on Cyprus looks only at the areas in which the Government of the Republic of Cyprus exercises effective control, as defined in Protocol No 10, annexed to the 2003 Act of Accession.

 

2007 Annual Statement on the Euro Area

2007 Annual Statement on the Euro Area

Outline of the Community (European Union) legislation about 2007 Annual Statement on the Euro Area

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

2007 Annual Statement on the Euro Area

Document or Iniciative

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee, the Committee of the Regions
and the European Central Bank of 3 May 2007: Annual Statement on the Euro Area 2007 [COM(2007) 231 final – Not published in the Official Journal].

Summary

In this Communication, the European Commission presents its views on how euro-area countries can face up to their shared responsibilities and challenges. The document, which is accompanied by the annual report on the euro area [PDF], is designed to inform the debate on the euro-area’s economic performance and the functioning of Economic and Monetary Union (EMU).

A tangible symbol of European construction: the euro

Economic integration is central to the success of the European construction, as the Heads of State and Government reaffirmed on the 50th anniversary of the Treaty of Rome in 2007, in the Berlin declaration: “The common market and the euro make us strong”. The single currency is indeed a tangible symbol of the European construction. Spurred on by the successful introduction of the euro in Slovenia on 1 January 2007, other Member States are stepping up their preparations to enter the euro area once they meet the convergence criteria. On 16 May 2007 the Commission confirmed that Cyprus and Malta meet the criteria and can therefore introduce the euro on 1 January 2008, subject to the Council of Ministers adopting a decision to that effect.

The European Council stresses the need for prudent fiscal policies

As part of the Lisbon Strategy, the 2007 Spring European Council adopted a number of specific recommendations for the euro area, emphasising the need for prudent fiscal policies and improvements in the quality of public finances and calling for greater adaptability in the markets for goods and services. The Heads of State and Government are also calling for better alignment of wage and productivity developments and an accelerated pace of financial-market integration.

Creating a solid base for economic recovery

The euro area grew by 2.7 % in 2006, its fastest growth rate since 2000. Employment growth was around 1.5 % in 2006, meaning that close to two million new jobs were created. In December 2006 the unemployment rate was 7.5 %, its lowest level in 15 years. Inflation was around 2 % last year, but it came down towards the end of the year as energy prices eased. The European Commission sees the prospects for economic growth in the euro area as being more favourable in 2007 than they have been for many years.

Although there are signs of greater resilience to global disturbances, the Commission points out that unforeseen events on the geo-political stage or exchange-rate tensions are among the factors which could lead to lower-than-expected growth.

If the euro area’s economic recovery is to continue, macroeconomic policy must be given a sound footing. In this context the Commission calls on the Member States to take advantage of the economic upswing to complete the consolidation of their budgetary situation by the end of the decade. Such fiscal consolidation would also enhance the overall macroeconomic policy mix, and securing sound public finances would help the euro-area members to address the economic implications of their ageing populations.

The Commission recognises that euro-area members have made an effort to correct their excessive budget deficits. In January 2007 the Council closed the excessive-deficit procedure against France, and on 16 May 2007 it recommended to the Council that the current excessive-deficit procedures against Germany and Greece should be terminated. The same applies to Malta, which is seeking to introduce the euro on 1 January 2008. However, the Commission points out that the Member States, especially those in the process of correcting their excessive deficits, must press ahead with budgetary consolidation to meet their medium-term budgetary objectives.

The euro-area countries must sow the seeds of further structural reform, stresses the Commission. The Lisbon economic reform agenda is critical for boosting growth and jobs in the 27 Member States but has an added dimension for the euro area. Economic reforms will reduce inflationary bottlenecks in the euro area and help to sustain economic recovery. In addition, well-functioning product, labour and capital markets are essential for dealing with economic shocks. However, the slow adjustment of some euro-area members to country-specific shocks shows that the economic reforms need to go further.

Adapting the single market to the 21st century and delivering greater benefits for citizens

All the Member States must ensure that the internal market is equipped to meet the opportunities and challenges of the 21st century. A dynamic internal market could encourage a closer alignment of national economic cycles and speed up the adjustment of prices and wages to economic shocks. When the Single European Act entered into force 20 years ago, a fairly homogenous European economy was strongly reliant on the mass manufacture of standardised products. In today’s world of globalisation, new technologies and EU enlargement, the economy has a greater degree of product differentiation and is more and more reliant on the knowledge-based and service sectors.

In its Communication “A single market for citizens” [COM(2007) 60 final], the Commission recommends that the single market should be adapted to new realities. It stresses the need to deliver even more tangible benefits for European citizens, entrepreneurs, workers and consumers. To achieve this, the single market must do more than take measures to overcome cross-border legal obstacles for businesses. The Commission will present a complete assessment of the single market with concrete proposals for action towards the end of 2007.

A more prominent role on the international stage in today’s globalised world

The euro area is part of an increasingly interdependent global economy. Over the year, the euro appreciated by around 11 % against the US dollar and around 12.5 % against the Japanese yen. However, in real terms the euro appreciated by much less (+3.5 %). The trends observed in 2006 continued in the early months of 2007.

The existence of global imbalances is a matter of concern for the world’s economy. The International Monetary Fund (IMF) organised multilateral consultations on global imbalances in which the euro area played an active role along with the other major economic powers. The participants agreed on the following action:

  • increased national saving in the USA with measures to reduce the budget deficit and promote private saving;
  • further structural reforms in Japan, in particular the consolidation of public finances;
  • greater exchange-rate flexibility in a number of emerging economies in Asia with surpluses (in particular China);
  • efficient absorption of higher oil revenues in oil-exporting countries;
  • implementing structural reforms to improve growth and boost domestic demand in the euro area.

Related Acts

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank: Annual Statement on the Euro Area 2006 [COM(2006) 392 final – Not published in the Official Journal].

In its 2006 annual statement, the Commission lists the main challenges facing the euro area, as follows:

  • budgetary consolidation;
  • structural reforms to increase productivity and promote growth and employment;
  • deepening the internal market to reap all the benefits of the single currency and respond rapidly to economic change.

In the external domain, the growing importance of the euro as a global currency and the challenges facing the world economy call for a more prominent role for the euro area on international economic and financial issues.

 

Accession of Cyprus and Malta to euro area

Accession of Cyprus and Malta to euro area

Outline of the Community (European Union) legislation about Accession of Cyprus and Malta to euro area

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Accession of Cyprus and Malta to euro area (2008)

Acts

Council Decision 2007/503/EC of 10 July 2007 in accordance with Article 122(2) of the Treaty on the adoption by Cyprus of the single currency on 1 January 2008.

Council Decision 2007/504/EC of 10 July 2007 in accordance with Article 122(2) of the Treaty on the adoption by Malta of the single currency on 1 January 2008.

Summary

In these two Decisions, the Council states that Cyprus and Malta satisfy all the conditions required to adopt the euro:

  • Cyprus and Malta satisfy the requirements established by the convergence criteria: price stability, the government budgetary position, participation in the exchange mechanism of the European monetary system, the existence of a satisfactory long-term interest rate;
  • Cyprus and Malta have national legislation which is compatible with the introduction of the euro.

Consequently, the Council chose the date of 1 January 2008 for these two Member States to adopt the euro.

Procedure

During its meeting of 10 July 2007, the Economic and Monetary Affairs Council gave the go-ahead for the introduction of the euro in Cyprus and Malta. Prior to that, the European Commission had established in the convergence reports that both States fulfilled the membership criteria for the Economic and Monetary Union.

These Decisions are addressed to the Member States. They stipulate that Cyprus and Malta fulfil the necessary conditions for the adoption of the single currency. They repeal the derogations in favour of the two countries referred to in Article 4 of the 2003 Act of Accession.

The Council decides which Member States fulfil the necessary conditions for the adoption of the euro, i.e. compatibility of their national legislation with the Community acquis and the convergence criteria set out in Article 140 of the Treaty on the Functioning of the EU (formerly Article 121 of the EC Treaty). The two proposals presented by the Commission on 16 May 2007 (Cyprus: CNS/2007/0090 and Malta: CNS/2007/0092) resulted in the present Decisions.

REFERENCES

Act Entry into force Deadline for transposition in the Member States Official Journal
Decision 2007/503/EC

Date of notification

OJ L 186 of 18.7.2007

Decision 2007/504/EC

Date of notification

OJ L 186 of 18.7.2007

RELATED ACTS

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank of 18 April 2008 on the introduction of the euro in Cyprus and Malta [COM(2008) 204 final – Not published in the Official Journal].

The Commission presents the results of the introduction of the single currency in Cyprus and Malta. It draws lessons from these for future changeovers to the euro (link to new summary EC000) in European Union Member States.

Conversion rates

Conversion rates

Outline of the Community (European Union) legislation about Conversion rates

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Conversion rates

Document or Iniciative

Council Regulation (EC) No 2866/98 of 31 December 1998 on the conversion rates between the euro and the currencies of the Member States adopting the euro [See amending acts].

Summary

This Regulation sets the conversion rates between the euro and the former national currencies of the Member States. These rates were adopted on 31 December 1998 when the first eleven Member States adopted the euro (Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland).

This Regulation has subsequently been amended several times to adopt the conversion rates of new Member Sates joining the euro area:

  • Greece in 2001;
  • Slovenia in 2007;
  • Cyprus and Malta in 2008;
  • Slovakia in 2009;
  • Estonia in 2011.

According to Article 140 of the Treaty on the Functioning of the EU, the conversion rates between the euro and the currencies of the Member States are set by the Council of the EU. It decides with the unanimity of the Member States whose currency is the euro and the Member State concerned, acting on a proposal from the Commission and after consulting the European Central Bank. Moreover, the conversion rates are irrevocably fixed:

1 euro Exchange Rate Former national currency
40.3399 Belgian francs
1.95583 German marks
15.6466 Estonian kroon
340.750 Greek drachma
166.386 Spanish pesetas
6.55957 French francs
0.787564 Irish pounds
1936.27 Italian lire
0.585274 Cyprus pounds
40.3399 Luxembourg francs
0.429300 Maltese liri
2.20371 Dutch guilders
13.7603 Austrian schillings
200.482 Portuguese escudos
239.640 Slovene tolars
30.1260 Slovakian kroon
5.94573 Finnish marks

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 2866/98

1.1.1999

OJ L 359 of 31.12.1998

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 1478/2000

1.1.2001

OJ L 167 of 7.7.2000

Regulation (EC) No 1086/2006

1.1.2007

OJ L 195 of 15.7.2006

Regulation (EC) No 1134/2007

1.1.2008

OJ L 256 of 2.10.2007

Regulation (EC) No 1135/2007

1.1.2008

OJ L 256 of 2.10.2007

Regulation (EC) No 694/2008

1.1.2009

OJ L 195 of 24.7.2008

Regulation (EU) No 671/2010

1.1.2011

OJ L 196 of 28.7.2010

Collection of statistical information by the European Central Bank

Collection of statistical information by the European Central Bank

Outline of the Community (European Union) legislation about Collection of statistical information by the European Central Bank

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Collection of statistical information by the European Central Bank

Document or Iniciative

Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information by the European Central Bank [Official Journal L 318 of 27.11.1998] [See amending acts].

Summary

The European Central Bank (ECB) has the right to collect statistical information within the limits of the reference reporting population and of what is necessary to carry out the tasks of the European System of Central Banks (ESCB).

The reference reporting population comprises:

  • legal and natural persons residing in a Member State and falling within the sector of “financial institutions” (as defined in the European System of National and Regional Accounts (ESA) 1995);
  • post office giro institutions;
  • legal and natural persons residing in a Member State insofar as they hold cross-border positions or have carried out cross-border transactions;
  • legal and natural persons residing in a Member State insofar as they have issued securities or electronic money;
  • legal and natural persons residing in a participating * Member State who hold financial positions vis-à-vis residents from other participating Member States or who have carried out financial transactions with residents from other participating Member States.

The ECB must specify the actual reporting population, using existing statistics as far as possible and exempting specific classes of reporting agents.

Member States are responsible for their own tasks in the collection of statistics and are required to cooperate fully with the ESCB.

The ECB has regulatory power with regard to the definition and imposition of its statistical reporting requirements on the reporting agents *.

If a reporting agent residing in a participating Member State is suspected of an infringement of the statistical reporting requirements to the ECB, the ECB has the right to verify the accuracy and quality of the statistical information and to carry out its compulsory collection. It has the right to:

  • require submission of documents;
  • examine the books and records of the reporting agents;
  • take copies or extracts from such books and records; and
  • obtain written or oral explanations.

The ECB or the competent national central bank must notify the reporting agent in writing of its decision to verify statistical information or to collect it compulsorily. Data will be collected in accordance with national procedures. When a reporting agent opposes the verification process, the participating Member State in which the reporting agent’s premises are located must give the necessary assistance, including ensuring access to the reporting agent’s premises by the ECB or the national central bank.

Reporting agents resident in a participating Member State who fail to comply with their statistical reporting requirements may be subject to the following sanctions by the ECB:

  • if no statistical information is received by the ECB or national central bank by the established deadline, a daily penalty payment not exceeding EUR 10 000, with the total fine not exceeding EUR 100 000;
  • if the statistical information is incorrect, incomplete or in a form not complying with the requirements, a fine not exceeding EUR 200 000;
  • if a reporting agent obstructs the tasks of the ECB or national central bank by preventing physical access to his premises, a fine not exceeding EUR 200 000.

The ECB is required to act in accordance with the principles and procedures set out in Regulation (EC) No 2532/98 on the powers of the ECB to impose sanctions.

The statistical information is considered confidential when it allows reporting agents and any other legal person, natural person, entity or branch to be identified, either directly from their name or address or from an officially allocated identification code, or indirectly through deduction.

Reporting agents must be informed of the statistical and other administrative uses to which statistical information provided by them may be put. They can obtain information on the legal basis for transmission and on the adopted protection measures

The ESCB must use confidential statistical information exclusively for carrying out the ESCB’s tasks ESCB except:

  • if the reporting agent or the other legal person, natural person, entity or branch which can be identified has explicitly given its consent to the use of the statistical information for other purposes;
  • for their transmission to other ESS members;
  • for granting scientific research bodies access to confidential statistical information which does not allow direct identification and with the previous explicit consent of the authority which provided the information;
  • for the use of information by the national central banks in the field of prudential supervision or for the exercise of functions in accordance with the Statutes of the ESCB and the ECB.

The ECB and the national central banks must take all the necessary regulatory, administrative, technical and organisational measures to ensure the protection of confidential statistical information. Member States must take all the necessary measures to ensure confidentiality, including the imposition of enforcement measures and appropriate sanctions in the event of an infringement.

Key terms of the act

  • Participating Member State: an EU Member State which has adopted the single currency and is part of the euro zone;
  • Reporting agents: legal and natural persons and the entities referred to in Article 2 of Regulation (EC) No 2533/98, which are subject to the ECB’s statistical reporting requirements.

References

Act

Entry into force

Deadline for transposition in the Member States

Official Journal

Regulation (EC) No 2533/98

1.1.1999

27.11.1998 (articles 5, article 6 paragraph 4 and article 8 paragraph 9)

OJ L 318 of 27.11.1998

Amending act(s)

Entry into force

Deadline for transposition in the Member States

Official Journal

Regulation (EC) No 951/2009

15.10.2009

Official Journal L 269 of 14.10.2009

Related Acts

Regulation 290/2009 of the European Central Bank of 31 March 2009 amending Regulation (EC) No 63/2002 (ECB/2001/18) concerning statistics on interest rates applied by monetary financial institutions to deposits and loans vis-à-vis households and non-financial corporations (ECB/2009/7).

Regulation (EC) No 25/2009 of the European Central Bank of 19 December 2008 concerning the balance sheet of the monetary financial institutions sector (Recast) (ECB/2008/32).

Regulation (EC) No 24/2009 of the European Central Bank of 19 December 2008 concerning statistics on the assets and liabilities of financial vehicle corporations engaged in securitisation transactions (ECB/2008/30).

Regulation (EC) No 1053/2008 of the European Central Bank of 23 October 2008 on temporary changes to the rules relating to eligibility of collateral (ECB/2008/11).

Regulation (EC) No 958/2007 of the European Central Bank of 27 July 2007 concerning statistics on the assets and liabilities of investment funds (ECB/2007/8).

Regulation (EC) No 63/2002 of the European Central Bank of 20 December 2001 concerning statistics on interest rates applied by monetary financial institutions to deposits and loans vis-à-vis households and non-financial corporations (ECB/2001/18).

Regulation (EC) No 2819/98 of the European Central Bank of 1 December 1998 concerning the consolidated balance sheet of the monetary financial institutions sector (ECB/1998/16).

Introduction of the euro

Regulation (EC) No 1348/2007 of the European Central Bank of 9 November 2007 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Cyprus and Malta (ECB/2007/11).

Regulation (EC) No 1637/2006 of the European Central Bank of 2 November 2006 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Slovenia (ECB/2006/15).

Regulation (EC) No 2548/2000 of the European Central Bank of 2 November 2000 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Greece (ECB/2000/11).

Minimum reserves

Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9).111

European Central Bank Regulation (EC) No 2157/1999 of 23 September 1999 on the powers of the European Central Bank to impose sanctions (ECB/1999/4).

Application of minimum reserves by the ECB

Application of minimum reserves by the ECB

Outline of the Community (European Union) legislation about Application of minimum reserves by the ECB

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Application of minimum reserves by the ECB

Document or Iniciative

Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of minimum reserves by the European Central Bank [Official Journal L 318 of 27.11.1998] [See amending acts].

Summary

This Regulation ensures that the minimum reserve arrangements applicable to credit institutions and their branches in Member States are the same throughout the euro area. Minimum reserves as a monetary policy instrument are used mainly to stabilise interest rates and to dampen autonomous fluctuations in money market liquidity by adjusting reserve requirements. The Regulation first sets out definitions of the following terms:

  • institution: any entity in a participating Member State which the European Central Bank (ECB) may require to hold minimum reserves;
  • reserve ratio: such percentage of the basis for minimum reserves as the ECB may specify in accordance with Article 19.1 of its Statute. Reserve ratios must not exceed 10% of any relevant liabilities forming part of the basis for minimum reserves but may be 0%. This approach reflects the need to give the ECB the necessary flexibility to carry out its tasks and takes into account the reserve ratios imposed by the national central banks which currently require reserves to be set up. At the same time, the Regulation seeks to ensure that the system of minimum reserves is the same throughout the euro area. In this way, it will not lead to the relocation of credit institutions;
  • sanctions: fines, periodic penalty payments, penalty interest and non-interest-bearing deposits.

Giving practical effect to the ESCB Statute

The Regulation is necessary to give practical effect to Article 19.2 of the Statute of the European System of Central Banks (ESCB), which provides that “the Council shall define the basis for minimum reserves “(i.e. deposits, debt securities issued, money market instruments) “and the maximum permissible ratios between those reserves and their basis, as well as the appropriate sanctions in cases of non-compliance”.

Exemptions and collection of information

The ECB may, on a non-discriminatory basis, exempt institutions from minimum reserves in accordance with its own criteria. It has the right to collect and to verify the information necessary for the application of minimum reserves. The right to verify data includes the right to:

  • require the submission of documents;
  • examine the books and records of the institutions;
  • take copies or extracts from such books and records;
  • obtain written or oral explanations.

This right makes for a proper balance between the rights of the institutions subject to the obligations and the needs of the ECB in performing its tasks. The ECB may also delegate the exercise of these rights to the national banks.

Sanctions

Where institutions fail to meet the obligations laid down in the Regulation and ECB regulations or decisions associated with it, the ECB may impose one of the following sanctions:

  • a payment of up to 5 percentage points above the ESCB’s marginal lending rate applied to the amount of the minimum reserves which the relevant institution fails to provide;
  • a payment of twice the ESCB’s marginal lending rate applied to the amount of the minimum reserves which the relevant institution fails to provide;
  • the requirement for the relevant institution to establish a non-interest-bearing deposit with the ECB or the national central banks of up to three times the amount of the minimum reserves which the relevant institution fails to provide. The maturity of the deposit must not exceed the period during which the institution fails to hold the minimum reserves.

Entry into force

Article 5 of the Regulation, which concerns regulatory power (right to exempt institutions, basis for minimum reserves, reserve ratios), has been applicable from the date of entry into force of the Regulation, i.e. 27 November 1998. The other articles have been applicable since 1 January 1999, the date of entry into force of the third stage of economic and monetary union.

Regulation (EC) No 134/2002

This Regulation extends to two months the period for the Governing Council to take a decision in order to implement the review procedure referred to in Article 3 (7) of Regulation (EC) No 2532/98.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 2531/98

27.11.1998

OJ L 318 of 27.11.1998

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 134/2002

26.1.2002

OJ L 24 of 26.1.2002

Related Acts

Regulation (EC) No of the European Central Bank of 19 December 2008 concerning the balance sheet of the monetary financial institutions sector (Recast) [Official Journal L 15 of 20 January 2009].
Monetary financial institutions (MFI) are subject to the requirement to report on their consolidated accounts to the European Central Bank (ECB). These institutions are known as credit institutions or financial institutions that receive deposits, grant loans and make investments in securities for their own accounts. They are mainly central banks, credit institutions (which can be an electronic money institution within the meaning of Directive 2006/48/EC) and monetary collective investment undertakings (CIUs) or money market funds.

Monthly and annual statistical reporting is used to calculate the reserve base of the ECB. The reporting requirement can be reduced for small MFIs, MMFs and electronic money institutions, which are considered as non-financial corporations.

This Regulation establishes additional statistical reporting requirements for securitisation transactions and loan disposal (regarding the net flow of securitised or disposed of loans and the end-of-quarter and end-of-period amounts outstanding).

Regulation (EC) No of the European Central Bank of 12 September 2003 on the application of minimum reserves (ECB/2003/9) [Official Journal L 250 of 2.10.2003].
This Regulation lays down the definitions, the methods for calculating and creating obligatory reserves, and reporting and verification rules. It will replace Regulation (EC) No 2818/98 with effect from 23 January 2004 and with effect from 9 March 2004 for certain provisions of Article 5. The new Regulation groups together in a single text the provisions of the old regulation and the significant amendments thereto and introduces new amendments concerning:

  • the deposit of reserves in the national central banks of the euro area;
  • the methods for calculating and creating reserves;
  • the reporting and verification rules;
  • the timetable for the maintenance periods;
  • procedures for the notification and acknowledgement of minimum reserves.

See consolidated version ( )

Introduction of the euro

Decision of the European Central Bank of 28 October 2008 on the transitional provisions for the application of the minimum reserves by the European Central Bank following the introduction of the euro in Slovakia (ECB/2008/14).

Regulation (EC) No 1348/2007 of the European Central Bank of 9 November 2007 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Cyprus and Malta (ECB/2007/11).

Regulation (EC) No of the European Central Bank of 2 November 2006 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Slovenia(ECB/2006/15).

Regulation (EC) No of the European Central Bank of 2 November 2000 concerning transitional provisions for the application of minimum reserves by the European Central Bank following the introduction of the euro in Greece (ECB/2000/11) [Official Journal L 291 of 18.11.2000].

Powers of the ECB to impose sanctions

Powers of the ECB to impose sanctions

Outline of the Community (European Union) legislation about Powers of the ECB to impose sanctions

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Powers of the ECB to impose sanctions

Document or Iniciative

Council Regulation (EC) No 2532/98 of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions [Official Journal L 318 of 27.11.1998, Corrigendum: Official Journal L 234 of 04.09.1999].

Summary

Aim. The Regulation is necessary in order to give practical effect to Article 34.3 of the Statute of the European System of Central Banks (ESCB), which provides that, within the limits and under the conditions adopted by the Council, the ECB is entitled to impose fines or periodic penalty payments on undertakings for failure to comply with its regulations and decisions.

Definitions. “Undertakings” means “those natural or legal persons, private or public, with the exception of public persons in the exercise of their public powers, in a participating Member State, which are the subject of obligations arising from ECB regulations and decisions” and includes “branches or other permanent establishments located in a participating Member State, the head office or registered office of which is outside a participating Member State”.

Sanctions. The fines and periodic penalty payments imposed by the ECB are subject to the following limits:

  • fines: the upper limit is EUR 500 000;
  • periodic penalty payments: the upper limit is EUR 10 000 per day of infringement. Periodic penalty payments may be imposed in respect of a maximum period of six months following the notification of the decision to the undertaking.

The decision on the appropriate sanction is based on the principle of proportionality. The ECB therefore takes into consideration:

  • the good faith and the degree of openness of the undertaking in the interpretation and fulfilment of the obligation arising from an ECB regulation or decision and the degree of cooperation shown;
  • the seriousness of the infringement;
  • the repetition, frequency or duration of the infringement;
  • the profits obtained by the undertaking;
  • the economic size of the undertaking;
  • sanctions imposed by other authorities on the same undertaking for the same infringement.

Decision-making powers. Under the Regulation, the Executive Board of the ECB has the power to decide whether an infringement has occurred and whether sanctions should be imposed; however, the national central banks may initiate and also conduct part of the infringement procedure. The ECB and the national central bank have the right to:

  • require the submission of documents;
  • examine the books and records of the undertaking and take copies;
  • obtain written or oral explanations.

The undertaking has thirty days in which to present its defence.

Having consulted the national central bank that initiated the procedure, the Executive Board of the ECB must adopt a decision.

Notification of the decision must be given to the undertaking, to relevant supervisory authorities and to the national central bank. The undertaking concerned may request a review of the decision by writing to the Governing Council within thirty days of the original decision.

The Governing Council of the ECB must submit its decision in writing, within two months, to the undertaking, the national central bank and the relevant authorities. If no decision has been taken within two months, the undertaking concerned may request a judicial review of the decision of the Executive Board in accordance with the Treaty.

Sanctions may not be enforced until the decision has become final. The proceeds from such sanctions belong to the ECB.

The right to initiate an infringement procedure on the basis of the Regulation is independent of any right of a competent national authority to initiate separate procedures in relation to areas outside the competence of the ESCB.

Procedures. The procedures laid down for the imposition of sanctions and the limits indicated make for a balance between the legal certainty of the undertakings subject to the regulations or decisions of the ECB and the need to allow the ECB some room for manoeuvre.

The right to take the decision to initiate an infringement procedure expires:

  • one year after the existence of the alleged infringement first became known either to the ECB or to the national central bank;
  • five years after the infringement occurred;
  • in the case of a continued infringement, five years after the infringement was terminated.

The right to enforce sanctions expires one year after the procedure was initiated.

The Court of Justice has unlimited jurisdiction in accordance with Article 172 of the Treaty over the review of final decisions.

In the event of a conflict between the provisions of the Regulation and those of other Council regulations allowing the imposition of sanctions, the provisions of the latter prevail.

The ECB may adopt regulations to specify further the arrangements whereby sanctions may be imposed.

Entry into force. Article 6(2) on general provisions and regulatory power is applicable from the date of entry into force of this Regulation. The other articles are applicable from the 1st January 1999.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 2532/98 27.11.9898 Official Journal L 318 of 27.11.1998

Related Acts

European Central Bank Regulation (EC) No 2157/1999 of 23 September 1999 on the powers of the European Central Bank to impose sanctions [Official Journal L 264 of 12.10.1999].
Article 6(2) of Council Regulation (EC) No 2532/98 confers on the ECB the power to adopt regulations specifying the arrangements whereby sanctions may be imposed. This Regulation therefore establishes the principles and procedures for the imposition of sanctions.
The ECB and the national central bank which is competent in the framework of the infringement procedure must carry out a thorough investigation of the alleged infringement in such a way as to ensure effectiveness, cooperation, transparency and confidentiality.
The Executive Board of the ECB and the competent national central bank must inform each other before any decision is taken to initiate an infringement procedure. They should cooperate during the procedure by exchanging information. The ECB and the national central bank are empowered to search for information on the premises of the undertaking concerned on production of formal authorisation.
The undertaking concerned is informed in writing, by the ECB or the national central bank, of the results of the investigation and has the right to reply within 30 days. The two institutions may where necessary carry out further inquiries. The undertaking concerned must submit any document necessary for the investigation and has the right to legal representation. It is also entitled to an oral hearing conducted in private on the premises of the ECB or the competent national central bank. The ECB establishes the manner in which payment of the sanction is to be made and may decide to publish the decision in the Official Journal.
In the event of a minor infringement the sanction may not exceed EUR 25 000.

The procedure in the event of non-compliance with minimum reserve requirements is as follows:
Before any sanction is imposed, the ECB or the competent national central bank notifies the undertaking concerned of the alleged non-compliance and of the corresponding sanction. The undertaking has five working days in which to react by either:

  • acknowledging the non-compliance,
  • presenting its written objections to the sanction.

Where no written objections are raised within the established time limit, the sanction is deemed to be imposed by decision of the Executive Board of the ECB and the undertaking concerned is charged the amount of the sanction.

Amended by the following act:

European Central Bank Regulation (EC) No 985/2001 of 10 May 2001 [Official Journal L 137 of 19.05.2001].

This Regulation simplifies the procedures for the storage of information relevant to the determination and enforcement of sanctions.

Economic Policy Committee

Economic Policy Committee

Outline of the Community (European Union) legislation about Economic Policy Committee

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Economic Policy Committee

Document or Iniciative

Council Decision 2000/604/EC of 29 September 2000 on the composition and the statutes of the Economic Policy Committee [See amending acts].

Summary

The Economic Policy Committee (EPC) was set up in 1974 (under Decision 74/122/EEC) to improve coordination of Member States’ economic and budgetary policies. With the entry into the third stage of Economic and Monetary Union (EMU) as from 1 January 1999 and the greater need for closer coordination of economic policies, the Committee’s operation and composition needed to be reviewed. This Decision of 29 September 2000 therefore adopts the revised statutes of the EPC. The statutes were revised again in 2003 to take account of the enlargement of the European Union (EU).

Close coordination of Member States’ economic policies

The introduction of the euro has made closer coordination of economic policies and sustained convergence of Member States’ economic performances all the more necessary. The Luxembourg European Council in 1997 called for enhanced coordination in the final stage of EMU. Closer monitoring of macroeconomic developments and of Member States’ structural policies on labour, product and services markets is considered necessary if EMU is to function properly.

The Economic Policy Committee is to assist the Ecofin Council by providing economic analyses and opinions on methodologies and by contributing to the drafting of policy recommendations, particularly on structural policies. It should focus in particular on:

  • the functioning of goods, capital, services and labour markets (developments as regards wages, productivity, employment and competitiveness);
  • the role and efficiency of the public sector and the long-term sustainability of public finances;
  • the economic implications of specific policies, such as those relating to the environment, research, development and social cohesion.

Article 99 of the EC Treaty provides for the formulation of broad economic policy guidelines (BEPGs), underpinned by a multilateral surveillance procedure. The EPC is to provide support for the formulation of the guidelines and to contribute to the multilateral surveillance procedure. By producing reports, the EPC will support the work of the Economic and Financial Committee. It will also conduct regular country reviews focused in particular on structural reforms in Member States.

Besides working in close collaboration with the Economic and Financial Committee, the EPC will also cooperate closely with the Employment Committee, which promotes coordination between Member States on employment and labour market policy.

Composition and functioning of the Economic Policy Committee

The Member States, the Commission and the European Central Bank must be represented on the EPC. Each of them appoints two members from among senior officials possessing competence in the field. Members of the Committee are to perform their duties in the general interest of the Community.

Opinions or reports subject to a vote are to be adopted by a majority of members. A report must then be drafted to give account of the minority views. Where reports concern issues on which the Council may subsequently take a decision, members from central banks and the Commission may not participate in the vote.

The Committee is consulted by the Commission on the maximum rate of increase for non-compulsory expenditure of the EU’s general budget. It also delivers opinions at the request of the Council, the Commission or the Economic and Financial Committee or on its own initiative.

Proceedings of the Committee are confidential. However, its reports or opinions are made publicly available, unless there are overriding reasons to keep them confidential. Reports are published on the EPC’s Internet site.

In 2003 the composition of the Committee was revised, reducing the number of representatives of the Member States, the Commission and the ECB to two each. Previously, they could each appoint four representatives. This change was necessary to prepare for the EU’s enlargement on 1 May 2004 and to ensure that the Committee can function smoothly. The number of EU Member States rose to 27 with the accession of Bulgaria and Romania on 1 January 2007.

Background

Founded in 1974, the EPC has taken over the tasks previously assigned to the Short-term Economic Policy Committee established by the Council Decision of 9 March 1960 on coordination of the conjunctural policies of the Member States, to the Budgetary Policy Committee set up by the Council Decision of 8 May 1964 on cooperation between the competent government departments of Member States in the field of budgetary policy, and to the Medium-term Economic Policy Committee set up by the Council Decision of 15 April 1964 setting up a Medium-term Economic Policy Committee.

References

Act Entry into force – Date of expiry Deadline for transposition in the Member States Official Journal
Council Decision 2000/604/EC 12.10.2000 OJ L 257, 11.10.2000
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Council Decision 2003/475/EC 1.7.2003 OJ L 158, 27.6.2003

Greece's membership in the single currency

Greece’s membership in the single currency

Outline of the Community (European Union) legislation about Greece’s membership in the single currency

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Greece’s membership in the single currency

Document or Iniciative

Council Decision of 19 June 2000 in accordance with Article 122(2) of the Treaty on the adoption by Greece of the single currency on 1 January 2001 [Official Journal L 167 of 7 July 2000].

Summary

At the time of the transition to the third stage of economic and monetary union (EMU), Greece did not fulfil the convergence criteria (Decision No 98/317/EC) and was covered by a derogation laid down in Article 122 of the Treaty. Every two years, or at the request of the Member State concerned, a report by the Commission and the European Central Bank (ECB) examined whether the convergence criteria were met. Greece requested that the derogation be repealed on 9 March 2000.

In its decision, the Council took the view in the light of the Commission and ECB report that:

  • Greece fulfilled the criterion relating to the average rate of inflation; during the previous year, the inflation rate reached 2 %, which was lower than the reference value (2.4 %);
  • Greece was not the subject of a decision on the existence of an excessively high government deficit (Decision 2000/33/EC), as the annual government deficit did not exceed the reference value (3 % of GDP) and the government debt ratio was approaching the reference value (60 % of GDP) at a satisfactory rate;
  • Greece had been a member of the exchange-rate mechanism of the European Monetary System (EMS) and subsequently of ERM II for two years without devaluing its currency’s central rate;
  • Greece met the criterion of the long-term interest rate; over the previous year, the interest rate reached 6.4 %, which was lower than the reference value (7.2 %);
  • Greek domestic legislation, including the statute of the national central bank, was compatible with the Treaty and the Statute of the European System of Central Banks (ESCB).

The Council therefore considered that Greece had achieved a high level of sustainable convergence and that it fulfilled the necessary conditions for the adoption of the single currency. The derogation relating to Greece was repealed on 1 January 2001.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Council Decision 2000/427/EC

01.01.2001

OJ L 167 of 07.07.2000

Related Acts

Council Regulation (EC) No 1478/2000 of 19 June 2000 amending Council Regulation (EC) No 2866/98 on the conversion rates between the euro and the currencies of the Member States adopting the euro.

By this Regulation, the Council set the conversion rate between the Greek drachma and the euro at 340.750 drachmas per euro, as of 1 January 2001.

 

United Kingdom: EMU opt-out clause

United Kingdom: EMU opt-out clause

Outline of the Community (European Union) legislation about United Kingdom: EMU opt-out clause

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

United Kingdom: EMU opt-out clause

Document or Iniciative

Protocol (No 25) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland (1992), annexed to the Treaty establishing the European Community.

Summary

This Protocol specifies the provisions of the United Kingdom’s opt-out from moving to the third stage of economic and monetary union (EMU), meaning that it has not introduced the euro for the time being. The United Kingdom is still in the second stage of EMU. The opt-out clause was a condition for the United Kingdom to approve the Treaty as a whole.

PROVISIONS OF THE OPT-OUT CLAUSE

The Protocol states that certain articles of the Treaty do not apply to the United Kingdom:

  • its powers in the field of monetary policy are not affected by the Treaty (the United Kingdom retains its powers in the field of monetary policy under national law);
  • it is not subject to the provisions of the Treaty relating to excessive deficits;
  • it is not concerned by the provisions of the Treaty relating to the European System of Central Banks (ESCB), the European Central Bank (ECB) or the regulations and decisions adopted by those institutions.

The United Kingdom’s voting rights are suspended for the acts of the Council concerning:

  • the decision on the irrevocable fixing of the exchange rates between the currencies of the Member States that move to the third stage and adopt the euro;
  • the appointment of the President, the Vice-President and the other four members of the Executive Board of the ECB.

For this purpose, the weighted votes of the United Kingdom are excluded from any calculation of a qualified majority.

NOTIFICATION OF THE UK GOVERNMENT

On 30 October 1997, the UK Government notified the Council that it was not intending to adopt the single currency on 1 January 1999. The United Kingdom may change its notification at any moment and introduce the single currency provided that it satisfies the following conditions:

  • the UK Government and Parliament take a decision in this respect (with or without a referendum, depending on national law);
  • the United Kingdom meets the convergence criteria laid down in the Treaty establishing the European Community.

Acting at the request of the United Kingdom, the Council, after examining a report from the Commission and the ECB, after consulting the European Parliament and after discussion in the Council, meeting in the composition of the Heads of State or Government, will decide whether the conditions are met and will act by qualified majority.

THE FIVE ECONOMIC TESTS

The UK Government has announced that any move to the third stage of EMU will depend on five economic tests being met:

  • Convergence of business cycles: Business cycles in the euro zone and the United Kingdom must be compatible. The assessment will focus on economic indicators such as inflation, interest rates, the output gap and the real effective exchange rate with a view to long-term convergence.
  • Flexibility: The UK economy must be flexible enough to ensure that any asymmetrical shocks can be absorbed by, for example, labour-market flexibility and mobility and by fiscal policy.
  • Investment: UK participation in the single currency must promote investment (foreign or domestic) in the long term.
  • Financial services: EMU must improve the competitive position of the UK’s financial services industry, particularly in London.
  • Growth, stability and jobs: EMU must have positive effects on employment and growth, measured by the impact on UK foreign trade, price differentials and macroeconomic stability.

According to the UK Government, these tests must be met before the United Kingdom applies to participate in the third stage of EMU. They are in addition to the formal criteria laid down in the Treaty. The assessment of the tests by the UK Treasury carried out in June 2003 (EN) was as follows: since 1997, the United Kingdom has made real progress towards meeting the criteria of the five tests. However, although the possible benefits (increases in investment, financial services, economic growth and job creation) seem clear, the Chancellor of the Exchequer cannot definitively conclude that convergence will be sustainable and that flexibility is sufficient to cope with any difficulties with the euro zone. A decision to adopt the single currency is therefore not currently in the UK national interest, according to reports from the Treasury.