Tag Archives: European Monetary System

The impact on Community policies, institutions and legislation

The impact on Community policies, institutions and legislation

Outline of the Community (European Union) legislation about The impact on Community policies, institutions and legislation

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

Economic and monetary affairs > Practical aspects of introducing the euro

The impact on Community policies, institutions and legislation

Document or Iniciative

Commission Communication of 5 November 1997: The impact of the changeover to the euro on Community policies, institutions and legislation [COM (97) 560 final – Not published in the Official Journal].

Summary

EXCHANGE RISK

At the time the communication was drawn up, the budget was cast in ecus but both revenue (resources) and expenditure are wholly or partly realised on the basis of national currency values.

  • On the revenue side, the contributions are paid by the Member States in national currency;
  • On the expenditure side, the appropriations are generally committed and paid in ecus, with the exception of the payment obligations under the Guarantee Section of the EAGGF and the administrative budget.

Operations carried out in national currency result in the Community budget having to bear the exchange risk, since the exchange value in ecus can fluctuate.

With the introduction of the euro, the participating Member States will have their currency in common with the Community budget. This will have the effect of completely removing the exchange risk for operations still carried out in national currency. However, as far as the “pre-in” countries (Denmark, the United Kingdom and Sweden) are concerned, the exchange risk would persist for this type of operation.

AGRICULTURAL POLICY

The agri-monetary regime will be affected in different ways by the introduction of the euro:

  • For the participating countries, it will no longer be necessary to convert amounts (the Community will reimburse in euros any expenditure made in euros by the Member State concerned); however, there remains a difference between the rates used in the agri-monetary regime and the fixed and irrevocable conversion rates. This situation will have to be rectified in a manner still to be determined.
  • For the “pre-in” countries, there will still be a need for a conversion rate, but the system could be adjusted.

Adjustments to the agri-monetary regime will also apply to the fisheries sector.

EUROPEAN ADMINISTRATION

Administrative expenditure represents 3.5% of the total budget (1996 figures), consisting primarily of pensions and salaries, which are paid in national currency (mainly Belgian and Luxembourg francs).

The introduction of the euro will eliminate the exchange risk for the Community budget as regards all salaries and pensions paid to persons resident in participating Member States.

Given the political significance of the remuneration of Community staff, it is proposed that pay slips be expressed in euros and that salaries and pensions be paid in euros in the participating countries as from 1 January 1999.

COMMUNITY LAW

The most immediate consequence of the transition to the euro for Community legislation is that the ecu will be replaced by the euro (at a rate of 1:1) without any action needing to be taken at either Community or national level.

To cater for cases where the common figure in ecus is accompanied by a clause governing conversion to the respective national currencies, the Commission has drawn up certain guidelines in order to ensure consistency in the interpretation of such clauses.

Certain legal clauses need to be dealt with individually, such as those which refer to specific interest rates (e.g. in the context of penalty clauses) that will no longer be available once the euro has been introduced.

As regards agreements with third countries, references to the ecu will automatically be converted to euros without any specific action having to be taken by any party. It would be advisable to run an information campaign for the benefit of the parties concerned in advance of 1 January 1999.

OTHER CONSEQUENCES

From the operational point of view, the transition will affect the following:

  • treasury management and financial management: the treasury department of the Commission will no longer have to purchase huge amounts of ecus on the currency markets and the management of accounts and of foreign currency transactions will be greatly simplified;
  • statistics: some of Eurostat’s statistical time series will be rescaled; new statistical aggregates will be produced for the euro area;
  • informatics: the “Euro/Year 2000” working group is dealing with the relevant issues in this field.

The changeover work to be carried out in the Community institutions will largely take place before 1 January 1999, in contrast to the changeover at national, regional and local level, where the adaptation work necessitated by the changeover will be spread over the entire length of the transitional period, and in a few instances will even be concentrated at the end of this period (1 January 2002).

Recommendations for future changeovers to the euro

Recommendations for future changeovers to the euro

Outline of the Community (European Union) legislation about Recommendations for future changeovers to the euro

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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

Recommendations for future changeovers to the euro

Document or Iniciative

Commission Recommendation (EC) No. 78/2008 of 10 January 2008 on measures to facilitate future changeovers to the euro [Official Journal L 23 of 26.1.2008].

Summary

The Commission has adopted a recommendation to prepare for the future enlargements of the euro area. The adoption of a single currency by the new countries will be concomitant to the introduction of euro cash.

States must put into place special structures for the planning and coordination of the changeover to the euro. The national changeover plans, covering the principal aspects of the changeover, should be prepared in cooperation with the main economic operators* and regularly updated.

Informing citizens

States are encouraged to launch publicity campaigns before and after the introduction of the new currency. In particular they must raise citizens’ awareness of the new scale of value, inform them of the practical measures being implemented for the introduction of the new currency and the security features of the euro. Special attention must be paid to vulnerable people and to those who experience difficulty accessing information.

Dual display of prices and all other amounts to be paid, credited or debited will be mandatory during the initial period, as soon as possible after the adoption date of the fixed conversion rate, and during the six months to a year following the adoption of the euro. The Member States must monitor the evolution of prices during this period and regularly inform their citizens.

Facilitating the changeover to the euro

States must implement measures enabling the main economic operators concerned to prepare for the changeover to the euro and must supervise this preparation. In particular they must inform businesses of the timetable for the introduction of the new currency and the changes required to administrative and financial systems. States must monitor the practical preparations of the economic operators, specifically through regular surveys. Public administrations, credit institutions and businesses should train their personnel to work with the new cash.

Cash exchange must begin before the changeover to the euro. Credit institutions and sales outlets should make use of the frontloading* and sub-frontloading* of euro banknotes and coins. Kits of euro coins should be distributed to small retail outlets and citizens.

Cash withdrawals and exchange should be facilitated during the introductory phase of the euro. Sales outlets should be required to give change in euros, and cash dispensers and electronic point-of-sale terminals must be converted as soon as the euro is introduced. Banks must adapt their opening hours during the dual currency circulation period in order to facilitate exchange of the old national currency for the euro.

Preventing abusive practices

Agreements should be negotiated with the retail and service sectors in order to ensure a neutral impact of the euro introduction on prices. Signatories to the agreement will be given a logo and their compliance with the conditions of the agreement will be monitored in cooperation with consumer associations. Dissuasive measures and fines could be foreseen.

The same bank charges applicable to payment transactions in national currency should be, after conversion, applicable to payment transactions in euro.

Context

States which introduced the euro in 1999 and 2002 had a long transition period between the adoption of the currency by the money markets and the circulation of cash. For those States which have recently adopted the euro and those which are preparing to do so, the strategy for the changeover to the euro has been modified, specifically by an introduction of coins and notes concomitant to the adoption of the euro. The last Commission Recommendation 2000/C 303/05 on measures to facilitate the preparation of economic operators for the changeover to the euro [OJ C 303 of 24.10.2000], is no longer adapted to the next enlargements of the euro area.

Key terms of the act
  • Frontloading: the physical delivery of euro banknotes and coins by a future Eurosystem (NCB) to eligible counterparties in the territory of a future participating Member State in the euro area.
  • Sub-frontloading: the delivery of frontloaded euro banknotes and coins by an eligible counterparty to professional third parties in the territory of a future participating Member State in the euro area.
  • Economic operators: a term which applies to credit institutions, the retail sector, CIT companies, the vending industry, consumer associations and chambers of commerce in particular.

The introduction of the euro in Slovakia

The introduction of the euro in Slovakia

Outline of the Community (European Union) legislation about The introduction of the euro in Slovakia

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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

The introduction of the euro in Slovakia (2009)

Document or Iniciative

Council Decision of 8 July 2008 in accordance with Article 122(2) of the Treaty on the adoption by Slovakia of the single currency on 1 January 2009.

Summary

This Decision allows Slovakia to adopt the euro on 1 January 2009, considering that the country meets the necessary requirements for entry into the third stage of the Economic and Monetary Union (EMU).

In this respect, the derogation which applies to Slovakia in accordance with Article 4 of the 2003 Act of Accession(PDF) will be abrogated on this date.

The country fulfils the convergence criteria insofar as:

  • the legislation, including the statutes of the national central bank, is compatible with Articles 108 and 109 of the Treaty and the Statute of the European System of Central Banks (ESCB);
  • the average rate of inflation was 2.2 % in 2008, much lower than the reference value (an average 1.5 % lower than those of the three Member States with the best results in terms of price stability). This trend should remain steady in the medium term;
  • the budget deficit has been reduced to less than 3 % of GDP and Decision 2005/182/ECon the existence of an excessive deficit in Slovakia has been abrogated by Decision 2008/562/EC;
  • the country has been a member of the European Exchange Rate Mechanism (ERM II) since 28 November 2005. During this two-year period, Slovakia has not devalued the bilateral central rate of its currency against the euro, and the Slovak koruna (SKK) has not been subject to any severe tensions;
  • the long-term interest rate in Slovakia is, on average, 4.5 % which is below the reference value (the average rate of the three Member States with the best results in terms of price stability, plus two percentage points – i.e. 6.5 % in 2008).

This Decision is based on convergence reports provided to the Council by the Commission and by the European Central Bank (ECB ) (PDF), at Slovakia’s request.

Context

With regard to the Act of Accession, new European Union Member States are in a position to participate in the EMU from their date of accession. They benefit from a derogation under Article 122 of the Treaty until the Council decides, following a proposal from the Commission, to abrogate the derogation for those States meeting the convergence criteria.

References

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

Decision 2008/608/EC

24.7.2008

OJ L 195 of 24.7.2008

 

European financial supervision

European financial supervision

Outline of the Community (European Union) legislation about European financial supervision

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

Internal market > Financial services: general framework

European financial supervision

Document or Iniciative

Communication from the Commission of 27 May 2009 – European financial supervision [COM(2009) 252 final – Not published in the Official Journal].

Summary

This Communication sets out the basic architecture for a new European financial supervisory framework. The European Commission proposes that this framework be composed of two new pillars:

  • the European Systemic Risk Council (ESRC);
  • the European System of Financial Supervisors (ESFS).

The European Systemic Risk Council (ESRC)

The financial crisis revealed the shortcomings of a system that was lacking in macro-financial supervision. Under the new system, it is essential to be able to identify risks to stability and to introduce an effective warning system. The current macro-prudential measure is too fragmented. It should be developed further.

The ESRC should be an independent body, responsible for safeguarding financial stability in the area of macro-prudential supervision at European level. It will not have any legally binding powers and shall be responsible for the following tasks:

  • collecting information and identifying potential threats;
  • prioritising risks according to their significance;
  • issuing warnings where applicable;
  • making recommendations if required;
  • monitoring the measures that are taken;
  • cooperating with the IMF, the FSB and third country counterparts.

Macro-prudential supervision will mainly be carried out by central banks. In this regard, the Commission proposes that the ESRC be composed of:

  • the President of the European Central Bank (ECB), responsible for the presidency of the ESRC;
  • a Vice-President (elected by the members of the ESRC);
  • the central bank governors from the 27 Member States;
  • the Vice-President of the ECB;
  • the Chairpersons from the three European supervisory authorities;
  • a member of the European Commission.

Each national central bank governor shall be accompanied by a representative of the national supervisory authorities, admitted as observers.

It is planned that the ESRC shall form part of the European legal and institutional framework. The Commission proposes that the ESRC should be established on the basis of Article 95 of the EC Treaty as a body without legal personality.

The European System of Financial Supervisors (ESFS)

The ESFS corresponds to a micro-prudential approach. Its duties are to set up a system which is in line with the objective of a stable and single market for financial services in the European Union. It will also be responsible for linking national supervisors into a strong Community network.

The ESFS shall form an operational European network. The three Committees of Supervisors are to be replaced by the following authorities, having a legal personality:

  • the European Banking Authority (EBA);
  • the European Insurance and Occupational Pensions Authority (EIOPA);
  • the European Securities Authority (ESA).

These three authorities shall:

  • establish a single set of harmonised rules;
  • ensure consistent application of EU rules;
  • manage disagreement between national supervisors;
  • make recommendations if there is a manifest breach of Community law;
  • create a common supervisory culture and consistent supervisory practices;
  • have full supervisory powers for some specific entities;
  • ensure a coordinated response in crisis situations;
  • collect micro-prudential information.

The ESFS shall be composed of:

  • the three supervisory authorities described above;
  • a steering committee;
  • national supervisory authorities.

With the establishment of the ESFS, and the three European Supervisory Authorities described above, the Commission intends to introduce a “single rule book” which will ensure uniform application of rules in the EU in order to safeguard the effective functioning of the internal market.

The ESFS is to be established on the basis of Article 95 of the EC Treaty.

Context

The October 2008 financial crisis revealed many shortcomings in financial supervision. As a response to this crisis, the Commission mandated a group chaired by Mr Larosière to propose recommendations in order to strengthen European supervisory arrangements. The Larosière Group thus presented a report on 25 February 2009 introducing a new system, which is set out in this Communication.

This summary is for information only. It is not designed to interpret or replace the reference document, which remains the only binding legal text.

Settlement finality in payment and securities settlement systems

Settlement finality in payment and securities settlement systems

Outline of the Community (European Union) legislation about Settlement finality in payment and securities settlement systems

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

Internal market > Single market for capital

Settlement finality in payment and securities settlement systems

This Directive aims to reduce the systemic risk inherent in payment and securities settlement systems and to minimise the disruption caused by the insolvency of a participant in such a system.

Directive 98/26/EC of the European Parliament and of the Council on settlement finality in payment and securities settlement systems [See amended acts].

Summary

The Directive aims to reduce the systemic risk associated with participation in payment and securities settlement systems (“systems”), and in particular the risk linked to the insolvency of a participant in such a system. To this end, it lays down common rules stipulating that:

  • transfer orders and netting must be legally enforceable;
  • transfer orders may not be revoked once they have been entered into the system;
  • the insolvency of a participant may not have retroactive effects;
  • the insolvency law applicable is the law of the Member State whose system is involved.

It further stipulates that collateral security provided to a system by a participant may not be affected by the opening of insolvency proceedings against that participant. In this way, the Directive contributes to the efficient and cost-effective operation of cross-border payment and securities settlement arrangements, thereby reinforcing the freedom of movement of capital and the freedom to provide services within the internal market.

Institutions involved

The institutions covered are:

  • credit institutions;
  • investment firms;
  • public authorities;
  • any undertaking whose head office is outside the Community and whose functions correspond to those of Community credit institutions or investment firms.

Transfer and payment orders

Transfer orders and netting are legally enforceable and binding on third parties, even in the event of insolvency proceedings against a participant, provided that transfer orders were entered into a system before the moment of opening of such insolvency proceedings.
Where, exceptionally, transfer orders are entered into a system after the moment of opening of insolvency proceedings and are carried out on the day of opening of such proceedings, they are binding on third parties only if the settlement agent, the central counterparty or the clearing house can prove that they were not aware, nor should have been aware, of the opening of such proceedings.

The moment of entry of a transfer order into a system is defined by the rules of that system.

A payment order may not be revoked by a direct participant or by a third party as from the moment defined by the rules of the system.

Insolvency proceedings

Where the judicial or administrative authority launches insolvency proceedings, they inform the competent authority in the Member State concerned who will then inform the European Systemic Risk Board (ESRB) and the European Securities and Markets Authority (ESMA).

Insolvency proceedings may not have retroactive effects.

A Member State whose competent judicial or administrative authority has taken a decision regarding the insolvency of a participant in a system must immediately notify the other Member States concerned.

In the event of insolvency proceedings being opened against a participant in a system, the rights and obligations in connection with that participation are determined by the law governing the system in question.

As regards the effects of insolvency on collateral security, the Directive lays down that the rights of a participant in a system, as well as the rights of the central banks of the Member States and of the future European Central Bank, to collateral security provided to them may not be affected by insolvency proceedings against the institution which provided the collateral security.

Where collateral security is provided in the form of securities (including rights in securities), the rights of the relevant participants and of the central banks of the Member States and of the future European Central Bank are determined by the legislation of the Member State where their rights are registered.

Member States must determine the systems and the systems’ operators respectively who come under the scope of this Directive. They then notify ESMA who will publish the information on their website.

Member States must inform the Commission which systems are included in the scope of the Directive. The systems, for their part, must indicate to the Member State whose law is applicable the participants in the system as well as any possible change in the composition of the system. Member States may also impose supervision or authorisation requirements. Furthermore, any person with a legitimate interest may require an institution to inform him of the systems in which it participates and the rules governing their functioning.

The competent authorities cooperate with ESMA and provide it with all the information required for it to be able to achieve its objectives.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Directive 98/26/EC

11.6.1998

11.12.1999

OJ L 166 of 11.6.1998

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Directive 2009/44/CE

30.6.2009

30.12.2010

OJ L 146 of 10.6.2009

Directive 2010/78/EU

4.1.2011

31.12.2011

OJ L 331 of 15.12.2010

Successive amendments and corrections to Directive 98/26/EC have been incorporated in the basic text. This consolidated versionis for reference purpose only.