EN ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 18 December 2013 
on public finances 
(CON/2013/90) 
 
Introduction and legal basis 
On 12 July 2013, the European Central Bank (ECB) received a request from the Luxembourg Ministry of 
Finance for an opinion on a draft law on coordination and governance of public finances1 (hereinafter the 
‘draft law’). 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent  of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions2, as the draft law relates to the Banque centrale du Luxembourg (BCL). In 
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central 
Bank, the Governing Council has adopted this opinion. 
 1. Purpose of the draft law 1.1 The main purpose of the draft law is to improve Luxembourg’s legislation on public finances and 
budgetary framework in the light of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union
3 (hereinafter the ‘TSCG’), Regul ation (EU) No 473/2013 of the 
European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring th e correction of excessive deficit in the Member 
States in the euro area
4 and Council Directive 2011/85/EU of 8 November 2011 on requirements 
for budgetary frameworks of the Member States5. The draft law is scheduled to enter into force on 
1 January 2014. 
1.2 To this end, the draft law aims at reflecting the requirements laid down in Article 3(1) of the TSCG 
in respect of central and local government, as well as social security fund sub-sectors. These are, 
inter alia , that the budgetary position of the general g overnment of a contracting party to the TSCG 
                                                            
1 The full title of the draft law is ‘L aw on the coordination and governance of public finances, amen ding the amended Law 
of 8 June 1999 on budget, accounting and treasury as well as the amended Law of 10 March 1969 setting up a general 
inspection of the public finances’. 
2 OJ L 189, 3.7.1998, p. 42. 
3 The TSCG was signed by 25 Member Stat es on 2 March 2012. It entered into fo rce on 1 January 2013, on the basis that 
12 euro area Member States had deposited th eir ratification instruments by that date. 
4 OJ L 140, 27.05.2013, p. 11. 
5 OJ L 306, 23.11.2011, p. 41. 
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2 shall be balanced or in surplus, and suppor ted by a medium-term budgetary objective and an 
adjustment path, as well as a correction mechanis m to be automatically triggered in case of 
significant deviation from the medium-term objec tive or the adjustment path towards it. 
1.3 The BCL, without prejudice to its own tasks, w ill be entrusted with the tasks of monitoring 
compliance at national level with the abovemen tioned requirements, assessing macroeconomic and 
budgetary forecasts established for the purpose of ge neral government fiscal planning, as well as 
conducting all other assessments required under Artic le 5(2) of Regulation (EU) No 473/2013. 
1.4 In order to make Luxembourg’s legislation on publ ic finances compliant with the abovementioned 
requirements and to implement Directive 2011/85/E U, the draft law establishes that the medium-
term objective and adjustment path towards it be laid down in the multiannual financial planning 
law. This will cover the same period as the subsequent update of the stability and growth 
programme. In addition, the amended Law of 8 June 1999 on budget, accounting and treasury 
(hereinafter ‘the Budget Law’)6 will be further amended, with the effect that a budgetary procedure 
would enter into force if Parliament does not a pprove the national budget by 1 January of the year 
to which the budget applies. 
 
2. General observations  2.1 In accordance with Article 2(1) of Counc il Decision 98/415/EC, the relevant Member State 
authorities shall consult the ECB on any draft legi slative provision within the latter’s field of 
competence pursuant to the Treaty, unless the ex clusive purpose of such provisions is the 
transposition of Union legal acts into Member St ates’ national laws. The Luxembourg Ministry of 
Finance has accordingly sought the ECB’s opinion on the draft law, which, in the context of the implementation of the TSCG and of certain pr ovisions of Directive 2011/85/EU and Regulation 
(EU) No 473/2013, entrusts the BCL with new tasks and amends the Budget Law. The ECB welcomes the opportunity to give its opinion on this  draft law, which aims to improve the national 
budgetary framework in terms of consistency with the reinforced  Union governance framework and 
the sustainability of public finances. 
2.2 Although Luxembourg is not subject to an excessive  deficit procedure, enactment of the draft law 
is of the utmost importance in the light of the structural fiscal challenges it faces
7 and of the urgent 
need to modernise its legal budgetary framework, which is still based on an annual budget exercise. 
 3. Form of implementation of the balanc ed budget rule and correction mechanism 
3.1 Article 3(2) of the TSCG provides that the ‘b alanced budget rule’ takes effect in national law 
through ‘provisions of binding force and perman ent character, preferably constitutional, or 
otherwise guaranteed to be fully respected a nd adhered to throughout the national budgetary 
                                                            
6 Mémorial, 11.06.1999, A, No. 68, p. 1448. 
7 See the BCL opinions on the draft budgetary laws in respect  of the years from 2008 to 2012 inclusive, available on the 
BCL’s website at www.bcl.lu . 
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3 processes’. In accordance with the Communica tion from the Commission on Common principles 
on national fiscal correction mechanisms (hereinafter the ‘Common Principles’)8 adopted in 
accordance with Article 3(2) of the TSCG, the le gal status of the correction mechanism to be 
triggered in case of significant observed deviations9, ‘should be such that their provisions cannot be 
simply altered by budgetary law’. 
3.2 The ECB notes that the draft law has been designed as an ordinary legal act, which could be 
deviated from by any other ordinary law (including any budget laws). The ECB invites the consulting authorities to reconsider the form of the national legal act implementing the TSCG since 
the mere enactment of the draft law, while  constituting a timely and necessary step towards 
implementing the TSCG, does not guarantee the primacy of the rule laid down in Article 3(1) of the 
TSCG in Luxembourg’s legal system. A possible way forward that the Luxembourg authorities 
may want to consider is to reflect the pr inciple of a balanced budget in the Luxembourg 
Constitution. 
 4. The nature of the correction mechanisms 
4.1 Article 3(1)(e) of the TSCG requires the automati c triggering of a correction mechanism in the 
event of significant observed deviations from the medium-term objective or the adjustment path 
towards it. This correction mechanism shall in clude the obligation to implement measures to 
correct the deviations over a defined period of tim e. Common Principle 4 further provides that pre-
determined rules shall frame the size and timeline of the correction, thereb y limiting, though not 
entirely ruling out, the scope for discretion in devising the response to a significant budgetary deviation. In addition, a Member State is expect ed to restore the medium-term objective as fast as 
is reasonably possible, which generally means ei ther in the year immediately following the 
occurrence of the deviation or the subsequent year. 
4.2 While the draft law improves the medium-term budge tary framework in line with the requirements 
of the TSCG, the mechanism for correcting observe d deviations lacks automaticity. Moreover, the 
draft law does not sufficiently detail the specificitie s of the correction mechanism. In particular, 
Article 6 of the draft law specifies only that the government shall include measures to re-establish 
the path provided for in the multiannual planning  law, no later than in the draft budget for the 
coming year. In this context, it would be useful for the Luxembourg legislator to consider adopting 
a more stringent deadline for taking corrective measures, by which the pace of implementation 
would be quickened and the automaticity of the mechanism would be strengthened. Furthermore, 
the draft law fails to specify the nature of the measures to be taken and leaves it to the 
government’s discretion, which is not in line w ith the abovementioned provisions of the TSCG and 
Common Principle 4. Effective coordination across the different sublevels of government might be considered to achieve this purpose.  
                                                            
8 COM(2012) 342 final. 
9 See Article 3(1)(e) of the TSCG. 
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4  
5. Assumption of new tasks by the BCL 
5.1 The draft law entrusts the BCL with new tasks:  it designates the BCL as the independent institution 
monitoring compliance with Article 3(1) of th e TSCG, and makes it responsible for assessing 
macroeconomic forecasts for the purpose of genera l government fiscal planning and for conducting 
all other assessments pursuant to Article 5(2) of Regulation (EU) No 473/2013. These new tasks are not provided for in the Law of 23 Decembe r 1998 on monetary status and on the Banque 
centrale du Luxembourg
10 (hereinafter the ‘BCL Law’). 
5.2 Without prejudice to the Governing Council’s powers under Article 14.4 of the Statute of the 
European System of Central Banks (hereinafter th e ‘Statute of the ESCB’), national central banks 
(NCBs) may perform functions other than those speci fied in the Statute of the ESCB provided that 
such functions do not interfere with the objectives and tasks of the ESCB and do not infringe upon the independent execution by the NCB of its ESCB tasks
11. 
5.3 The BCL role provided for in the draft law pursu ant to Article 3.2 of the TSCG would imply, in 
accordance with Common Principle 7, that the BCL, in order to  support the cr edibility and 
transparency of the correction mechanism, woul d monitor compliance with the numerical fiscal 
rules incorporated in the national budgetary pr ocesses, as well as with the medium-term budgetary 
objectives included in the multiannual financial pl anning and provide public assessments with 
regard to: (a) the occurrence of circumstance s warranting the activation of the correction 
mechanism; (b) whether the correction is proceed ing in accordance with national rules and plans; 
(c) the occurrence of circumstances for triggeri ng, extending and exiting escape clauses. Similarly, 
the BCL’s role provided for in the draft law pu rsuant to Article 5(2) of Regulation (EU) 
No 473/2013 would imply that the BCL, in addition to monitoring compliance with the fiscal rules identified in this Article, must provide assessments, inter alia , on fiscal matters broadly equal to 
those contained in Common Principle 7
12. Furthermore, the draft law gives a general responsibility 
to the BCL to assess macroeconomic and budgetary forecasts established for the purpose of general 
government fiscal planning. 
5.4 It is acknowledged that an NCB commonly monito rs various types of information in order to 
properly assess current and prospect ive developments that are re levant for monetary policy. 
Monitoring fiscal developments is a task that an  NCB carries out on a regular basis in order to 
properly assess the stance to be taken in monetary  policy. Moreover, NCBs may present their views 
on relevant fiscal developments on the basis of their monitoring activity and the independence of 
                                                            
10 Mémorial , 24.12.1998, A, No 112, p. 2980. 
11 See paragraph 2 of Opinion CON/2013/56. 
12 According to Article 5(2), these assessments would cover ‘(a) the occurrence of circumstances leading to the activation of 
the correction mechanism for cases of significant observed de viation from the medium-term objective or the adjustment 
path towards it in accordance with Article 6(2) of Regula tion (EC) No 1466/97; (b) whether the budgetary correction is 
proceeding in accordance with national rules and plans; (c) any occurrence or cessation of circumstances referred to in 
the tenth subparagraph of Article 5(1) of Regulation (EC) No 1466/97, which may allow a temporary deviation from the 
medium-term budgetary objective or the adjustment path to wards it, provided that such a deviation does not endanger 
fiscal sustainability in the medium term’.  
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5 their advice, with a view to also contributing to the proper functioning of European Monetary 
Union. In this respect, the monitoring of fiscal  developments by Eurosystem central banks for 
monetary policy purposes should be based on the fu ll access to all relevant public finance data.  
Accordingly, the BCL should be granted unconditi onal, timely and automatic access to all relevant 
public finance statistics. The BCL’s current role in monitoring fiscal developments should be enhanced through obtaining unconditional, timely and automatic access to all relevant public 
finance statistics. In any event, the BCL should re tain any role it may already have regarding the 
production and quality control of government fi nance statistics in accordance with Council 
Regulation (EC) No 479/2009 of 25  May 2009 on the application of the Protocol on the excessive 
deficit procedure annexed to the Treaty establishing the European Community
13, Guideline 
ECB/2013/23 on government finance statistics, and the memorandum of understanding on the 
cooperation between the members of the European Statistical System (ESS) and the members of 
the ESCB, dated 24 April 201314. 
5.5 However, as indicated by the ECB in a recen t opinion, an NCB’s role should not go beyond 
monitoring activities that result from or are linked – directly or indirectly – to the discharge of their monetary policy mandate
15. The ECB is of the view that the monetary policy mandate as well as an 
NCB’s independence run the risk of being un dermined if the NCB takes up the monitoring 
activities set out in Article 5 of Regulation (EU) No 473/2013 and Article 4 of Directive 2011/85/EU. This would likely pose risks to th e discharge of its monetary policy mandate, inter 
alia, for the following reasons. First, as regards i nvolvement in macro-economic forecasting in 
accordance with Directive 2011/85/EU, an NCB coul d become subject to guidelines or scrutiny by 
national or European authorities under Article 4(5) of Directive 2011/85/EU
16. As a result, an NCB 
might be required to disclose its view of th e economic outlook according to principles and/or a 
schedule different from that for publishing the eco nomic projection it deems relevant for monetary 
policy purposes. This would represent an impairment  of the independence of the NCB. Second, as 
regards the provision of assessments of fiscal policy17, the formal mandate to scrutinise government 
policies in the form of public opinions would put the NCB in a position that could regularly 
conflict with fiscal policy-making. The economic assessment of fiscal and macroeconomic developments is never entirely mechanical and always  contains an element of judgement. It is thus 
easily subject to political controversy. This, in tu rn, could affect the working relations between the 
NCB and the government, affect the public per ception of the NCB as well as possibly undermine 
                                                            
13 OJ L 145, 10.06.2009, p. 1. 
14 Available on www.ecb.europa.eu . The Memorandum of Understanding facilitates close cooperation between the ESS and 
the ESCB in areas of shared responsib ility or common interest, thereby increasing the potential synergies in the 
production inter alia of govern ment finance statistics. 
15 See paragraph 4.3 of Opinion CON/2012/105. 
16 See also the Specifications on the implementation of the ‘two-pack’ and Guidelines on the format, content of draft 
budgetary plans, economic partnership programmes and debt issuance reports of 1 July 2013 (hereinafter the 
‘Specifications’). Available on the European Commission website at www.ec.europa.eu . 
17 Particularly those provisions relating, inter alia , to circumstances arising that lead to the activation of the correction 
mechanism, the budgetary correction and medium-term objectives or adjustment path deviations. It also includes 
considerations provided for in the escap e clause according to which the devi ation from the balanced budget rule may 
surpass the anticipated limit in the case of extraordinary circumstances. 
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6 its independence. More generally, a formal mandate for an NCB to assess forecasts and fiscal 
developments implies a function for the NCB in the fiscal policymaking process. As an NCB is 
thus entrusted with a share of the responsibilit y for fiscal policy, the institutional separation 
between fiscal and monetary policy becomes blurred.  
5.6 The ECB therefore recommends that the consu lting authority reconsiders the assignment by the 
draft law of the new tasks to the BCL. In this c ontext, the ECB reiterates that the Specifications 
recommend the preparation of an all-encompassing code  of practice, gathering all the relevant legal 
provisions and procedural elements that are pa rt of the framework for the production and/or 
endorsement of independent macro-economic forecasts18, including the timely provision of 
forecasts to support the relevant stages of the national budgetary process. In addition, the ECB 
notes that the institution(s) responsible for prepar ing, producing, monitoring and analysing the 
macroeconomic forecasts are to be designated by means of a grand-ducal regulation only after the 
draft law comes into force19. The draft law and the grand-ducal regulation would therefore need to 
separate the responsibilities between the govern ment, which is exclusively competent for 
compliance with the TSCG and Regulation (EU) No 473/2013, and the central bank, which should not go beyond what is necessary for monetary po licy purposes as regards fiscal policy monitoring.   
 6. Financial independence of the BCL and prohibition of monetary financing 
6.1 Without prejudice to the observations on the new tasks entrusted to the BCL by the draft law as 
concerns the BCL’s discharge of its existing mone tary policy tasks, the ECB reiterates that, from 
an operational and financial point of view, any new task allocated to an NCB should not affect that 
NCB’s ability to carry out its ESCB-related tasks. Financial independence, which is an element of 
the principle of central bank independence referred to in Article 130 of the Treaty, requires an NCB 
to have sufficient means not only to perform its ESC B-related or Eurosystem-related tasks but also 
its national tasks, e.g. financing its own admini stration and operations. Such  financial independence 
is assessed from the perspective of whether any thir d party is able to exercise either direct or 
indirect influence not only over an NCB’s tasks, but also over its ability to fulfil its mandate both 
operationally in terms of manpower  and financially in terms of appropriate financial resources
20. 
6.2 Further, it is important to safeguard complian ce with the monetary financing prohibition pursuant 
to Article 123 of the Treaty. The prohibition is esse ntially designed to prevent central banks from 
providing overdraft facilities or any other type of  credit facility to the public sector. National 
legislation should not require an NCB to fina nce the performance of tasks incumbent on the 
government, without stipulating that the government  will compensate the NCB for the discharge of 
such tasks. The ECB notes that the draft law does not provide for such compensation and this 
                                                            
18 See the Specifications, p. 41: ‘The national procedures shoul d provide an important element,  fostering accountability and 
transparency and defining the different tasks allocated to every actor in the forecasting exercise and the milestones to be 
met within the annual budgetary cycle. They should also set out practical steps leading to the production and/or 
endorsement of the forecast and principles of cooperat ion between the relevant in stitutional stakeholders’. 
19 See Article 8 of the draft law. 
20 See the ECB’s Convergence Report 2012, p. 26. 
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7 aspect would need to be addressed if the national legislature decides to keep the draft law as 
currently drafted on this particular point.  
 
7. The requirements of independence under Common Principle 7 7.1 Pursuant to Article 3(2) of the TSCG, whic h refers to the independence of the institutions 
responsible at national level for monitoring complian ce with the rules set out in Article 3(1) of the 
TSCG, and under Common Principle 7, ‘national legal provisions ensuring a high degree of 
functional autonomy shall underpin [the monitoring institutions], including: i) a statutory regime 
grounded in law; ii) freedom from interferen ce, whereby the above bodies shall not take 
instructions, and shall be in a capacity to communicate publicly in a timely manner; iii) nomination procedures based on experience and competence; iv ) adequacy of resources and appropriate access 
to information to carry out the given mandate’. 
7.2 Central banks and their decision-making bodies are independent in exercising tasks and duties 
under the Treaty and the Statute of the ESCB, such as ESCB-related tasks
21. The principle of 
central bank independence is, however, not automatic ally protected if a central bank is performing 
functions other than those laid down in the Treat y and the Statute of the ESCB. National law must 
provide for the independence of a central bank wh en the latter carries out non-ESCB-related tasks, 
if these tasks are required to be carried  out by an independent institution. 
 Therefore, for functions laid down in the TSCG, a national legislator has to ensure compliance with 
Common Principle 7 and extend the statutory regime of independence to the relevant specific tasks 
if such tasks are allocated to an NCB. 
 This opinion will be 
published  on the ECB’s website. 
  Done at Frankfurt am Main, 18 December 2013. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI 
                                                            
21 See Article 130 of the Treaty and Ar ticle 7 of the Statute of the ESCB.