EN  ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 18 December 2013 
on public finances 
(CON/2013/91) 
 Introduction and legal basis 
On 25 October 2013, the European Central Bank (ECB) re ceived a request from the Estonian Ministry of 
Finance for an opinion on a draft law on the state budget1 (hereinafter the ‘draft law’). The draft law 
incorporates an amendment to the Law on Eesti Pank. 
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 Eesti Pank. In accordance with the first sentence of 
Article 17.5 of the Rules of Procedure of the Europ ean 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 adopt th e principles on sustainability of public finance as 
legislative provisions. The draft law transposes Council Directive 2011/85/EU of 8 November 2011 
on requirements for budgetary frameworks of the Member States
3 and follows the legislative 
obligations arising from the Treaty on Stability, Coordination and Governan ce in the Economic and 
Monetary Union4 (hereinafter the ‘TSCG’) and Regulation (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 the correction of  excessive deficit in the Member States in the 
euro area5. The draft law also aims at consistency with Council Regulation (EC) No 1466/97 of 
7 July 1997 on the strengthening of the surveilla nce of budgetary positions and the surveillance and 
coordination of economic policies6 and Council Regulation (EC) No 1467/97 of 7 July 1997 on 
                                                            
1  State Budget Law of 1999, State Gazette  1999 I, 55, 584, is being recast. 
2 OJ L 189, 3.7.1998, p. 42. 
3 OJ L 306, 23.11.2011, p. 41. 
4 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 their ratification in struments by that date. Estonia’s ratification law entered 
into force on 18 November 2012. 
5 OJ L 140, 27.5.2013, p. 11. 
6 OJ L 209, 2.8.1997, p. 1. 
ECB-PUBLIC  
2 speeding up and clarifying the implementation of the excessive deficit procedure7, as well as the 
European system of national and regional accounts  in the European Union. The draft law is 
scheduled to enter into force on 1 January 2014.  
Article 4(5) of Directive 2011/85/EU obliges Member States to specify institutions responsible for 
producing macroeconomic and budgeta ry forecasts and Article 4(6) requires t he macroeconomic 
and budgetary forecasts for fiscal planning to be  subject to regular, unbiased and comprehensive 
evaluation. The draft law allocates the obligation to produce forecasts to the Ministry of Finance 
and the evaluation of macroeconomic and budgetary forecasts to Eesti Pank, which must give its 
evaluation in the form of a non-binding opinion. It must also give its opinion on the objectives of the budget strategy and the actual achievement of  those objectives. The balanced budget had been 
the main guiding principle established in Estonia’s state budget strategy. In line with the TSCG, it will now be established by a constitutional law
8. The draft law also includes an automatic 
correction mechanism as required under Article 3( 1)(e) of the TSCG. With regard to Directive 
2011/85/EU, the draft law provides for the minimum requirements for the budgetary framework. Fiscal aspects of the draft law cover the principles for drawing up a budget and strategic governance; it also sets the cost margins for the ne xt four years and regulates the means by which 
the state may take credit risks. 
1.2 The draft law also clarifies that the Special Dr awing Rights (SDRs) allocated to the Republic of 
Estonia by the International Moneta ry Fund (IMF) belong to Eesti Pank
9. 
 
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 States’ national laws. In the context of the 
implementation of the TSCG and the transpos ition of Directive 2011/85/EU, Eesti Pank will be 
given a task in relation to the macroeconomic  and fiscal forecasts. 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 Estonia is not subject to an excessive deficit procedure, enactment of the draft law is 
important in modernising the Estonian legal fra mework in relation to the budgetary process. 
 
                                                            
7 OJ L 209, 2.8.1997, p. 6. 
8 Under Article 104 of the Estonian Constitution, there are a number of laws, which include the National Budget Act and 
the Bank of Estonia Act, that may only be passed and amended by a majority of the members of the Riigikogu. These 
laws are commonly referred to as constitutional laws.  
9  See also Opinion CON/2011/97. All ECB opinions are published on the ECB’s website  at www.ecb.europa.eu. 
ECB-PUBLIC  
3 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 
processes’. In accordance with the Communica tion from the Commission on Common principles 
on national fiscal correction mechanisms (hereinafter the ‘Common Principles’)10 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 deviations11 ‘should be such that their provisions cannot be 
simply altered by budgetary law’. 
3.2 The ECB notes that the draft law has been designe d as a constitutional legal act, which represents a 
ranking in the Estonian hierarchy of laws in line with the requirements of the TSCG. 
 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 The ECB welcomes that the draft law provides for an automatic correction mechanism to be 
triggered if there is a deviation from the bala nced budgetary position requirement. It requires the 
Minister for Finance to send a report to the gove rnment, including the propo sal for the correction. 
In the event of a minor deviation, this correcti on mechanism will be triggered at the government’s 
discretion. However, if there is a deviation of  more than 0.5% of the GDP, the correction 
mechanism is mandatory.  
4.3 The draft law also sets out an escape clause wh ere the correction mechanism is not necessarily 
triggered if there are extraordinary circumstances,  as provided for in the Stability and Growth Pact. 
Common Principle 6 defines 'exceptional circumstan ces' in line with the same definition in the 
Stability and Growth Pact. However, it makes cl ear that any suspension of the correction 
mechanism due to use of an escape clause shall only be temporary and once the escape clause no 
longer applies, the correction mechanism shall provi de for a minimum of st ructural adjustments, 
with the Stability and Growth Pact‘s requirement being the lower limit. In addition, once the escape 
                                                            
10 COM (2012) 342 final. 
11 See Article 3(1)(e) of the TSCG. 
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4 clause no longer applies, Member States shall adopt  a corrective plan over the budgets that must be 
adhered to during the correction period. In finalising the draft law, the requirements in Common Principle 6 need to be given more attention. 
 5. Assumption of additional tasks by Eesti Pank 
5.1 The draft law entrusts Eesti Pank with the task  of giving its opinion regarding the macroeconomic 
and budgetary forecasts. A corresponding article w ill be introduced in the Law on Eesti Pank, 
which states in more detail that Eesti Pank mu st give its opinion on na tional macroeconomic and 
budgetary forecasts within two weeks of their publica tion. Eesti Pank must also give its opinion on 
how the government aims to achieve  its objectives, as reflected in the budget strategy and stability 
programme, taking into account the balanced budget ru le established in the draft law. Eesti Pank 
must also give its opinion on how the government  has achieved its structural budgetary objective 
after the national annual report has been finalised . The opinion published by Eesti Pank will not be 
legally binding; however, the government must justify any deviations from the opinion. 
5.2 Without prejudice to the Governing Council’s powers under Article 14.4 of the Statute of the 
European System of Central Banks and of the Eur opean Central Bank (hereinafter the ‘Statute of 
the ESCB’), national central banks (NCBs) may perfo rm functions other than those specified in the 
Statute of the ESCB provided that such functions do not interfere with th e objectives and tasks of 
the ESCB and do not infringe upon the independent execution by the NCB of its ESCB tasks
12. 
5.3 Eesti Pank’s role provided for in the draft law pur suant to Article 3.2 of the TSCG would imply, in 
accordance with Common Principle 7,  that Eesti Pank, in order to support the credibility 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, 
Eesti Pank’s role provided for in the draft law pursuant to Article 5(2) of Regulation (EU) 
No 473/2013 would imply that Eesti Pank, in addi tion 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 713. Furthermore, the draft law gives a general 
                                                            
12 See paragraph 2 of Opinion CON/2013/56. 
13 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’.  
ECB-PUBLIC  
5 responsibility to Eesti Pank to assess macroecono mic 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 
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.  
Eesti Pank should retain any role it may already have regarding the production and quality control 
of government finance statistics in accordan ce 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
14, 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 th e members of the ESCB, dated 24 April 201315. 
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
16. The ECB is of the view that the monetary policy mandate, as well as an 
NCB’s independence, run the risk of being unde rmined, 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
17. 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 policy18, the formal mandate to scrutinise government 
policies in the form of public opinions would put the NCB in a position that could regularly 
                                                            
14 OJ L 145, 10.06.2009, p. 1. 
15  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. 
16 See paragraph 4.3 of Opinion CON/2012/105. 
17 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’). Avai lable on the Eu ropean Commission’s website  at www.ec.europa.eu. 
18 Particularly those provisions relating to, inter alia , circumstances taking place 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. 
ECB-PUBLIC  
6 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 percepti on of the NCB, as well as possibly undermine 
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 notes that since the obligation to pro duce forecasts would be assigned to the Ministry of 
Finance under the draft law, it is unlikely that Eesti Pank would become subject to guidelines or 
scrutiny by national or European authorities under Article 4(5) of Directive 2011/85/EU. As far as 
other activities under Article 5 of Regulation (E U) No 473/2013 and Article 4 of Directive 
2011/85/EU are concerned, the ECB considers that  these tasks complicate the fulfilment of Eesti 
Pank’s primary mandate on the grounds refe rred to in the previous paragraph. 
5.7 The ECB therefore recommends that the consu lting authority reconsiders the assignment by the 
draft law of the new tasks to Eesti Pank. In this context, 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 forecasts
19, including the timely provision of 
forecasts to support the relevant stages of the na tional budgetary process. The draft law would need 
to separate the responsibilities between the gove rnment, which is exclusively competent for 
compliance with the TSCG and Regulation (EU) No 473/2013, and the NCB, which should not go 
beyond what is necessary for monetary policy pu rposes as regards fiscal policy monitoring.  
 
6. Financial independence of Eesti Pank and prohibition of monetary financing 
6.1 Without prejudice to the observations on the new tasks entrusted to Eesti Pank by the draft law as 
concerns Eesti Pank’s discharge of its existing m onetary 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 
                                                            
19 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’. 
ECB-PUBLIC  
7 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 resources20. 
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 
aspect would need to be addressed, if the national legislature decides to keep the draft law as 
currently drafted on this particular point. 
 7. Ownership of SDRs SDRs are international reserve assets created by the IMF to supplement the existing reserve assets, which 
represent a right to purchase freel y usable currency in exchange for SDRs. National laws and 
arrangements concerning IMF transactions need to co mply with Union law, in particular with the 
monetary financing prohibition
21. Pursuant to Article 7 of Regulation (EC) No 3603/93, the financing by 
NCBs of obligations falling upon the public sector with  regard to the IMF is not regarded as a credit 
facility within the meaning of Article 123 of the Treaty. If the payment of a Member’s quota is made from central bank resources pursuant to Article 7 of  Regulation (EC) No 3603/93, the related SDRs 
become part of the foreign reserves held and manage d by the central bank, and are therefore shown on the 
central bank’s balance sheet. Usually central banks  record SDR allocation as a long-term liability.  
 8. References to the European system of nation al and regional accounts in the European Union 
The references in the draft law to Council Regulation (EC) No 2223/96
22 should be replaced with  
references to Regulation (EU) No 549/2013 of the European Parliament and of the Council23. 
 
                                                            
20 See the ECB’s Convergence Report 2012, p. 26. 
21 The monetary financing prohibition is la id down in Article 123(1) of the Treaty and replicated in Article 21.1 of the 
Statute of the ESCB, which prohibits overdrafts or any other type  of credit facility with the E CB or the NCBs in favour of 
Union institutions, bodies, offices or agen cies, central governments, regional, local or other public authorities, other 
bodies governed by public law, or public undertakings of Member States, and the purchase of debt instruments directly 
from these public sector entities by the ECB or NCBs. The precise scope of application of the monetary financing 
prohibition is further clarified by Council Regulation (E C) No 3603/93 of 13 December 1993 specifying definitions for 
the application of the prohibitions referred to in Article s 104 and 104b(1) of the Treaty, (OJ L 332, 31.12.1993, p. 1). 
22 Council Regulation (EC) No 2223/96 on the European system of  national and regional accounts in the Community (OJ L 
310, 30.11.1996, p 1). 
23 Regulation (EU) No 549/2013 of the European Parliament a nd of the Council of 21 May 2013 on the European system of 
national and regional accounts in the Eur opean Union (OJ L 174, 26.6.2013, p. 1).  
ECB-PUBLIC  
8 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