EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 3 August  2012   
on the stabilising budgetary policy and the creation of an  anti -crisis treasury reserves account at 
Lietuvos bankas  
(CON/ 2012/63)  
 
Introduction and legal basis  
On 20 June 2012, the European Central Bank (ECB) received a request from the Lithuanian Ministry of 
Finance for an opinion on a draft law on the stabilising  budgetary policy  (hereinafter the ‘draft  law’)  and 
a draft law amending the Law on State debt  (hereinafter the ‘draft law  on State debt ’) (together referred to 
as the ‘draft laws’ ). 
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 Central Bank by national authorities regarding draft 
legislative provisions1, as the draft law s relate to Lietuvos bankas . 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 s 
1.1 The purpose of the draft law is to provide a means of responsible management for sustainable 
public finances , inter alia  by creating a n anti-crisis treasu ry reserves account (hereinafter the  
‘special account’) at Lietuvos bankas. The primary purpose is to financ e Lithuanian governmental  
functions  in difficult times , including measures to strengthen financial stability, provided by the 
Law on financial susta inability2. According to the draft law, the Lithuanian Government may 
officially declare difficult times if one of the following circumstances arises:  
(a)  GDP is decreasing or not increasing sufficiently, in particular:  
(i)  chain -linked volume of GDP per  calendar quarter is decreasing or increasing by less 
than 1% compared to the respective quarter of the previous year, or, according to 
Lietuvos bankas’ assessments, the chain -linked volume of GDP will decrease or 
increase by less than 1% during the curren t or next calendar year;  
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Valstyb ės žinios, 2009, No 93- 3985.  
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2 (ii)  nominal GDP per calendar quarter is increasing by less than 3%, or, according to 
Lietuvos bankas’ assessments, the nominal GDP will increase by less than 3% during 
the current or next calendar year3;  
(b)  the Lithuanian Gov ernment is not able to borrow at less than 6% of an annual interest rate 
and decides not to issue government securities4;  
(c) the Lithuanian Government needs to finance measures to strengthen the financial stability of 
the banking system5. 
 If a crisis was not officially declared, t he funds could also be used to increas e Lietuvos bankas’  
regulatory capital and reduce  general government debt if it bec omes higher than 55 % of GDP . 
1.2 The draft law  will enter into force on 1 July 2013 and the  provision s cover ing the  use of funds in 
the special account to  increase the regulatory capital of Lietuvos bankas wi ll be valid until 
introduction of the euro in Lithuania.  
1.3 The draft law on State debt  provides that Lietuvos bankas will sign an agreement with the 
Lithu anian Government allow ing Lietuvos bankas to use and make financial investments with  the 
funds in the special account. The draft law on State debt  is intended to enter into force on 
1 July 2013 and appl y from 1 January 2014.  
 
2. General observations  
The E CB welcomes the draft law , which creat es a fiscal reserve for difficult times. The ECB understands 
that the draft laws are part of the legislative package transpos ing Council Directive 2011/85/EU of 
8 November 2011 on requirements for budgetary frameworks of the Member States6 and are intended to 
fully compl y with the Stability and Growth Pact and the Treaty on Stability, Coordination and 
Governance in the Economic and Monetary Union. In this re gard, the ECB suggests remov ing any 
provisions possibly in conf lict with the U nion fiscal governance framework, i.e. Article 5 of the draft law  
that contains detail s about  long- term budgetary policy stimulating aggregate demand, 3% consumer price 
index inflation and the current account deficit exceeding 8% of GDP.  
 3. Definition of difficult times  
3.1 The ECB recommends that the criteria  for the Government to declare difficult times  are narrowed, 
e.g. to a negative real GDP growth instead of GDP growth up to 1% ; however, other criteria 
(including a natural disaster , a severe economic downturn
7 or a financial crisis etc.) must  also be 
                                                 
3  Article 6(1)(1) to 6(1)(4) of the draft law.   
4  Article 6(1)(5) of the draft law . 
5  Article 6(2) of the draft law.  
6  OJ L 306, 23.11.2011, p. 41.   
7  As defined in Article 2(2) of Council Regulation (EC) No 1467/97 of 7 J uly 1997 on speeding up and clarifying the 
implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6), referring to a ‘negative annual GDP volume 
growth rate’ and an ‘accumulated loss of output during a protracted period of very low annua l GDP volume growth 
relative to its potential’.  
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3 taken into account when defining the circumstances leading to the declaration of difficult times . 
Alternatively, the criteria could be broadly defined to allow the authorities some discreti on in 
reacting to unforeseeable events, but when declaring difficult times, there must be  joint agreement 
to do so by  several authorities, e.g. the P rime M inister, the Finance M inister, the Chairperson of the  
Board  of Lietuvos bankas and the Chair of the P arliament.  
3.2 In addition, as regards the Lithuanian Government’s ability to borrow, the ECB recommends  
replacing a reference to the specific fixed benchmark of an annual interest rate of 6% with a 
reference to an established variable benchmark . 
3.3 In regard to the financial stability of the banking system , the ECB recommends making references 
to other  relevant national legislation8 to ensure that t he appropriate national authorities are 
consistently involved  in making decisions . 
 
4. Definition of general  government debt  
4.1 The ECB understands that the term ‘general government debt’ in the draft law  has the same 
meaning as in Article 1(5) of Council Regulation (EC) No 479/2009 of 25 May 2009 on the 
application of the Protocol on the excessive deficit proc edure annexed to the Treaty establishing the 
European Community9. For the purpose of clarity, however, the ECB suggests inserting the 
definition of general government debt in the list of definitions and clarifying the valuation and 
consolidation of general  government debt and the financial instruments covered10. 
4.2 The ECB also recommends that the level of debt mentioned in Article 3(2)(2) of the draft law  
should additionally refer to the abovementioned Protocol and to Regulation (EC) No 479/2009.  
 
5. Defin ition of ‘ secure and profitable investment return’  
5.1 The draft law  requires Lietuvos bankas to use funds in  the special account for financial investments 
at a ‘secure and profitable investment return per year11,’ which should not be lower than (a) an 
investment return from the foreign reserves invested by Lietuvos bankas during the same period ; or 
(b) a yearly investment return from the investments in German g overnment securities, whichever is 
higher. The ECB recommends replacing the reference to return re quirements and investment 
horizon by a reference to the risk profile of investments. A  detailed investment mandate specifying 
the duration , credit quality of financial instruments , other requirements and objectives should be 
specified in an agreement with Lietuvos bankas12 as this will have a considerable impact on the 
                                                 
8  E.g. Government Resolution No 1253 of 24 November 2008 on the approval of the financial crisis prevention and 
management plan ( Valstyb ės žinios, 2008, No 140- 5549) . 
9  OJ L 145, 10.6.2009, p. 1.  
10  See ECB Opinion CON/2011/96, paragraph 5.  All ECB opinions are available on the ECB’s website at 
www.ecb.europa.eu.  
11   Article 4(7)(1) of the draft law . 
12  As referred to in Article 4(6) of t he draft law.  
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4 return. If the return is based on a specific investment horizon, the objective  should be to immunise 
the interest rate risk by using a similar duration.  
5.2 The profitability depends on price movements during the holding period and can normally only be 
confirmed ex post , after the holding period has expired. Moreover, when a ‘se cure’ instrument is 
referred to , normally a minimum credit rating of eligible instruments is stated. This will not 
guarantee whether the instrument or asset class is ‘ profitable ’, so the use of this concept is not 
recommende d in this context.  
 
6. Central bank independence and prohibition on monetary financing  
6.1 Central bank independence  
 The ECB takes note of the recogn ition of  Lietuvos bankas’ expertise in the stability of the financial 
market  by entrusting it with the management of the special account’s funds, including its financial 
investments, and by including Lietuvos bankas in the decision- making process in regard  to the 
declaration of start/end of difficult times . In this respect, the ECB notes that any involvement of 
Lietuvos bankas in application of the measures provided by the draft law  must be compatible with 
the Treaty.  The ECB expects that , when implementing  the measures provided by the draft law , 
Lietuvos bankas ’ involvement will be fully compatible with its  institutional and financial 
independence13 to safeguard the proper performance of its tasks under the Treaty and the Statute of 
the European System of Ce ntral Banks an d of the European Central Bank. The principle of central 
bank independence , inter alia , requires that Member States do not put their nation al central banks 
(NCBs ) in a position where they have insufficient financial resources and  inadequate net equity to 
carry out their tasks related to the E uropean S ystem of Central B anks or Eurosystem.  
6.2 Prohibition on monetary financing  
6.2.1  It is important to safeguard compliance with the monetary financing prohibition under Article 123 
of the Treaty. T his prohibition is designed to prevent NCB s from providing overdraft facilities or 
any other type of credit facility to the public sector, which includes any financing of the public sector’s obligations in relation to  third parties. The ECB expects that Li etuvos bankas’ involvement 
in the procedure provided for in the draft law  will comply not only with the principle of central 
bank independence as specified in the paragraphs above but also with the prohibition on monetary 
financing laid down in Article 123(1) of the Treaty, read in conjunction with Council Regulation 
(EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the 
prohibitions referred to in Articles 104 and 104b(1) of the Treaty
14. 
6.2.2  In particular, the draft law  refers to activities to be carried out by Lietuvos bankas as a fiscal agent 
of the State. Taking into account the express recognition in Article 21.2 of the Statute of the provision of fiscal agency services as a legitimate function traditionally performed by  NCBs, the 
                                                 
13  ECB’s Convergence Report, May 2012, p. 21 -27. 
14  OJ L 332, 31.12.1993, p. 1.  
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5 provision by central banks of such  services complies with the prohibition on monetary financing, 
provided that they remain within the field of the fiscal agency function and do not constitute central 
bank financing of public sector obligations v is-à-vis third parties or central bank crediting of the 
public sector outside the narrowly defined exceptions specified in Regulation (EC) No 3603/93. 
National legislation that enables an NCB to hold government deposits and to service government 
accounts d oes not raise concerns about compliance with the monetary financing prohibition as long 
as such provisions do not allow  the extension of credit, including overnight overdrafts. Moreover, 
an NCB providing fiscal agent services without remuneration does not raise monetary financing 
concerns, provided they are core fiscal agent services15. 
6.2.3  The ECB understands that Lietuvos bankas’ fiscal agent servic es provided for  under the draft law 
will not result in any central bank funds  being provided to the State o r the State’s obligations being 
financed by Lietuvos bankas, including by means of bridge financing. 
6.3 Maximum return from investments  
6.3.1  Article 4(7)(1) of the draft law  provides that Lietuvos bankas may seek lower than maximum 
return s from investmen ts of the funds in the special account , if the investments  are necessary to 
achieve or maintain price stability or if requir ing the maximum annual return would not  achiev e or 
maintain price stability . This provision would  not be compatible with the principle of functional 
and institutional independence of an NCB , if the State interfere s with the independent decision by  
Lietuvos bankas on whether and under which conditions investments are necessary for  achiev ing or 
maintain ing price stability.  Furthermore, t he ECB understands that the draft law does not require a 
specific return from such investments. The ECB recommend s clarifying the wording of the draft 
law to avoid any doubt. Generally an NCB is expected to exercise financial prudence, but the sole 
objecti ve of its monetary policy operations is price stability not profit.  
6.3.2  In addition, and with reference to the considerations under S ection 5 above, t he ECB understands 
that Lietuvos bankas is under an obligation to use all possible means to reach the objective s set out 
in the draft law  in term of returns but that Lietuvos bankas is not required  to reach  any particular 
result . Therefore, Lietuvos bankas will not be asked to compensate on  its own funds or be 
‘penalised’ for any unattained result in terms o f returns. This is of particular relevance due to the 
precise conditions and deadlines also contained in the draft law  for possible repayments  of funds 
held in the special account  to the general account of the State .  
6.3.3  In this context, as there are no  explicit provisions in either  draft law regarding the responsibility for  
losses from (interrupted) financial investments  or una ttained investment return s, the draft laws  
should specify that  Lietuvos bankas, as fiscal agent f or the State , has no responsib ility for those 
losses and th e State must cover them . 
                                                 
15  ECB’s Convergence Report, May 2012, p. 30.  
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6 6.3.4  The ECB understands that , if the special account’s funds ar e entered into Lietuvos bankas’ balance 
sheet, the respective accounting information will be disclosed in the ‘notes’ part of the annual 
financial statement of Lietuvos bankas16, rather than in a separate statement17. 
6.4 Increase of Lietuvos bankas’ statutory capital  
6.4.1  Whereas the draft law  remains silent as to whether the funds in the special account, used for 
increasing Lietuvos bankas’  statutory capital, should also remain there if the State  urgently needs 
additional financial resources to deal with a crisis situation, the ECB understands that this statutory capital, once it has been increased by the funds in the special account, cannot  be reduced again at 
short notice nor with a different procedure from the one provided in the draft law  for the increase of 
the capital
18. The draft law  should contain an explicit safeguard pertaining to  this situation . A 
Member State may not impose reducti ons of capital on an NCB without the ex ante  agreement of 
the NCB’s decision -making bodies  that must ensure that the NCB ha s sufficient financial means 
and adequate net equity to fulfil its mandate19. 
6.4.2  The ECB recommends that a reference in Article 10( 2) of the draft law to the ‘accounting value’20 
of the financial investments, which is to be taken into account when increasing Lietuvos bankas’ 
statutory capital, should be replaced by a reference to the ‘market value at the moment of the 
capital increase’  to avoid a  situation whe re the intended capital increase is not adequately funded, 
e.g. if the accounting value is significantly above the market value.  
6.4.3  Finally, the ECB understands that the draft law  provisions, while giving a deadline of the date of 
introduction of the euro in Lithuania  to use funds in  the special account t o increase Lietuvos 
bankas’ statutory capital , do not limit the general possibility – also after euro introduction – to 
increase Lietuvos bankas’  statutory capital from other funds21. 
 
This opinion will be published on the ECB’s website.  
 Done at Frankfurt am Main, 3 August  2012.  
 
[signed]  
 
The Vice -President of the ECB  
Vítor CONSTÂNCIO  
                                                 
16  Article 12 of the draft law.  
17   Financial statements of Lietuvos bankas currently comprise the following element s: balance sheet, profit and loss 
accounts and explanatory notes .  
18  See Article 10 of the draft law.   
19   ECB’s Convergence Report, May 2012, p. 33.  
20  Article 10 (2) of the draft law .  
21  Article 20(2) of the Law on Lietuvos bankas provides that the statutory capital of Lietuvos bankas, currently LTL  200 
million comes from  State  funds and/or Lietuvos bankas’ profits.