EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 2 October 2012  
on preparations and legal amendments required  for the introduction of the euro  
(CON/2012 /73) 
 
Introduction and legal basis  
On 20 July 2012, the European Central Bank (ECB) received a request from  the Latvian Ministry of 
Finance  for an opinion on a draft law on the introduction of the euro (hereinafter the ‘draft law on the 
euro’), a  draft law on amendments to the Law on Latvijas Banka (hereinafter  the ‘draft law on Latvijas 
Banka)  and a  draft law on am endments to the Law on prevention of conflict of interests in activities of 
public officials (hereinafter  the ‘draft law on PCI’) (hereinafter collectively 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 first , second and third indents 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 currency matters , means of 
payment  and Latvijas Banka . In accordance with the first sentence of Article  17.5 of the Rules of 
Procedure of the European Central Bank, the Governing Council has adopte d this opinion.  
 
1. Purpose of the draft laws 
The purpose of the draft law s is to prepare  for the introduction of the euro and to ensure the 
compatibility of Latvian legislation with the Treaty and the Statute of the European System of 
Central Banks and of th e European Central Bank  (hereinafter the ‘Statute of the ESCB’) , as well as  
Latvia’s compliance with all adaptation requirements under Article 131 of the Treaty .  
1.1 The draft law on the euro  
 The purpose of the draft law on the euro is to ensure that the  introduction of  the euro in Latvia  is 
done in an efficient and transparent manner . In particular, the draft law determines measures related 
to the cash changeover, the exchange of non -cash and electronic money  and the dual display of 
prices of goods and s ervices . It also provides for  measures for  the adaption  of accounting  practices 
and the adjust ment  of financial market s for the introduction of euro, as well as provisions 
concerning  the amendment and enforcement  of the law.  
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
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2 1.2 The draft law on Latvijas Banka and the draft law on PCI  
The draft law on Latvijas Banka address es a number of  issues raised by the ECB and the European 
Commission in their Convergence Reports2 in relation to the Law on Latvijas Banka. In particular, 
amendments are made to the prov isions concerning Latvijas Banka’s independence , prohibitions on 
monetary financing  and privileged access and the legal integration of Latvijas Banka into the 
Eurosystem . 
 The draft law  on PCI addresses  a personal independence issue previously identified b y the ECB  in 
relation to Article 31 of the Law on Latvijas Banka3. It now  clarif ies that the Governor, the deputy 
Governor and members of the Council of Latvijas Banka are only permitted to hold other offices in 
accordance with laws or international agreem ents ratified by the Latvian Parliament , Cabinet 
regulations and order and only if  the holding of other offices does not threaten  the independence of 
Latvijas Banka.  
 
2. Observations on the draft law on the euro  
2.1 Article 3 of the draft law on the euro provides  that the day on which the euro is introduced in 
Latvia shall be the day on which the Council abrogates the derogation. The  ECB notes that this day 
may not happen to coincide with the day on which the abrogation enters into force. Therefore , 
Articl e 3 should be amended to explicitly refer to the entry into force of the abrogation of the 
derogation.  
2.2 In this context, the ECB also notes that Article 44 of the Treaty establishing the European Stability 
Mechanism (ESM)4 (hereinafter the ‘ESM Treaty’) provides  that the  ESM  Treaty shall be open for 
accession by other Member States of the EU  upon their application for membership5. These ‘ other ’ 
Member States are those which have not adopted the euro at the time of signature of the ESM 
Treaty. Article 44 of the ESM Treaty provides further that the Member State shall file with the 
ESM its application for membership  after the adoption by the Council of the European Union of the 
decision to abrogate th e Member State’ s derogation from adopting the euro in accordance with 
Article 140(2) of the Treaty . Article 44 of the ESM Treaty also provides that, following the 
approval of the application for membership by the ESM’s Board of Governors , the new ESM 
Member shall accede upon deposit of the instruments for accessi on with the Depository . 
 
3. Observations on the draft law on Latvijas Banka and draft law on PCI  
3.1 The ECB welcomes the Latvian government’s efforts to achieve the required level of legal 
convergence and notes that the legal convergence of the amended L aw on Latvijas Banka will be 
                                                 
2  See the ECB’s  Convergence Report 2012, p. 237; European Commission Convergence Report 2012, p. 71.  
3 See the ECB’s  Convergence Report 2012 , p. 23 8. 
4  http://www.european-council.europa.eu/media/582311/05- tesm2.en12.pdf . 
5  Recital 7 of the ESM Treaty states  ‘All euro area Member States will become ESM Members. As a consequence of 
joining the euro area, a Member State of the European Union s hould become an ESM Member with full rights and 
obligations, in line with those of the Contracting Parties ’. 
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3 also assessed in the ECB’s next Convergence Report . In the meantime, t he ECB m akes the 
following observations as regards the central bank independence and legal integration  of Latvijas 
Banka into the Eurosystem . 
3.2 Institutiona l independence  
 The draft law on L atvijas Banka  amends Article 43  of the Law on L atvijas Banka concerning  the 
powers of the independent external auditors of Latvijas Banka in a manner compatible with the 
Treaty. In addition, t he ECB notes that Article 43(1 ) of the Law on Latvijas Banka provides that 
the Parliament  shall  supervise Latvijas Banka. The ECB understands that ‘supervision’ in this 
context refers to the Parliament ’s right to ask questions pursuant to the Law on the Rules of 
Procedure of the Parlia ment6 so as to enhance Latvijas Bank a’s accountability for its decisions . 
This is compatible with the principle of institutional independence of Latvijas Banka .  
3.3 Financial independence  
3.3.1  The ECB welcomes the proposed increase of Latvijas Banka’s capital. The principle of financial 
independence requires a national central bank  (NCB ) to have sufficient means not only to perform 
its ESCB or Eurosystem -related tasks but also its national tasks e.g. financing its administration 
and own operations. Such financial independence is assessed from the perspective of whether any 
third 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
7. In this respect , financial independence primarily 
implies that an NCB should always be sufficiently capitalised8. In particular, the ECB is of the 
view that the higher the level of capital, reserves and provisions against financial risks is, the higher the safeguards against future losses are. For this reason, an NCB must be free to independently 
create financial provisions to safeguard the real value of its capital and assets. Furthermore, 
Mem ber States may not hamper NCBs from building up their reserve capital to a level which is 
necessary for a member of the Eurosystem to fulfil its tasks
9. As mentioned in the ECB’s 
Convergence Reports 2010 and 201210, any situation should be avoided whereby f or a prolonged 
period of time an NCB’s net equity is below the level of its statutory capital or is even negative, including where losses beyond the level of capital and the reserves are carried over. Any such 
situation may negatively impact on the NCB’s a bility to perform not only its ESCB or Eurosystem -
related tasks but also its national tasks. Moreover, such a situation may affect the credibility of the Eurosystem’s monetary policy. Therefore, the event of an NCB’s net equity becoming less than its statu tory capital or even negative would require that the respective Member State provides the 
NCB with an appropriate amount of capital at least up to the level of the statutory capital within a 
                                                 
6  Saiemas Kārtības rullis , "LV", 96 (227), 18.08.1994.  
7 See the ECB’s Convergence Report 201 2, p. 2 6. 
8 See the ECB’s Convergence Report 2012, p. 25;  see also Opinion CON/2010/88.  All ECB opinions are published on the 
ECB’s website at www.ecb.europa.eu.  
9 See the ECB’s Convergence Report 2012, p. 27;  see also, in this regard, Opinion CON/2008/34, paragraph 4.2 . 
10 See the ECB’s Convergence Report 2010, pp. 21  and 22 and the ECB’s Co nvergence Report 2012, pp. 25 and 26.  
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4 reasonable period of time so as to comply with the principle of f inancial independence. The 
financial independence of a central bank may also be strengthened by arrangements whereby the 
operational costs for the discharge of some of the latter’s tasks are borne by the entities concerned 
by such tasks11. 
3.3.2  The ECB understands that the competent Latvian authority has closely cooperated with Latvijas 
Banka in order to determine the level of authorised and paid- up capital to be effectively increased . 
Such cooperation not only serves  to respect Latvijas Banka’s financial i ndependence , but it also 
takes account of the fact that  Latvijas Banka is best placed to assess its required level of reserve 
capital12. 
3.3.3  The ECB welcomes the new wording of Article 181(1) of the L aw on L atvijas Banka  pursuant to 
which Latvijas Banka t ransfers parts of its profit to the State budget following the approval of the 
annual report by the Council of Latvijas Banka and only after covering losses accumulated in the 
previous years, if any . This reflects requirements arising from the financial in dependence 
principle13. The ECB also welcomes new paragraph 2 that entitles Latvijas Banka to reduce the 
percentage share of the payment for the usage of state capital where it is needed to increase the 
reserve capital of Latvijas Banka in relation to the f inancial risks it is exposed to when executing its 
tasks.  
3.4  Personal independence  
3.4.1  The ECB welcomes the reference in Article 22(4) of the Law on Latvijas Banka to Article 14.2 of 
the Statute of the ESCB as regards the grounds for dismissal of the Governor, the Deputy Governor or a member of the Council of Latvijas Banka. As specified in the ECB’s Convergence Reports
14, 
NCB statutes must ensure that Governors and other members of an NCB’s decision making bodies 
may not be dismissed for reasons other than those mentioned in Article 14.2. The purpose of this 
requirement is to prevent the authorities involved in the appointment of Governors, particularly the 
government or parliament, from exercising their discretion to dismiss a Governor.  
 Under Article  22(4) of the Law on Latvijas Banka , as a precondition for the Latvian Parliament 
deciding  to dismiss the Governor, Deputy Governor or a member of the Council of Latvijas Banka 
based on serious misconduct  (being  a ground for dismissal provided by Article 14.2) , a national 
court has to find the relevant official guilty of breaching the  law. The ECB acknowledges that 
under Article 22 (4) the court is entitled to rule only on a breach of law by the relevant official but it 
does not have the power to decide whet her the breach of law amounts to serious misconduct. Still, 
Article 22(4) limits the scope of the  Union law  concept of ‘serious misconduct’ to breaches of  the 
law, whereas the conditions for dismissal should not  be specified  by the national legislator15. 
Article 22(4) should either be fully aligned with Article 14.2 or  should omit any mention of 
                                                 
11 See Opinion CON/2012/35 , paragraph 2 .  
12 See the ECB’s Convergence Report 201 2, p. 2 7; see also Opinion CON/2010/88, paragraph 2.1.  
13  See the ECB’s  Convergence Report 2012, p. 27.  
14 See, for example,  the ECB’s Convergence Report 2012, p. 24 .  
15 See Opinion CON/2011/38 paragraph 2.1; see also O pinions CON/2012/26 and CON/2012/43 . 
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5 grounds for dismissal , given that Article 14.2 is directly applicable.  Further, the ECB recommends  
that the  procedure s, including a ny court ruling, for the dismissal  of the Governor, Deputy Governor 
or a member of the Council of Latvijas Banka be kept clearly distinct from the substantive 
provisions on the grounds for dismissal, i.e. in a separate legal provision , to ensure full consistency 
with the provisions of the Statute  of the ESCB .  
3.4.2  Personal independence also entails ensuring that no conflict of interest arises between the duties of 
members of NCB decision -making bodies involved in the performance of ESCB -related tasks in 
relation to their respective NCBs ( and of Governors in relation to the ECB) and any other functions 
which such members of decision -making bodies may have and which may jeopardise their personal 
independence. As a matter of principle, membership of a decision- making body involved in the 
performance of ESCB -related tasks is incompatible with the exercise of other functions that might 
create a conflict of interest. In particular, members of such decision -making bodies may not hold an 
office or have an interest that may influence their activities, whether through office in the executive or legislative branches of the state or in regional or local administrations, or through involvement in a business organisation. Particular care should be taken to prevent potential conflicts of interest on 
the pa rt of non- executive members of decision -making bodies
16. The clarification in the draft law 
on PCI addresses the ECB’s concerns in a way which  adheres to  the principle of institutional 
independence. However, national  laws, international agreements, national  regulations or orders that 
would permit the Governor and the other members of the Council of Latvijas Banka to combine 
their office with other offices  pursuant to the draft law on PCI  may raise concerns as regards their 
personal independence  as referred t o in Article 130 of the Treaty . The draft law on PCI should be 
further  amended to clarify that holding other offices may be permitted  if it does not pose a threat , 
not only to the independence of  Latvijas Banka, but also to the person al independence of the  
Governor, Deputy Governor and of the other members of the Council  of Latvijas Banka. 
3.5  Legal integration into the Eurosystem   
Article 34(3) of the L aw on Latvijas Banka does not recognise the ECB’s powers with respect to  
‘the requirements for euro cash  processing systems and the quality requirements for euro banknote 
processing, as well as the registration and reporting requirements for merchants engaged in cash 
processing and recycling’. In particular, the ECB considers it essential that any draft legi slation 
implementing Decision  ECB/2010/14 on the authenticity and fitness checking and recirculation of 
euro banknotes17 does not deviate from its common provisions, unless explicitly provided for in 
Decision ECB/2010/1418.Therefore, t he Law on Latvijas Bank a should provide that such activities 
are performed in compliance with Union law19.  
                                                 
16  See the ECB’s  Convergence Report 2012, p. 25.  
17  OJ L 267, 9.10.2010, p.  1.  
18   See Opinion CON/2011/94.  
19  See, in particular, Article 6(1) of Council Regulation (EC) No 1338/2001 of 28 June 2001 laying down meas ures 
necessary for the protection of the euro against counterfeiting (OJ L 181, 4.7.2001, p. 6) and Decision ECB/2010/14 . 
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6 3.6   Contribution to financial stability  
In accordance with the Eurosystem’s role under Article 127(5) of the Treaty to contribute to the 
smooth conduct of policies pursue d by competent authorities relating to the prudential supervision 
of credit institutions and the stability of the financial system, and taking into account institutional 
developments, such as the central banks’  support to the European Systemic Risk Board20, the ECB 
is of the view, in line with its  stance on this issue21, that the task of contributing to the stability of 
the financial system should be explicitly referred to in the Law on Latvijas Banka22. 
 
This opinion will be published on the ECB’s website.  
  
Done at Frankfurt am Main, 2 October 2012.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
20  See recital 9 of Council Regulation (EU) No 1096/2010 of 17 November 2010 conferring specific tasks upon the 
European Central Bank concerning the functioning of the European Systemic Risk Board (OJ L 331, 15.12.10, p.162) and recital 6 of Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on 
European Union macro-prudential oversight of the f inancial system and establishing a European Systemic Risk Board 
(OJ L331, 15.12.10, p.1).  
21  See Opinions CON/2004/16, paragraph 5, Opinion CON/2007/31, paragraph 3.1, CON/2010/10, paragraph 2.3, and 
CON/2012/44, paragraph 2.2.  
22  The ECB notes that this r eference to the contribution of the central bank s to financial stability or the stability of the 
banking or financial system is provided for  in various statutes of NCBs,  including the following : Austria : Art. 44b(1) of 
the Federal Act on the Oesterreichische Nationalbank ; Belgium : Art. 12 of the Law establishing the Organic Statute of 
the National Bank of Belgium; Bulgaria : Art. 2.6 of the Law on the Bulgarian National Bank ; Cyprus : Article 6.2 of the 
Central Bank of Cyprus Laws of 2002 to 2007; Czech Repub lic: Art. 2(2) of the Act on the Czech National Bank ; 
Estonia : §2(3) of the E esti Pank Act; Finland : Section 3 of the Act on the Bank of Finland; Hungary : Art. 12 of the Law 
on the Magyar Nemzeti Bank ; Ireland : Section 26(2)(a)  of the Central Bank Reform Act 2010; Lithuania : Art. 8( 4) of the 
Law on the Bank of Lithuania; Luxembourg : Art. 2. 6 of the Organic law of the Banque centrale du Luxembourg ; Malta : 
Art. 5 of the Central Bank of Malta Act; The Netherlands : Section 3(2) of the Bank Act 1998; Poland : Art . 3 of the Act 
on the National Bank of Poland; Romania : Art. 2 of the Law on the Statute of the Banca Naţională a României ; Slovenia : 
Art. 4(3) of the Banka Slovenije Act ; Slovakia : Art. 2(3) of the Act on the National Bank of Slovakia ; United Kingdom : 
Section 2A of the Bank of England Act 1998.