mm 
^fMfflffi COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(93) 371 final - SYN 466 - SYN 467 
Brussels, 22 July 1993 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
Secondaiy legislation for the second stage of Economic and Monetaiy Union 

Secondaiy legislation for the second stage of Economic and Monetary Union 
(Communication to the Council and the European Parliament) 
The European Council held on 21 and 22 June 1993 at Copenhagen invited the Commission to 
present proposals on all the necessary implementing measures relating to the second stage of 
Economic and Monetary Union (EMU), so that they can be adopted by the Council as soon as 
possible after entry into force of the Treaty and before 1 January 1994. In this perspective, the 
Commission transmits herewith four draft proposals for legislative acts. 
The legal basis for these draft proposals is the Treaty establishing the European Community 
(EC Treaty) as amended by the Treaty on European Union. As long as the Treaty has not yet 
entered into force, legislation cannot start formally. The formal preparation of legislation risks 
running into severe time constraints because the time between the entering into force of the Treaty 
and the start of the second stage of EMU will be short. In order to comply with the aforementioned 
mandate of the European Council, it is necessary to prepare legislation in the field of EMU on an 
informal basis. While the Commission has the intention, after the entry into force of the Treaty, to 
make formal proposals in line with these draft proposals, it reserves the right to introduce 
modifications in the light of the circumstances. 
The purpose of the draft proposals is to start informally the necessary discussions with the 
Community bodies involved, such that the formal procedures can be initiated immediately after the 
entry into force of the EC Treaty and brought to an end within the objective set by the European 
Council. Two of the four texts call for cooperation with the Parliament according to Article 189c 
of the EC Treaty, the other two for consultation. One text requires consultation of the Committee 
of Governors and of the Monetary Committee. 
The following draft proposals are annexed to this Communication: 
- Regulation aiming at specifying the prohibition of access of the public sector to central bank 
credit (Article 104 of the EC Treaty). The purpose is to specify definitions, like "overdraft 
facilities or any other type of credit facility" or "public undertakings". Secondary legislation on 
Artice 104 is not obligatory, but the clarification of a number of questions through legislation is 
highly desirable, as has also been suggested by the Committee of Governors. Cooperation with 
the European Parliament is required; 
- Regulation aiming at specifying the prohibition of privileged access of the public sector to 
financial institutions (Article 104a of the EC Treaty). Secondary legislation, which is compulsory, 
serves to specify definitions as well. This concerns the terms "privileged access", "financial 
institutions", "prudential considerations" and, as for Article 104, "public undertakings". 
Cooperation with the European Parliament is required; 
- Regulation on the application of the excessive deficit procedure (Article !04c(14) of the 
EC Treaty). The purpose of this Regulation is to lay down detailed rules and definitions for the 
application of the provisions of the Protocol on the excessive deficit procedure Its subject is to 
provide further details of the definitions to be used including the definition of public debt, and 
to lay down rules for the reporting of data by the Member States to the Commission The 
European Parliament is to be consulted; 
- Decision on the establishment of the key for the contributions of central banks to the financial 
resources of the European Monetary Institute (Article 16.2 of the EMI Statute). The purpose is 
to specify rules to be applied by the Commission when it provides the data on population and 
gross domestic product for the establishment of the key. The European Parliament, the Committee 
of Governors and the Monetary Committee are to be consulted. 
A further piece of legislation relating to the European Monetary Institute is under preparation but 
is not annexed to this Communication. This concerns the consultation of the Institute by the 
authorities of the Member States on draft legislative provisions in its field of competence. The 
Commission intends to present the respective draft proposal informally in due course 
Later in the year, the Commission will also propose some slight amendments to existing Community 
legislation necessary for completing the preparation of the second stage. 
Annex 
Proposal for a SYN 466 
COUNCIL REGULATION (EEC) 
specifying definitions for the application of the prohibitions referred to 
in Articles 104 and 104b(l) of the Treaty 
establishing the European Community 
Explanatory Memorandum 
At its meeting in Copenhagen, the European Council invited the Commission to present proposals 
concerning all measures necessary for the operation of the second stage of Economic and Monetary 
Union, such that these proposals could be adopted by the Council after the entry into force of the 
Treaty and before 1 January 1994. Following this request and in the absence of a legal basis on 
which to adopt a formal proposal, the Commission presents the annexed draft proposal. Its purpose 
is to start informally the necessary discussions with the Community bodies involved, such that the 
formal procedures can be initiated immediatly after the entry into force of the Treaty and brought 
to an end within the objective set by the European Council. While the Commission has the intention, 
after the entry into force of the Treaty, to make a formal proposal in line with this draft proposal, 
it reserves the right to introduce modifications in the light of the circumstances. 
I. Introduction general considerations 
Fiscal policies, in contrast to monetary policy, will not be centralized in Stage Three of Monetary 
Union; responsibility will remain with Parliaments and Governments of Member States 
Notwithstanding this, the Treaty establishing the European Community includes a number of 
provisions to promote fiscal discipline Articles 104 and 104b, together with Article 104a, form the 
set of provisions aiming at enhancing the disciplinary forces of the market mechanism. These 
provisions already apply from the beginning of Stage Two of Economic and Monetary Union. 
The prohibition on direct central bank financing of the public sector is also an important element 
of central bank independence. Central banks' monetary policy operations shall not be influenced by 
public financing needs. 
Finally, the acquisition and holding by central banks of public sector debt, in so far as this debt is 
remunerated below market rates, might affect in Stage Three monetary income for the ESCB as a 
whole, diminishing the monetary income for all central banks of Member States. 
The present draft Council Regulation based on Articles 104 and 104b of the Treaty establishing the 
European Community specifies the meaning of "overdraft facilities and any other form of credit 
facility" (Article 1 of this draft). It makes clear under which conditions specific forms of credit 
arising in the performance of fiscal agent functions are not deemed to constitute credits within the 
meaning of Article 104 (Articles 3 to 6 of this draft). It defines, both for Articles 104 and 104b and 
in parallel to Article 104a, the term "public undertakings", building upon existing legislation, and 
makes clear that central banks do not form part of the public sector (Article 7 of this draft). 
Portugal and the United Kingdom are authorized to maintain for the time being some specific 
arrangements which would normally fall under the prohibition of Article 104. These authorizations 
are laid down in the Protocol on Portugal and paragraph 11 of the Protocol on certain provisions 
relating to the United Kingdom of Great Britain and Northern Ireland 
II. Comments on the Articles 
Article I 
Overdraft facilities or any other kind of credit facility 
Article 1 explains that debt with a fixed matunty, if acquired before 1 January 1994, is not included 
in the definition of "overdraft facilities and any other form of credit facility" and therefore may be 
held until maturity. Outstanding stocks of overdraft facilities and any other kind of credit facility 
have to be redeemed or converted into fixed-maturity debt before 1 January 1994 As from 
1 January 1994, central bank laws and statutes in Member States must no longer contain provisions 
allowing for the possibility of overdraft facilities or any other form of credit facility; it is not 
sufficient that such credits in practice are no longer granted. 
Article 2 
Direct purchases 
2.1 While Article 104 prohibits overdraft and other credit facilities as well as the direct purchase 
of public sector debt instruments, it does not explicitly mention secondaiy market purchases 
The main reason is that in most countries the large and liquid market in government paper 
is vital for the conduct of open market operations. The intention is certainly not to introduce 
a possibility to circumvent the ban on central bank financing of the public sector. The 
present draft proposal makes this clear by stating that secondary market purchases are 
compatible with Article 104 only if conducted for monetary policy reasons. The provision 
stating that Member States undertake to abstain from influencing the decision-making bodies 
of the national central banks to this effect is limited to the aspect of central bank financing 
of the public sector; it does not aim at anticipating central bank independence otherwise. 
2.2 Article 104 does not specify whether the prohibition applies to central banks andovernments 
of the same country only or whether it covers also cross-border credits. During Stage Two, 
direct "cross-country"-purchases of public sector marketable debt instruments by the central 
bank of another Community country do not have the same implications as if the domestic 
central bank steps into the market, since there is no creation of central bank money in the 
debtor country in the former case. Rather, such transactions are of a commercial nature to 
be seen in the context of foreign exchange reserve management Furthermore, as long as the 
debt instruments involved are marketable, such transactions are unlikely to affect the working 
of the market mechanism on public sector debt. 
The fact that credits arise as a "by-product" in the context of various transactions with the pubic 
sector does not in principle exempt them from the application of Article 104. Articles 3 to 6 specify 
which transactions are not covered by the definition of "overdraft facilities or any other form of 
credit facility". These exemptions are based on the principle that the prohibition of Article 104 
should not hinder the efficient operation of fiscal agent functions by the central banks of Member 
States (as mentioned in Article 21 of the ESCB Statute). 
Article 3 
Intra-day credits 
In many countries, central banks hold all the major accounts of the central government, and all the 
central government receipts and payments flow directly, or are channelled indirectly, through these 
accounts. Intra 'ay credit to the Government arises when payments are executed by the central bank 
on behalf of the Go animent on a real time basis and net debtor positions arise during the day. In 
a strict sense, such inua-uay credit is a form of very short term central bank financing of the public 
sector. 
In the development of modem payments systems there is a trend towards real time gross settlement 
systems. Article 104 should not hhuLr an efficient execution of fiscal agent functions, including 
payments transactions, by central banks. Furthermore, due to its very short term and technical nature 
there are no implications for the conduu of an independent monetary policy in Stage Three of EMU 
to be expected. Finally, the existence of intra-day credit does not diminish the working of the market 
mechanism on government borrowing To avoid circumvention of Article 104, however, intra-day 
credit is explicitly defined so as to exclude an extension into overnight credit. 
Article 4 
Collection of cheques 
This Article specifies the permissible procedures for the collection of cheques by central banks on 
behalf of their governments Such practices may imply (interest-free) short-term central bank 
financing ("float") if cheques written by the private sector in favour of the Treasury are credited by 
the central bank to the Treasury account immediately upon, or very soon after, receipt while the 
corresponding debits to the accounts of the banks of the issuers of the cheques are made one or a 
few days later. 
In principle, a positive float from the collection of cheques is a kind of short-term credit and 
therefore inconsistent with Article 104. The direct effects of a positive float are relatively minor; 
the short-term liquidity management may, however, be affected. 
Therefore, in principle cheques should not be credited to the Treasury account before the drawee 
is debited; however, this is difficult to ensuis in every individual case For cost and efficiency 
reasons, under certain conditions a more pragmatic approach is acceptable The solution chosen in 
Article 3 introduces fixed lags between the reception of the cheque by the central bank and the 
crediting of the public sector account. These lags should correspond to the practices in each Member 
State and should be such that the operations on average ensure neutrality with respect to credit 
effects. 
Article 5 
Holdings of coins 
In most Community countries, coins are issued by the Treasury and put into circulation by >he 
central bank. In some cases, the government account is credited by the central bank before coins e 
put into circulation and is not debited when reflows to the central bank occur. 
Such transactions in principle constitute a form of (non-interest bearing) credit However, in some 
countries, it would be rather impractical, or even impossible, to apply this principle in a strict sense 
whereby a central bank would only be allowed to credit the account of the issuer of coins once the 
coins have been put into circulation and, conversely, would be obliged to debit on the government 
account immediately the counter-value of any reflows of coins. Instead, the national central banks 
should be allowed (albeit not be obliged) to hold coins issued by the Treasury up to a certain 
ceiling. For practical reasons, a ceiling equivalent to 10% of coins in circulation is suggested. 
Article 6 
Credits in the fulfilment of international monetary obligations 
The IMF being an intergovernmental organization, commitments under IMF for balance-of-payments 
support are to be fulfilled by the member governments with the central bank acting as fiscal agent. 
In most Member States currently such lending is ultimately financed by the central bank which 
includes this lending in its balance sheet Likewise, the Medium-Term Financial Assistance for EC 
Member States' balance of payments provides for credits by recourse to Member States; in this 
event, it is current practice in a number of Member States that such loans are not financed out of 
the budget but through the central bank. 
From a strictly formal point of view, these transactions constitute central bank financing of the 
public sector; from an economic point of view, however, such operations are not in contradiction 
with the aims of Article 104. The national central banks should thus be allowed (albeit not be 
obliged) to extend loans to the governments for these purposes 
Article 7 
Definition of the public sector 
The definition of the public sector entities given in Articles 104 and 104b(l ) is considered clear and 
comprehensive. Two specifications appear useful, however. Paragraph 1 defines the term "public 
undertakings" using the definition given in Commission Directive 80/723/EEC; the exemptions 
mentioned in this Directive are, however, not appropriate for the purpose of Articles 104 and 
104b(l). Using this definition guarantees consistency with secondary legislation for Article 104a of 
the Treaty establishing the European Community 
Paragraph 2 makes clear that the ECB and national central banks are exempted from the definition 
of the public sector in order to make sure, for example, that central banks may grant each other 
credits. 
Proposal for a 
COUNCIL REGULATION (EEC) 
specifying definitions for the application of the prohibitions referred to in Articles 104 and 
104b(l) of the Treaty establishing the European Community 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Community as amended by the Treaty on 
European Union, and in particular Articles 104, 104b(2) thereof, 
Having regard to the proposal from the Commission, 
In cooperation with (be European Parliament, 
Whereas Articles 104 and I04b(l) are directly applicable; whereas definitions of terms used in 
Articles 104 and 104b(l) may be specified if necessary; 
Whereas the prohibition on direct central bank financing of the public bodies referred to in 
Article 104 is an essential element in submitting the public sector in its financing operations to the 
discipline of the market mechanism, thus helping to avoid excessive deficits; 
Whereas clarification of the term "overdraft facilities and any other form of credit facility" VA !l 
create legal certainty about the treatment of stocks of credit outstanding as of 3! December !9C>>, 
Whereas outright purchases on the secondary market of securities issued by the public bodies 
addressed in Article 104 are important for the conduct of monetary policy; whereas, however, 
secondary market purchases, if not conducted for the sole purpose of monetary policy, afford a;i 
opportunity to circumvent Article 104 and its objectives, 
Whereas during Stage Two of Economic and Monetary Union, direct purchases by the central bank 
of one Member State of marketable debt instruments issued by the public sector of another Member 
State do not negatively affect the conduct of monetary policy or the working of the market 
mechanism on public sector debt; whereas such transactions are rather of a commercial nature to 
be seen in the context of foreign exchange reserve management, 
Whereas credit offered by central banks to the public sector may take varied forms, whereas credits 
resulting from delays between crediting and debiting for transactions carried out by the European 
Central Bank or the central banks of the Member States on behalf of the public sector are in 
principle a form of credit facility; whereas, however, Article 21.2 of the Statute of the European 
System of Central Banks and the European Central Bank explicitly allows for the provision of fiscal 
agent functions by central banks of Member States; whereas, therefore, certain qualifications to this 
general principle for specific transactions are necessary; 
Whereas credits of central banks to the public sector which arise during the day may be useful for 
the smooth operation of payment systems and comply with the objectives of Article 104 as long as 
they are not extended overnight; 
' ii'.r^a -fhe prohibition on the direct central bank financing of* budget deficits ::hould not hinder 
rfu\„nt operation of fiscal agent functions, whereas, therefoie, :he collection of cheques by 
c/n: ;1 banks on behalf of governments should not be forbidden by Article 104 as long as this does 
not, on the whole, entail central bank credit to the government; 
Whereas holdings by central banks of coins issued by the Treasury in principle constitute a form 
of non-interest bearing credit to the government, whereas, however, in some countries it would be 
rather impractical or even impossible to prohibit such credit altogether; 
Whereas credits granted by central banks to their respective Member States in the fulfilment of 
commitments under IMF balance-of-payments support and of medium-term financial assistance 
granted on the basis of Council Regulation (EEC) No 1969/88°} serve the purpose of lending abroad 
for balance of payments support; 
Whereas public undertakings fall under the prohibition of Articles 104 and 104b(l); whereas public 
undertakings are defined in Commission Directive 80/723/EEC(2), as amended by 
Directive 85/413/EEC(3); whereas that Directive mentions exemptions to the definition of public 
undertakings which are not appropriate in the context of Articles 104 and 104b( 1 ); 
Whereas a clarification of these issues is advisable; 
Whereas the definitions in this Regulation might be revised, where necessary, in the light of 
experience, and with a view to the establishment of the European System of Central Banks and to 
the conduct of a common monetary policy in Stage Three, 
HAS ADOPTED THIS REGULATION: 
Article 1 
(Overdraft facilities or any other kind of credit facility) 
For the purpose of Article 104, "overdraft facilities or any other kind of credit facility" shall mean 
the granting or holding of such facilities by the European Central Bank ("ECB") or the central banks 
of the Member States ("national central banks") in favour of Community institutions or bodies, 
central governments, regional, local or other public authorities, other bodies governed by public law, 
or public undertakings of Member States (hereinafter referred to as "public sector"). The holding of 
claims with a fixed maturity, acquired before 1 January 1994, shall not be considered a credit 
facility. 
(i) 
(2) 
(3) OJNoL 178, 8.7.1988, p. 1. 
OJNo L 195, 29.7.1980, p. 35. 
OJ No L 229, 28.8.1985, p. 20. 
10 
Article 2 
(Direct purchases) 
For the purpose of Article 104, direct purchases shall include purchases by the ECB or by the 
national central banks of debt instruments issued by the public sector on the secondary market 
unless such transactions are conducted solely for the purpose of implementing monetary policy 
and unless the Member States undertake to abstain from influencing the decision-making 
bodies of the national central banks in that regard 
During Stage Two of Economic and Monetary Union, purchases by the national central bank 
of one Member State of marketable debt instruments issued by the public sector of another 
Member State shall not be considered direct purchases within the meaning of Article 104, 
provided that such purchases are conducted for the sole purpose of managing foreign exchange 
reserves. 
Article 3 
(Intra-day credits) 
Credits by the ECB or the national central banks to the public sector within the day shall not be 
considered a credit facility within the meaning of Article 104, provided that they are not extended 
overnight. 
Article 4 
(Collection of cheques) 
Where the ECB or the national central banks receive from the public sector, for collection, cheques 
issued by third parties and credit the public sector's account before the issuer has been debited, this 
shall not be considered a credit facility, provided that a fixed time-lag has expired since the receipt 
and provided that the time-lag corresponds to the average pattern of cheque collection in each 
Member State such that any float which might arise would be exceptional and of a small amount 
and would average out over a short period. 
Article 5 
(Holdings of coins) 
The holdings by the ECB or the national central banks of coins issued by the public sector up to 
an amount of 10% of coins in circulation shall not be considered a credit facility within the meaning 
of Article 104. 
Article 6 
(Credits in the fulfilment of international monetary obligations) 
Credits granted by the ECB or the national central banks to the public sector in the fulfilment of 
commitments under IMF balance-of-payments support and of medium-term financial assistance 
granted on the basis of Regulation (EEC) No 1969/88 shall not be considered a credit facility within 
the meaning of Article 104. 
11 
Article. .7 
(Public sector) 
1. For the purpose of Articles 104 and 104b( 1 ), "public undertakings" shall mean any undertaking 
over which the public authonties may exercise directly or indirectly a dominant inf uence by 
virtue of their ownership of it, their financial participation therein, or the ules which govern 
it. 
2. For the purpose of Articles 104 and 104b(l), the ECB and the national central banks do not 
form part of the public sector. 
Article 8 
This Regulation shall enter into force on 1 January 1994. 
This Regulation shall be binding in its entirety and directly applicable in all Member States 
Done at Brussels, For the Council 
The President 
12 
Annex 2 
Proposal for a SYN 467 
COUNCIL REGULATION (EEC) 
specifying definitions for the application of the prohibition of privileged access 
referred to in Article 104a of the Treaty establishing the 
European Community 
13 
Explanatory Mémorandum 
At its meeting in Copenhagen, the European Council invited the Commission to present propos :s 
concerning all measures necessary for the operation of the second stage of Economic and Moneî y 
Union, such that these proposals could be adopted by the Council after the entry into force of le 
Treaty and before 1 January 1994. Following this request and in the absence of a legal baci:> on 
which to adopt a formal proposal, the Commission presents the annexed draft proposal Its p pose 
is to start informally the necessary discussions with the Community bodies involved, such that the 
formal procedures can be initiated immediately after the entry into force of the Treaty and brought 
to an end within the objective set by the European Council While the Commission has the intention, 
after the entry into force of the Treaty, to make a formal proposal in line with this draft proposal, 
it reserves the right to introduce modifications in the light of the circumstances. 
I. Introduction - general considerations 
The prohibition of privileged access (Article 104a), together with the prohibition of direct central 
bank financing (Article 104) and the no bail out clause (Article 104b), serve the purpose of 
submitting the public authorities to market discipline in their financing operations. The respect of 
the price mechanism should provide an incentive for the authorities to pursue strict budgetary 
policies and so helps to avoid excessive deficits. 
The prohibition of privileged access enters into force on 1 January 1994, when the second phase of 
the process towards Economic and Monetary Union starts. Four definitions should be provided for 
the application of the probition of privileged access in secondary legislation: 
privileged access 
prudential considerations 
public undertakings 
financial institutions. 
In the comments on the Articles more details are given on the content of the definitions. 
II. Comments on the Articles 
Article 1 
Definition of privileged access 
The notion of privileged access is concerned with liabilities from the public sector (for example, 
securities issued by the public sector and loans granted to the public sector) implying that deposits 
of the public sector cannot form the subject of privileged access. 
Not only the measures which directly oblige financial institutions to hold public debt but also the 
measures which have that effect are prohibited. The wording is similar to the one in Article 85 of 
the EC Treaty on competition law. 
14 
The reference to the compatibility with market conditions, based on the wording of Articles 3a and 
102a of the EU Treaty, does not exclude that the public sector can benefit from the good cred'* 
standards it normally has. The wording also allows that obligations which are in accordance with 
the free market principle (for example, the obligation for primary dealers to quote public debt) 
cannot be considered privileged access. In the same spirit, the obligation imposed on certain 
financial institutions to finance at special conditions social housing is compatible with the 
prohibition of privileged access. 
With respect to interest subsidies or other transfers from one part of the public sector to another, 
which de facto lower the borrowing cost, this is not considered privileged access to the extent that 
the financial institution receives the market price. 
Only privileged access to financial institutions is banned leaving privileged access to financial 
markets outside the scope of the prohibition. This means, for example, that tax advantages available 
to everybody whiwh favour the holding of public sector liabilities are not covered by the prohibition 
By contrast tax advantages for public sector liabilities targeted at financial institutions are forbidden. 
In order to facilitate the reading, the entities listed in Article 104a which may not benefit from 
privileged access are referred to as 'public sector'. 
Article 2 
Definition of prudential considerations 
Prudential measures can lead to privileged access to the extent that they encourage the holding of 
public debt which, in normal circumstances, represent a low risk Indeed, public debt paper s 
usually relatively liquid and the government is, in principle, a good debtor because of its prerogative 
'reTïàîse taxes, so that it is justified to make sure that financial institutions observe certain prudential 
measures leading to the holding of public debt paper. On the other hand, prudential supervision may 
not become a way to circumvent the prohibition of privileged access 
The definition of prudential considerations is based on attention for the financial system as a whole, 
financial institutions and customers. Therefore, national laws, regulations or administrative actions 
directed at financial institutions, for example in the absence of EC legislation in the field, are 
recognized as valid references for prudential considerations, as long as they respect EC law 
The formulation implies that EC legislation with a privileged treatment of public debt liabilities, for 
example in the weighting scheme applied in the calculation of the solvency ratios or in the 
diversification requirements on UCITS, are compatible ith the prohibition of privileged access 
because they are based on prudential considerations. The same applies for some measures in the life 
and non-life insurance sector which are only abolished on 1 July 1994 by recently adopted Council 
Directives, while the prohibition of privileged access enters into force on 1 January 1994. 
15 
Article 3 
Definition of public undertakings 
The meaning of the entities listed in Article 104a, which may not benefit from privileged access { he 
public sector), is considered clear and comprehensive except for public undertakings w! se 
definition is given in paragraph 1. It is the definition of Commission Directive 80/723/EEC11 or he 
transparency of financial relations between Member States and public undertakings. It is pref ^ed 
to have the full wording of the definition rather than a reference to a Commission Directive hich 
can be changed without the Council being involved. 
Paragrah 2 makes clear that the central banks of the Member States and the European Central Bank 
cannot be included in the public sector so that they can oblige financial institutions to hold central 
bank liabilities for monetary policy purposes (for example, minimum reserve requirements) 
However, the monetary policy instruments must not be designed in such a way that the only manner 
to obtain central bank credit is through the vehicle of public sector liabilities, for example, as 
collateral or in open market operations. Nevertheless, there is no objection to limit specific 
operations to particular public sector liabilities satisfying certain characterisitcs. 
Article 4 
Definition of financial institutions 
In paragraph 1, financial institutions are defined by making reference to existing EC legislation. In 
addition, there is a catch-all clause. If EC legislation for certain financial institutions is not ready 
they are covered by the catch-all clause. 
In paragraph 2, the central banks of the Member States and the European Central Bank are excluded 
on the argumentation that their relations with the public sector are dealt with in Article 104. Even 
if postal financial services are obliged to make available to the public sector the funds they have 
at their disposal they are excluded from the definition because they are not a financial institution 
sufficiently separate from the government. 
(i) OJNoL 195, 29.7.1980, p 35. 
16 
Proposal for a 
COUNCIL REGULATION (EEC 
specifying definitions for the application of the prohibition of privileged access 
referred to in Article 104a of the Treaty establishing the 
European Community 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Community as amended by the Treaty on 
European Union, and m particular Article 104a(2) thereof, 
Having regard to the proposal from the Commission, 
In cooperation with the European Parliament, 
Whereas the prohibition of privileged access forms an essential element of the submission of the 
public sector in its financing operations to the discipline of the market mechanism and so makes a 
contribution to the avoidance of excessive deficits, 
Whereas prudential considerations are considered a justification for making an exception to the 
prohibition of privileged access; whereas in so doing, however, any exceptions should in particular 
be compatible with Community law on the liberalization of capital movements; 
Whereas public undertakings fall under the prohibition of Article 104a, whereas public undertakings 
are defined in Commission Directive 80/723/EEC(1), as amended by Directive 85/413/EEC(2); 
whereas that Directive mentions exemptions to the definition of public undertakings which are not 
appropriate in the context of the prohibition under Article 104a; 
(1) OJNoL 195, 29.7.1980, p. 35. 
(2) OJ No L 229, 28 8.1985, p. 20. 
17 
Whereas privileged access is formulated in terms of access to financial institutions and not financial 
markets; whereas different definitions of financial institutions are given in Council 
Directive 89/646/EECw, as amended by Directive 92/30/EEC(4), and in Directive 91/308/EEC^; 
whereas neither of the Directives provides a suitable definition of financial institutions in the context 
of the prohibition of privileged access; 
Whereas the central banks of the Member States and the European Central Bank have a special 
relation to financial institutions, and in particular to credit institutions which for reasons of 
monetary policy can be obliged to hold liabilities from the central bank of the Member States and/or 
the European Central Bank; whereas the central banks of the Member States and the European 
Central Bank must nevertheless take account of the prohibition of privileged access in the design 
and use of monetary policy instruments which mostly involve liabilities of the public sector and 
therefore may not take measures which establish privileged access by the public sector to financial 
institutions; whereas the central banks of the Member States and the European Central Bank have 
a special relationship with the public sector, with which Article 104 of the Treaty deals; 
Whereas the definitions in this Regulation might be revised in the light of experience, 
HAS ADOPTED THIS REGULATION: 
Article 1 
For the purpose of Article 104a, 'any measure establishing privileged access' shall be defined as any 
law, regulation or other measure which is not in accordance with the principle of an open market 
economy with free competition, and which obliges financial institutions to acquire or hold liabilities 
of Community institutions or bodies, central governments, regional, local or other public authorities, 
other bodies governed by public law, or public undertakings of Member States (hereinafter referred 
to as 'public sector'), or which has such acquisition or holding as its object or effect. 
Article 2 
For the purpose of Article 104a, 'prudential considerations' shall be those which refer to national 
laws, regulations or administrative actions based on, or consistent with, Community law and 
designed to promote the soundness of individual financial institutions so as to strengthen the stability 
of the financial system as a whole and the protection of the customers of those financial institutions. 
(5) OJ No L 386, 30.12.1989, p. I. 
(4) OJ No L 110, 28.4.1992, p. 52. 
(5) OJNoL 166, 28.6.1991, p. 77. 
18 
Article 3 
1. For the purpose of Article 104a, 'public undertakings' shall be defined as any undertaking over 
which the public authorities may exercise directly or indrectly a dominant influence by virtue 
of their ownership of it, their financial participation therein, or the rules which govern it. 
2. For the purpose of Article 104a, the European Central Bank and the central banks of the 
Member States do not form part of the public sector. 
The exemption shall be without prejudice to compliance with Article 104a by the central 
banks of the Member States and the European Central Bank. 
Article 4 
1. For the purpose of Article 104a, 'financial institutions' are: 
credit institutions as defined in the first indent of Article 1 of Council 
Directive 77/780/EEC(6); 
insurance undertakings as defined in Article 1 of Council Directive 92/49/EEC(7); 
assurance undertakings as defined in Article 1(a) of Council Directive 92/96/EEC(8); 
UCITS as defined in Article 1(2) of Council Directive 85/611/EEC(9); 
investment firms as defined in Article 1(2) of Council Directive 93/22/EEC(,0); 
institutions for retirement provision as defined in Council Directive ../../EEC(11); 
other undertakings or institutions the principal activity of which is to acquire holdings 
of financial assets or to transform financial claims. 
2. The following institutions do not form part of the financial institutions whose definition was 
given in paragraph 1 : 
the central banks of the Member States and the European Central Bank; 
the postal financial services, if forming part of the government. 
(6) 
(7) 
(8) 
(9) 
(10) 
(11) OJNoL322, 17.12.1977, p. 30. 
OJNoL228, 11.8.1992, p. 1. 
OJNo L 360,9.12.1992, p. 1. 
OJNoL 375, 31.12.1985, p. 3. 
OJNoL 141, 11.6.1993, p. 27. 
OJNoL 
19 
Article 5 
This Regulation shall enter into force on 1 January 1994. 
This Regulation shall be binding in its entirety and directly applicable in all Member States. 
Done at Brussels, For the Council 
The President 
20 
Annex 3 
Proposal for a 
COUNCIL REGULATION (EEC) 
on the application of the provisions of the Protocol on the excessive deficit procedure annexed to 
the Treaty establishing the European Community 
21 
Explanatory Memorandum 
At its meeting in Copenhagen, the European Council invited the Commission to present proposals 
concerning all the measures necessary for the operation of the second stage of economic * id 
monetary union, such that these proposals could be adopted by the Council after the entry into f ce 
of the Treaty and before 1 January 1994. Following this request and in the absence of a legal basis 
on which to adopt a formal proposal, the Commission presents the annexed draft propo. i. Its 
purpose is to start informally the necessary discussions with the Community bodies invoh I, such 
that the formal procedures can be initiated immediately after the entry into force of the Treaty and 
brought to an end within the objective set by the European Council. While the Commission has the 
intention, after the entry into force of the Treaty, to make a formal proposal in line with this draft 
proposal, it reserves the right to introduce modifications in the light of the circumstances. 
I. General considerations 
From the beginning of the second stage of Economic and Monetary Union (EMU), Article 109e(4) 
requires the Member States to endeavour to avoid excessive government deficits, without there being 
yet the legal obligation to avoid excessive deficits which applies to Member States participating in 
the third stage or to Member States with a derogation. The importance of this 'best endeavour' clause 
derives from the fact that the achievement of a government budgetary position without a deficit mat 
is excessive as determined in accordance with Article 104c(6) is one of the criteria with reference 
to the fulfilment of which the Commission and the European Monetary Institute will examine the 
achievement of a high degree of sustainable convergence in their reports prior to the start of the 
third stage. 
Even though there is thus no legal obligation to avoid excessive deficits in the second stage, it is 
clear that the excessive deficit procedure as described in Article 104c and the Protocol on the 
excessive deficit procedure annexed to the Treaty (hereinafter called "the Protocol") should not make 
a distinction between the second stage or the third stage in determining whether a deficit is 
excessive. This holds in particular for the tasks assigned to the Commission in paragraphs 2 and 
3 of Article 104c of the Treaty. 
According to Article 104c(2), the Commission should "...monitor the development of the budgetary 
situation and of the stock of government debt in the Member States with a view to identifying gross 
errors. In particular, it shall examine compliance ...". From this assignment it is clear that the 
monitoring of the Commission should not be restricted to the two criteria mentioned in 
Article 104c(2), but should pertain to the development of the budgetary situation in general. This 
interpretation is confirmed by two facts. Firstly, the Commission may make a report if, 
notwithstanding the fulfilment of the requirements under the two critena, it is of the opinion that 
there is a risk of an excessive deficit in a Member State and thus acts on the basis of data other than 
those for the two criteria. Secondly, in its report, the Commission should take account of "whether 
the government deficit exceeds government investment expenditure and take into account all other 
relevant factors, including the medium-term economic and budgetary position of the Member State". 
Consequently, it follows that in order to execute the tasks assigned to it, the Commission has to 
monitor a wide range of information, not only in the budgetary field but also in the economic field. 
22 
In the Protocol, the Treaty lays down the reference values for the two criteria on government deficit 
and debt (Article 1), a number of definitions of variables used for the excessive deficit procedure 
(Article 2), a number of obligations for the Member States (Article 3) and the obligation for the 
Commission to provide the statistical data to be used (Article 4). Article 104c(14) of the Treaty, 
which is the legal basis for this Regulation, requires the Council, acting by a qualified majority on 
a proposal from the Commission and after consulting the European Parliament, to lay down detailed 
rules and definitions for the application of the provisions of the Protocol. Consequently, the subject 
of this Regulation is to provide further details of the definitions to be used for the application of the 
Protocol and to lay down rules for the reporting by the Member States 
Several definitions in the Protocol are given with reference to the European System of Integrated 
Economic Accounts (ESA). The Regulation provides a more precise definition by giving the 
classification code? used in ESA, second edition05. For public debt, where no reference to ESA is 
given in the Protocol, a more detailed definition, partly in terms of classification codes from ESA, 
is provided. Although ESA was established in close collaboration with the Member States, the final 
responsibility has always been taken by the Statistical Office of the European Communities (SOEC) 
This division of responsiDility will remain valid for new editions of ESA as well as for questions 
regarding its interpretation. The Commission will have to change the classification codes in the 
Regulation if these change in new editions of ESA. 
The Member States are required to report their data "promptly and regularly" to the Commission 
This poses the problem of the transition betv/een public accounts used for national purposes and the 
harmonised definitions required for the excessive deficit procedure. Since Member States have to 
report their data (in accordance with the Treaty definitions) promptly to the Commission and since 
they have to ensure, in accordance with the Protocol that national procedures in the budgetary area 
enable them to meet their obligations in this area, the presumption is that Member States will report 
their data in accordance with the Treaty definitions at the same time as new data in national 
definitions becomes available. However, in order to take account of the delay which may be needed 
for the transposition between national and Protocol definitions, it is proposed to establish a system 
of twice-yearly reporting which would provide the minimum requirements to be met by the Member 
States, in terms of the timing of their reporting. 
Given the fact that the Commission has to monitor more than the data strictly required for the deficit 
and debt criteria of Article 104c(2), the Regulation contains a limited set of other data, the 
transmission of which to the Commission is considered to be in the interest of the Member States. 
The alternative, that these data would be collected by the Commission, would imply that the 
Commission would take politically sensitive decisions on the basis of data for which Member States 
have not taken the responsibility. Consequently, this limited set of data has been included among 
the definitions and among the data to be provided to the Commission. 
0) Statistical Office of the European Communities, European System of Integrated Accounts 
ESA, second edition, November 1978. 
23 
II Comments on the Articles 
Article 1 
This Article defines the terms 'government', 'government deficit', 'government primary balar a', 
'government investment' and 'government debt' For the first four terms, the definitions are : en 
with reference to their classification codes in ESA, second edition. 
The definition of government debt is more precise than in the Protocol First of all, references to 
ESA have been introduced explicitly for clarity. Secondly, the issue of nominal valuation of 
liabilities has been addressed, notably for the case in which the face value of a liability differs 
considerably from the present value. Finally, a rule is given for the valuation of liabilities 
denominated in foreign currencies. 
Article 2 
This Article gives the definition for Gross Domestic Product at market prices (GDPmp). Reference 
has been made to the definition given in the Council Directive 89/130/EEC, Euratom of 13 February 
1989 on the harmonization of the compilation of gross national product at market prices (GNP 
Directive)(2), where GDP is defined with reference to ESA in an intermediate step towards the 
definition of GNP. For the years for which they are available, GDPmp data established in 
accordance with the GNP Directive will be used. 
Article 3 
This Article provides a definition for the terms 'actual' and 'planned' used in the Protocol. A 
difference is introduced between the definition of these terms, in this article, and the reporting 
requirements for particular years, in Chapter 2 of the Regulation. For instance, if a government were 
to decide on a deficit for two years ahead, this deficit would be defined as a 'planned' deficit, 
whereas the planned deficit asked for in the reporting requirements is that of the current year. 
Paragraph 1 of this Article refers to Article 3 of the Protocol, which gives the governments of the 
Member States the responsibility for the deficits of general government It therefore assigns the 
responsibility for the reporting of general government data to the governments of the Member States. 
This paragraph mentions "current and subsequent years" to take account of the point in time at 
which the data are reported. For instance, a budget for the coming year adopted in October and 
reported in December would refer to a 'subsequent' year, whereas it would refer to a 'current' year 
if reported in January. The requirement that the figures be consistent with the most recent decisions 
of the budgetary authorities means, inter alia, that governments should take account of amendments 
voted by parliaments to their proposed budgets or of any other decisions affecting the budget which 
have been taken after they have made their budget proposal. 
OJNo L 49, 21.2.1989, p. 26 
24 
Paragraph 2 defines the term 'actual', recognizing that historical statistics may undergo several 
revisions before they become final. It is rendered clear, in particular, that even first estimates for 
a past year are considered to be actual data, such that there is no gap between actual and planned 
data. 
Article 4 
This Article describes the reporting procedure which the Member States have to respect and the 
content of what has to be reported. 
Paragraph I lays down the general principle that Member States should report their data promptly 
to the Commission In order to take account of possible delays due to transposition of data from 
national définitions to Protocol definitions, the Member States are given extra time in the form of 
deadlines twice a year which they could use if needed It is however assumed that between these 
dates, Member States would transmit all relevant supplementary information for current and 
subsequent years. This would allow the Commission to have the most up-to-date picture of the 
situation in the Member States, even if only on the basis of data in national definitions The two 
dates before which certain data have to be provided according to the Protocol definitions by the 
Member States have been fixed, after consulting the Member States, as 1 February and 1 July of 
any particular year. The Commission is aware that this requires adaptations of national procedures 
in some cases. The proposed deadlines are however needed in view of the timing of the subsequent 
steps of the excessive deficit procedure. 
Paragraphs 2 and 3 lay down the reporting requirements in terms of particular years to be reported 
before the deadlines of 1 February and 1 July The Member States should report in particular the 
elements explaining the transition between national government accounts and the Protocol 
definitions, as well as the correspondence between changes in levels of public debt and the 
government deficit. It is to be noted that, although not strictly required according to the Protocol, 
the Member States are asked to report their planned debt. This is considered to be of particular 
importance in assessing whether the debt-to-GDP ratio is sufficiently diminishing and approaching 
the reference value at a satisfactory pace and therefore in the interest of the Member States. 
Paragraph 4 allows those Member States where the budget year is different from the calendar year 
to report their planned data for budget years, on the condition that actual data for the last two years 
are also presented for budget years. 
Articles 5 and 6 
These Articles define the limited set of data of which the Commission considers that it is in the 
interest of the Member States that they report them simultaneously with their actual and planned 
deficit and debt data. It concerns data which the Commission would take into account for us 
monitoring of the budgetary situation and as re levant factor for its report in accordance with Artie! 
104c(3). In particular, Article 5 refers to c! i on government investment and the government 
primary balance. Etefaults on loans with a gove anient guarantee or the take-over by the government 
of debt of other sectors is of particular relevant for the Commission's assessment on the risk of a;; 
excessive deficit Consequently, Article 6 requires that the Member States provide the Commission 
with data on current and foreseeable payments in fulfilment of government guarantees as well as 
current and foreseeable debt take-overs. 
25 
Article 7 
This Article given the reporting requirements for Gross Domestic Product at market pn;es 
(GDPmp). The reporting procedure is somewhat different from that for the deficit and debt o;:ia 
because, after a certain cut-off date, the actual data for GDPmp established under the procedure 3r 
the GNP Directive are available and should be used. 
Article 8 
This Article empowers the Commission to change the classification codes of ESA referred to in the 
Regulation should the codes be changed in future editions of ESA. This would only be a technical 
adjustment of the Regulation. 
26 
ANNEX TO THE EXPLANATORY MEMORANDUM 
Some definitions of classification codes in ESA 
This Annex provides some definitions of classification codes from the European System of 
Integrated Economic Account, second edition (ESA)W to which reference is made in the draft 
proposal for the Regulation. The definitions are only given for illustrative purposes. ESA provides 
the complete definitions, which are more detailed than can be reproduced here 
Institutional sectors 
S60 - General government 
The sector general government includes all institutional units which are principally engaged in the 
production of non-market services intended for collective consumption and/or in the redistribution 
of national income and wealth The principal resources of these units are derived directly or 
indirectly from compulsory payments made by units belonging to other sectors 
S6Ï - Sub-sector: Central government 
The sub-sector central government includes all administrative departments of the State and other 
central agencies whose competence extends over the whole economic territory, except for the 
administration of the social security funds. 
S62 - Sub-sector: Local government 
The sub-sector local government includes those types of public administration whose competence 
extends to only part of the economic territory, apart from local agencies of the social security funds. 
S63 - Sub-sector: Social security funds 
The sub-sector security funds include all central and local institutional units whose principal activity 
is to provide social benefits and whose main resources are derived from compulsory social 
contributions paid by other units. 
(3) Statistical Office of the European Communities, European System for Integrated Economic 
Accounts - ESA, second edition, November 1978. 
27 
Transactions in goods and services 
P41 - Gross fixed capital formation 
Gross fixed capital formation represents the value of durable goods intended for non-mil' try 
purposes, which are acquired by resident producer units in order to be used for a period of r.ore 
than one year in their process of production, including the value of any services embodied : fixed 
capital goods. 
Redistributive transactions 
R41 - Actual interest 
Actual interest is the form of remuneration in respect of certain financial assets (deposits, bills, 
bonds and credits) characterised by the payment at predetermined dates of a fixed percentage of the 
nominal value of the asset. 
Aggregates 
Nl - Gross domestic product at market prices 
Gross domestic product at market prices represents the final result of the production activity of 
resident producer units. It corresponds to the economy's total output of goods and services less 
intermediate consumption, plus VAT on products and net taxes on imports excluding VAT. 
Gross domestic product at market prices is equal to the sum of gross value added at market prices 
of all the different branches, plus VAT on products and net taxes on imports excluding VAT 
It is also equal to the sum of gross value added at market prices of all the different sectors plus 
VAT on products and net taxes on imports excluding VAT and less the intermediate consumption 
of banking services which is not allocated by sector. 
N5 - Net lending (borrowing) 
Net lending (borrowing) is defined for the sector general government (S60) as the balancing item 
of gross saving and capital transfers received minus gross fixed capital formation, the change in 
stocks, net purchases of land and intangible assets and capital transfers paid 
28 
Financial transactions 
F20 - Currency and transferable sight deposits 
The heading currency and transferable sight deposits includes the notes and coin and sight deposits 
which are immediately convertible into the legal tender of the country without any kind of 
restriction, and which are transferable by cheque, banker's order or the like. 
F30 - Other deposits 
The heading other deposits covers all deposits other than transferable sight deposits; that is, deposits 
which cannot be utilised at any moment, without restriction or without first being converted into 
notes and coin or transferable sight deposits. These assets are instruments of financing 
F40 - Bills and short term bonds 
The heading bills and short term bond- groups together assets with a short maturity, usually up to 
12 months, but with a maximum of 2 years, represented by securities intended to circulate, whose 
nominal value, determined on issue, is expressed as some round figure, and which bear interest, 
generally paid in advance. They are repayable at their nominal value at a date, or starting from a 
date, fixed at the time of issue. These securities are instruments of investment. 
F50 - Long term bonds 
The heading long term bonds groups together securities which at the time of issue have a maturity 
of several years, which bear fixed or index-linked rates of interest (the interest frequently being 
payable by coupons) and which are redeemable starting from a date fixed at the time of issue. Long 
term bonds are negotiable instruments of investment generally quoted on the stock exchange 
F79 - Other short term loans 
The sub-heading other short term loans covers all short-term loans other than those which are 
classified as short term trade credit or as accounts receivable and payable. 
F89 - Other medium and long term loans 
The subheading other medium and long term loans covers all medium and long term loans other 
than those classified as medium and long-term trade credit. 
29 
Proposal for a 
COUNCIL REGULATION (EEC) 
on the application of the provisions of the Protocol on the excessive deficit 
procedure annexed to the Treaty establishing the European Community 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Community as amended by the Treaty on 
European Union, and in particular the third subparagraph of Article 104c, paragraph 14, thereof, 
Having regard to the proposal from the Commission, 
Having regard to the opinion of the European Parliament(1), 
Whereas the definitions of government, deficit and investment are laid down in the Protocol on the 
excessive deficit procedure by reference to the European System of Integrated Economic Accounts 
(ESA)(2) ; whereas ESA provides commonly accepted definitions which may undergo revision; 
whereas precise definitions referring to the classification codes of ESA are required, 
Whereas the definition of debt laid down in the Protocol on the excessive deficit procedure needs 
to be amplified by reference to the classification codes of ESA; whereas certain aspects concerning 
the valuation of debt need further clarification; whereas the definition and recording of interest laid 
down in ESA have to be adjusted to take account of new financial instruments; 
Whereas Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonization of the 
compilation of gross national product at market pnces(3) provides an adequate, detailed definition 
of gross domestic product at market prices; 
Whereas the Commission is required to provide the statistical data to be used in the excessive deficit 
procedure; 
Whereas detailed rules are required to organize the prompt and regular reporting by the Member 
States to the Commission of their planned and actual deficits and of the levels of their debt; 
(i) 
(2) Statistical Office of the European Communities, European System of Integrated Accounts 
ESA, second edition, November 1978. 
OJNoL 49, 21.2.1989, p. 26. 
30 (3) 
Whereas pursuant to Article 104c, paragraphs 2 and 3, the Commission shall monitor the 
development of the budgetary situation and of the stock of government debt in the Member States 
and shall examine compliance with budgetary discipline on the basis of government deficit and debt 
criteria; whereas the Commission shall, where a Member State does not fulfil the requirements under 
one or both criteria, take into account all relevant factors; whereas the Commission has to assess 
whether there is a risk of an excessive deficit in a Member State; whereas the Commission should 
therefore be provided by the Member States with information complementary to the reported deficit 
and debt figures; 
Whereas the definitions and rules in this Regulation may be revised in the light of experience, 
HAS ADOPTED THIS REGULATION 
CHAPTER I: DEFINITIONS 
Article 1 
For the purposes of the Protocol on the excessive deficit procedure and of this Regulation, the terms 
given below are defined according to the European System of Integrated Economic Accounts (ESA) 
as follows. (The codes in brackets refer to ESA second edition). 
1. Government is the sector general government (S60) subdivided into the sub-sectors central 
government (S61), local government (S62), and social security funds (S63). 
2. Government deficit (surplus) is the net borrowing (net lending) (N5) of the sector general 
government (S60). The interest comprised in the government deficit is the sum of actual 
interest (R41) and capitalized interest. Interest relating to several accounting periods shall be 
distributed among the different periods. 
3. Government primary balance is the government deficit or surplus as defined in the preceding 
paragraph excluding actual interest (R41) paid by government, and capitalized interest. 
4. Government investment is the gross fixed capital formation (P41) of the sector general 
government (S60). 
5. Government debt is the total nominal value of all liabilities outstanding at 31 December of the 
sector general government (S60), with the exception of those habilites of which the 
corresponding financial assets are held by the sector general government (S60). 
31 
Government debt is subdivided into the headings Currency and Deposits; Securities; Loans, 
and all Debt not elsewhere classified. The heading Currency and Deposits includes the 
headings Currency and transferable Sight Deposits (F20) and Other Deposits (F30) The 
heading Securities includes the headings Bills and Short-term Bonds (F40) and Long-term 
Bonds (F50). The heading Loans includes Other Short-term Loans (F79) and Other Medium 
and Long-term Loans (F89). 
The nominal value of a liability outstanding at 31 December is the face value Where the 
present value of a liability at the date of issue differs considerably from the face value, the 
nominal value is the present value. The present value is calculated on the basis of an 
appropriate interest rate fixed for the day the liability is incurred. 
The nominal value of an index-linked liability corresponds to its face value adjusted by the 
index-related capital uplift accrued to 31 December. 
Liabilities denominated in foreign currencies shall be converted into the national currency at 
the representative market exchange rate prevailing on the last working day of each year 
Article 2 
Gross domestic product is gross domestic product at market prices (GDPmp) as defined in Article 2 
of Directive 89/130/EEC, Euratom. 
Article 3 
Planned deficit and debt-level figures shall mean the figures established for the current and 
subsequent years by Member States consistent with the most recent decisions of their 
budgetary authorities and reported to the Commission under the responsibility provisions of 
the first sentence of Article 3 of the Protocol on the excessive deficit procedure. 
Actual deficit and debt-level figures shall mean estimated, semi-final, or final outcomes for 
a past year. 
CHAPTER 2 : REPORTING 
Article 4 
As from the beginning of 1994, Member States shall report to the Commission their planned 
and actual government deficits and levels of government debt promptly but at least twice a 
year, the first time before February 1 of the current year ("year n") and the second time before 
July 1 of year n. 
32 
Between their reporting twice a year, Member States shall provide the Commission with any 
relevant supplementary information for the current and subsequent years 
Before February I of year n, Member States: 
shall report to the Commission their planned government deficit for the year n, their up-
to-date estimate of actual government deficit for the year n-1 and their actual government 
deficits for the years n-2, n-3 and n-4; 
shall simultaneously provide the Commission for the years n, n-1 and n-2 with their 
corresponding public-account budget deficits according to the public account definition 
which is given most prominence nationally, and with the figures which explain the 
transition between this public-account budget deficit and their government deficit. The 
figures explaining this transition which are provided to the Commission shall include in 
particular the figures for net borrowing of the sub-sectors (S61), (S62) and (S63); 
shall report to the Commission their planned level of government debt for the year n, 
their up-to-date estimate of the actual level of government debt for the year n-1 and their 
actual levels of government debt for the years n-2, n-3 and n-4; 
shall simultaneously provide the Commission for the years n, n-1 and n-2 with the 
figures which explain the contributions of their government deficit and the other relevant 
factors contributing to the variation of the level of their government debt. 
Before July I of year n, Member States: 
shall report to the Commission their updated planned government deficit for the year n 
and their actual government deficits for the years n-1, n-2 and n-3, and shall fulfil the 
requirements of the second indent of paragraph 2; 
shall report to the Commission their updated planned level of government debt for the 
year n and their actual levels of government debt for the years n-1, n-2 and n-3, and shall 
fulfil the requirements of the fourth indent of paragraph 2. 
The planned government deficit and government debt-level figures reported to the 
Commission along the provisions of paragraphs 2 and 3 shall be expressed in national 
currency and in budget years. 
The actual government deficit and government debt-level figures reported to the Commission 
in accordance with paragraphs 2 and 3 shall be expressed in national currency and in calendar 
years. 
Where the budget year differs from the calendar year, the Member States shall also report to 
the Commission their actual government deficit and government debt-level figures in budget 
years for the two budget years preceding the current budget year. 
33 
Article 5 
Member States shall, under the same conditions as to timing and year overage as those laid d sm 
in Article 4(1), (2) and (3), provide the Commission with the figures for their governn nt 
investment and their government primary balances. 
Article 6 
Member States shall, under the same conditions as to timing as those laid down in Article 4(1), 
provide the Commission with figures for the current and subsequent years of the amount of 
government expenditure and of government debt due to the payments made or foreseeable in 
fulfilment of government guarantees, and of the amount of debt of entities outside the general 
government sector which is taken over or foreseeably to be taken over. 
Article 7 
Member States shall provide the Commission with a forecast for the year n and an estimated figure 
for the year n-1 of their GDP mp under the same conditions as to timing as those in Article 4(1). 
Those GDP mp figures shall be updated for the preceding years by those forwarded to the 
Commission in accordance with the provisions of Directive 89/130/EEC, Euratom. 
Article 8 
Where appropriate, the Commission shall adjust the classification codes of ESA in Articles 1 and 4 
in accordance with any revisions of ESA. 
Article 9 
This Regulation shall enter into force on 1 January 1994. 
This Regulation shall be binding in its entirety and directly applicable in all Member States. 
Done at Brussels, For the Council 
The President 
34 
Annex 4 
Proposal for a 
COUNCIL DECISION 
on the establishment of the key for the financial resources of the 
European Monetary Institute 
35 
EXPLANATORY MEMORANDUM 
At its meeting in Copenhagen, the European Council invited the Commission to present proposals 
concerning all measures necessary for the operation of the second stage of economic and monet ry 
union, such that these proposals could be adopted by the Council after the entry into force of the 
Treaty and before I January 1994 Following this request and in the absence of a legal basis on 
which to adopt a formal proposal, the Commission presents the annexed draft proposal. Its n jrpose 
is to start informally the necessary discussions with the Community bodies involved, such that the 
formal procedures can be initiated immediatly after the entry into force of the Treaty and Drought 
to an end within the objective set by the European Council. While the Commission has the intention, 
after the entry into force of the Treaty, to make a formal proposal in line with this draft proposal, 
it reserves the right to introduce modifications in the light of the circumstances. 
L General considerations 
The political will to make the financial structure of the European Monetary Institute (EMI) similar 
to that of the European Central Bank (ECB) is reflected in the rules which determine the share of 
each central bank in the financial resources, which are the same as those of the ECB. 
The key for the ECB capital is of great importance. Apart from the contributions to the capital, it 
determines the share of each central bank in the pooling of external reserves, the weights in voting 
in the ECB Council on financial matters and in particular, the distribution of the monetary income 
of the European System of Central Banks (ESCB) as a whole. This explains why the rules on how 
to provide the data for the establishment of the key of the ECB have to be specified by the Council. 
Although for the EMI, the significance of the key is limited to the contributions to the financial 
resources, the distribution of any surpluses (or losses) and the distribution of any proceeds of the 
liquidation of the EMI to the national central banks; the legislation to be prepared now for the EMI 
will be helpful for the legislation on the key of the ECB which will be adopted immediately after 
the decision on the start of Stage Three. 
According to Article 29.1 of the Statute of the ESCB and the ECB, each national central bank shall 
be assigned a weighting in the key equal to the sum of 50% of the share of its respective Member 
State in the population of the Community in the penultimate year preceding the establishment of the 
ESCB and of 50% of the share of its respective Member State in the gross domestic product at 
market prices of the Community as recorded in the last five years preceding the penultimate year 
before the establishment of the ESCB. Concerning the key for the financial resources of the EMI, 
the relevant years will be the same but by reference to the establishment of the EMI. 
The subject of this Council Decision are the rules which the Commission shall respect when it 
provides the statistical data for the establishment of the key as defined above. The rules include the 
definition and sources for the statistical data on GDP and population to be used, and the 
determination of the method of calculation. 
36 
The EMJ will be established on I January 1994; its Council will decide on the size of the re-o a 
and will apply the key for determining the individual contributions at the beginning of 1994 The 
data to be used for the establishment of the key therefore must be provided before that date 
The establishment of the key for the EMI is a once-and-for-all operation. The key will be applicable 
for the whole life-time of the EMI. The five-yearly review which is envisaged for the key of the 
ECB is irrelevant for the EMI because Stage Three will start at the latest five years after the 
establishment of the EMI. 
IL Comments on the Articles 
Article 1 
Article 1 defines what r- covered by this decision, the statistical data and the calculation method to 
be used for the establish.-tnnt of the key. In a narrow interpretation, these rules would just specify 
the concept and sources of population and GDP to be used. However, methodological questions 
inevitably arise between the supply of the data for the individual countries and the establishment 
of the key, which must also be covered by this decision for the sake of consistency and accuracy 
Articles 2, 3. 4. 5. 6 
These Articles specify the definitions and sources for the population and GDP data. The appropiate 
definitions are those of the European System of Integrated Economic Accounts (ESA). 
Since the data on the aggregates in national accounts refer to a period of one year, the population 
figures to which they are related must represent the mean of the total population over the course 
of the year. 
GDP mp data for the years 1988 to 1991 are the data resulting from the application of the Council 
Directive on the harmonization of the compilation of GNP mp. The Directive does not cover 1987; 
thus for 1987 GDP mp data are those collected by the Commission (EUROSTAT) from Member 
States according to the established procedure. 1987 data are made consistent with 1988-1991 data 
resulting from the application of the GNP mp Directive. This Directive is applied once a year and 
the resulting data are formally accepted by all Member States. The Commission (EUROSTAT) 
adjusts, where necessary, the data for the previous years not covered by the Directive to ensure the 
consistency of the series. 
At present, the data resulting from the application of the GNP Directive for Germany include the 
new Lander from October 1990. Since the period for which the key is applied covers the European 
Community including the new German Lander, it seems reasonable to include the GDP mp of the 
new Lander in the period 1987-1991. Data for total Germany prior to 1991 are not available For 
the purpose of the present decision, GDP of uaal Germany for 1987-1990 has been estimated by 
assuming that the share of GDP of the old Làiider in total Germany was the same in this period 
as in 1991. 
37 
In the case of Portugal, at present ths data resulting from the application of the GNP mp Directive, 
GDP mp include continental GDP for the years 1988 to 1990 and total GDP for 199!. Howe T, 
total GDP for 1988-1990 is expected to be included in the next application of the GNP -,<-> 
Directive in Autumn 1993, in which case GDP covering the whole territory will be used. 
Articles 7, 8, 9 
GDP data are established in national currencies. The common denominator will be * ecu 
exchange rate. The alternative of using Purchasing Power Standards has not been stained. 
Compared to PPS, exchange rates are unambiguously defined, thus making the calculation easier 
and more transparent; besides they correspond better to the notion of market prices which is 
attached to GDP. Furthermore, the current Community practice concerning financial flows from 
Member States to the Community is to use exchange rates as common denominator 
Article 10 
The EMI will be established on 1 January 1994. The Council of the EMI would then decide at 
the beginning of 1994 on the size of the resources and apply the key to determine the individual 
contributions of Member States' Central Banks The Commission shall thus communicate the key 
before the date of the establishment of the EMI to the Committee of Governors. 
The rounding up to the nearest multiple of 0.05 percentage points of the weighting, which is referred 
to in Article 29 of the Statute of the ESCB and the ECB, is outside the scope of the present 
decision. It will be up to the Council of the EMI to establish the rounded key 
38 
Proposal for a 
CmjNClLMnSION 
on the establishment of the key for the financial resources of the European Monetary Institute 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Community as amended by the Treaty on 
European Union, and in particular Article 16.2 of the Protocol on the Statute of the European 
Monetary Institute annexed to this Treaty, and Article 29.1 and 29.2 of the Protocol on the Statute 
of the European System of Central Banks and the European Central Bank annexed to this Treaty, 
Having regard to the proposal from the Commission, 
Having regard to the opinion of the European Parliament05, 
Having regard to the opinion of the Committee of Governors of the central banks of the Member 
States(2), 
Having regard to the opinion of the Monetary Committee05, 
Whereas the European Monetary Institute, hereafter referred to as "EMI", shall be established on 
I January 1994; 
Whereas the EMI shall be endowed with its own resources in order to ensure that it will be able to 
perform its tasks and functions with effect from its establishment; 
Whereas the resources of the EMI shall be established by the Council of the EMI; 
Whereas the resources of the EMI will be provided out of contributions by national central banks 
in accordance with the key referred to in Article 29 1 of the Statute of the European System of 
Central Banks and the European Central Bank (ESCB and ECB); 
Whereas the key for the financial resources of the EMI will be determined before the start of 
Stage Two, 
Whereas the statistical data to be used for the determination of the key will be provided by the 
Commission in accordance with the rules adopted by the Council, 
(i) 
(2) 
(3) 
39 
Whereas the definition and sources for the data to be used and the method of calculation for the 
establishment of the key should be given. 
Whereas Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonization o< :ie 
compilation of gross national product at market prices(4), provides for gross domestic product at 
market prices ("GDP mp") data approved by Member States, 
HAS DECIDED AS FOLLOWS 
Article 1 
The statistical data and the method of calculation to be used for the establishment of the key for 
the contributions by the national central banks to the financial resources of the EMI shall be 
provided by the Commission according to the rules specified in the following Articles. 
Article 2 
Population and Gross Domestic Product at market prices, hereafter referred to as "GDP mp", shall 
be defined according to the European System of Integrated Economic Accounts (ESA) in force. 
GDP mp shall mean GDP mp as defined in Article 2 of Directive 89/130/EEC, Euratom 
Article 3 
The data on population shall be taken for the year 1992 The mean of the total population over the 
course of the year shall be used, according to the ESA definition 
Article 4 
The data on GDP mp shall be taken for each of the years 1987 to 1991. The data on GDP mp of 
a Member State shall be expressed in the relevant national currency at current prices. 
Article 5 
The data on population shall be those collected by the Commission (EUROSTAT) from Member 
States. 
(4) OJNo L 49, 21.2.1989, p. 26. 
40 
Article 6 
The data for the years 1988 to 1991 shall be those resulting from the application of 
Directive 89/130/EEC, Euratom. The data on GDP mp for 1987 shall be the data collected by 
the Commission (EUROSTAT) from Member States and made consistent with the 1988 to 
1991 data on GDPmp. 
For Germany, data on GDP mp for the years 1987-1990 shall be estimated as follows: the 
GDP mp of the old Lander shall be multiplied by the ratio of GDP mp of the whole of 
Germany to GDP mp of the old Lander in 1991. 
Article 7 
1. The share of a Member State in the population of the Community shall be its share in the sum 
of the population of the Member States, expressed in per cent. 
2. The GDP mp data of each year and each Member State expressed in national currencies shall 
be transformed into data at the ecu exchange rate. The exchange rate used for this purpose 
shall be the average of the exchange rates of all working days in a year. The daily exchange 
rate shall be the rate calculated by the Commission and published in the 'C edition of the 
Official Journal of the European Communities. 
3. The share of a Member State in GDP mp of the Community shall be its share in the sum of 
GDP mp of the Member States over the five years, expressed in per cent. 
Article 8 
The weighting of a national central bank in the key shall be the arithmetic mean of the shares of 
the corresponding Member State in the population and in GDP mp of the Community. 
Article 9 
The successive steps of calculation shall use sufficient decimal places to ensure their accuracy. The 
weighting of national central banks in the key shall be calculated to four decimal places. 
Article 10 
The key shall be communicated by the Commission to the Committee of Governors of the central 
banks of the Member States before 1 January 1994. 
Done at Brussels, For the Council 
The President 
41 

ISSN 0254 1475 
COM(93) 371 f lal 
DOCUMENTS 
EN oi 06 
Catalogue number : CB-CO-93-411-EN-C 
ISBN 92-77-58348-7 
Office for Official Publications of the European C^inmiinities 
L-2985 Luxembourg 
42