Opinion of the European Monetary Institute on a consultation from the Swedish Ministry of Finance under Article 109f (6) of the Treaty establishing the European Community (“the Treaty”) and Article 5.3 of the Statute of the EMI (“the Statute”); on a draft government bill introducing a ban on monetary financing (“the Bill”) (CON/95/8)
Date: 1995-05-10
Institutions: European Monetary Institute
Subjects: European System of Central Banks, Sweden, World Bank, credit institution, foreign-exchange reserves, monetary policy, public borrowing, public sector

OPINION OF THE EUROPEAN MONETARY INSTITUTE

on  a  consultation  from  the  Swedish  Ministry  of  Finance  under  Article  109f  (6)  of  the  Treaty

establishing  the  European  Community  (“the  Treaty”)  and  Article  5.3  of  the  Statute  of  the  EMI  (“the

Statute”);

on a draft government bill introducing a ban on monetary financing (“the Bill”).

CON/95/8

1

The  present  consultation  was  initiated  on  10th  April  1995  by  the  Swedish  Ministry  of  Finance,

which, for this purpose, transmitted to the EMI a translation of the Bill. Pursuant to Article 4 of

the  Council  Decision  of  22nd  November  1993  (93/717/EC)  on  consultation  of  the  European

Monetary Institute by authorities of the Member States on draft legislative provisions, the EMI

has been asked to deliver its opinion by 10th May 1995.

2

The main purpose of the Bill is to introduce into Swedish law the ban on monetary financing of

the public sector. Furthermore, the Bill shall serve the purpose of ensuring, in an environment of

prohibition  of  monetary  financing,  efficient  management  by  the  central  bank  of  money  market

liquidity and of Sweden’s foreign exchange reserves. Moreover, the Bill proposes an adaptation

of  legislation  on  the  sanctions  to  be  imposed  on  credit  institutions  in  cases  of  non-compliance

with reserve requirements imposed by the Riksbank.

3

The EMI’s competence to give an opinion in this consultation is based on Article 1, paragraph 1,

of Council Decision 93/717/EC, as the Bill deals with the adaptation of national law to secondary

EC  legislation  in  the  fields  of  Articles  104  and  104a  of  the  Treaty  and  with  the  powers  of  a

national central bank and instruments of monetary policy.

4

As  regards  the  main  provisions  on  the  ban  on  monetary  financing,  the  Bill  proposes  the

prohibition of State borrowing from the Riksbank and of direct Riksbank purchases of treasury

paper  from  the  National  Debt  Office.  These  prohibitions  are  necessary  to  make  Swedish  law

compatible  with  the  Treaty  and  the  Statute  of  the  European  System  of  Central  Banks  (ESCB)

(see Article 108 of the Treaty).

- 2 -

Regarding “other types of credit facilities” provided by the central bank to the public sector, the

Bill  proposes  that  the  government  takes  over  all  commitments  associated  with  Sweden’s

membership  in  the  World  Bank  (IBRD);  in  this  respect,  the  Bill  provides  for  the  unrequited

transfer to the Swedish government of Sweden’s paid-up capital contribution. The EMI is of the

opinion  that  the  government’s  assumption  of  all  responsibilities  resulting  from  Sweden’s

membership  in  the  World  Bank  is  necessary  to  ensure  that  the  statute  of  the  national  central

bank is compatible with the prohibition of central bank financing of public sector obligations vis-

à-vis  third  parties  specified  in  Council  Regulation  (EC)  No.  3603/93,  Article   1.1  (b)  (ii).  With

respect to the proposed unrequited transfer of the paid-up capital share from the Riksbank to the

government, it should be recalled that the  principle underlying Article 104 of the Treaty and the

Council Regulation provides for the eventual repayment of such claims.  At  the  same  time,  the

EMI  notes  that  the  amount  in  question  is  only  a  small  fraction  of  the  normal  amount  of  the

dividends  which  are  paid  by  the  Riksbank  out  of  its  profits  to  the  government  budget,  and  that

redemption  could  alternatively  have  been  effected  in  connection  with  the  payment  of  the

dividend.

The Bill also provides for the central bank to be entitled to provide credit within the framework

of the European Community’s medium-term financial assistance. This provision of the Bill does

not infringe upon the Treaty, as an exemption for this form of credit is provided for in Article 7

of Council Regulation (EC) No. 3603/93.

5

On the other issues contained in the Bill, the EMI considers it premature to formulate a definitive

view as to whether the envisaged rules will be compatible with the future system of the ESCB,

as  discussions  concerning  the  desirable  features  of  this  system  have  not  yet  been  completed.

The compatibility of Swedish legislation with the Treaty and the Statute of the European System

of  Central  Banks  /  European  Central  Bank  will  have  to  be  reviewed  in  connection  with  the

report mentioned in Article 109j (1) of the Treaty.

6

The EMI agrees that this opinion may be made public by the competent Swedish authorities at

their discretion.

10th May 1995