Opinion of the European Monetary Institute on a consultation by the Ministry of Finance of Finland under Article 109f (6) of the Treaty establishing the European Community (“the Treaty”) and Article 5.3 of the Statute of the EMI; on a draft government bill (the “Draft”) extending the validity of the Foreign Exchange Act (954/85) (the “Act”) (CON/95/15)
Date: 1995-11-30
Institutions: European Monetary Institute
Subjects: Finland, financial stability, foreign currency, national law, state of emergency

Final version

30th November 1995

OPINION OF THE EUROPEAN MONETARY INSTITUTE

on a consultation by the Ministry of Finance of Finland under Article 109f (6) of the Treaty establishing

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

on  a  draft  government  bill  (the  “Draft”)  extending  the  validity  of  the  Foreign  Exchange  Act  (954/85)

(the “Act”).

CON/95/15

1

The  present  consultation  was  initiated  on  9th  November  1995  by  the  Ministry  of  Finance  of

Finland in a letter addressed by Ms. Arja Alho to the President of the EMI. 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 the end of November 1995.

2

The aim of the draft is to extend the validity of the Foreign Exchange Act until the end of 1998.

The contents of the Act will remain unchanged with one exception, namely, the decisions issued

under  the  Act  authorising  the  Bank  of  Finland  to  monitor  foreign  exchange  risks  of  the  credit

institutions  would  be  repealed  and  the  monitoring  would  be  transferred  to  the  Financial

Supervision Authority by an amendment of the Act on Credit institutions contained in the Draft.

3

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

paragraph 1, second indent, of Council Decision 93/717/EC, as the draft concerns the powers of

a national central bank.

4

The  Act  is  an  economic  emergency  powers  legislation,  designed  to  form  the  legal  basis  for

decisions by the Council of State in serious emergency cases, such as the threat of war or other

serious  crisis.  The  Act  does  not  allow  the  Government  to  directly  undertake  regulatory

measures, even under emergency conditions. However, it forms the legal basis for decisions by

the Council of State, which, after being approved by the Parliament, entitle the Bank of Finland

to  take  measures  necessary  to  secure  the  country’s  external  payments  and  stable  domestic

monetary conditions. Possible measures include requirement of authorisation for various foreign

exchange transactions specified in the Act. Given the importance of the legality principle in the

Finnish  legal  system,  namely  the  principle  that  the  scope  for  action  by  the  executive  has  to  be

based explicitly on law, it is understandable that necessary legislative preparations are taken.

5

To evaluate properly the question of the compatibility of the Draft with EC law, it is necessary to

recall the contents of the relevant Articles of the Treaty.

6

Article 73b of the Treaty stipulates that  “within  the  framework  of  the  provisions  set  out  in

this  Chapter,  all  restrictions  on  the  movement  of  capital  between  Member  States  and

between Member States and third countries shall be prohibited. Within the framework of

the provisions set out in this Chapter, all restrictions on payments between Member States

and third countries shall be prohibited”. This Article is directly applicable and grants a fully

fledged right to the European citizens.

7

Articles 109h and 109i list situations in which derogations from the basic principle of free capital

movements  might  be  envisaged.  As  a  rule,  any  restriction  to  capital  movements  needs  a  prior

approval by the Commission, which determines the conditions and details of protective measures

(Article  109h  (1)).  In  case  of  a  sudden  balance  of  payments  crisis,  if  a  decision  under  Article

109h (2)  is  not  immediately  taken,  it  is  possible  for  the  Member  State  concerned  to  take

protective  measures  without  a  prior  approval  of  the  Commission;  however,  “such  measures

must cause  the  least  possible  disturbance  in  the  functioning  of  the  common  market  and

must not be wider in scope than is strictly necessary to remedy the sudden difficulty which

have  arisen”  (Article  109i  (1)).  The  Commission  and  the  other  Member  States  must  be

informed  of  such  protective  measures  not  later  than  when  they  enter  into  force.  Acting  by  a

qualified  majority,  the  Council  may  decide  that  the  Member  State  concerned  shall  amend,

suspend or abolish the protective measures.

8

Considering the above-described background and since, according to the principle of supremacy

of Community law, the provisions of the Treaty prevail even on national subsequent legislation, it

emerges  clearly  that  the  Act  may  only  be  applied  in  the  limited  situations  described  in

Articles  109h  and  109i  of  the  Treaty,  subject  to  the  rules  and  procedures  laid  down  in  these

Articles  and  only  until  the  beginning  of  Stage  Three  (Article  109i (4)).  Therefore,  since  the

protective  measures  which  will  be  taken  on  the  basis  of  the  Act  in  the  event  of  a  balance  of

payments  crisis  need  also  to  be  in  compliance  with  the  Treaty,  the  Draft  appears  to  be

compatible with EC law.

9

In  order  to  guarantee  transparency  and  certainty  of  law,  the  EMI  welcomes  the  extensive

reference,  in  the  preamble  to  the  Draft,  to  the  Treaty  provisions  limiting  the  possibility  of

adopting national protective measures to very exceptional cases.

10

The above reasoning leads to the conclusion that the Foreign Exchange Act is not in conflict with

the  Treaty,  at  least  until  the  beginning  of  Stage  Three.  It  is  understood  that,  according  to  the

principle of supremacy of the Community law, the scope of application of  the Foreign Exchange

Act is clearly limited to situations in which the Treaty allows derogations from the basic principle

of  freedom  of  capital  movements.  Furthermore,  protective  measures  based  on  the  Foreign

Exchange Act may be amended, suspended or abolished by a decision of the Council taken by a

qualified majority.

11

The EMI’s agrees that this opinion may be made public by the competent Finnish authorities at

their discretion.