Opinion of the European Monetary Institute at the request of the Department of Finance of Ireland under Article 109f(6) of the Treaty establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI concerning a draft bill enacting provisions relevant to the role of the Central Bank of Ireland in the European System of Central Banks and connected matters (“the draft bill”) (CON/97/20)
Date: 1997-10-29
Institutions: European Monetary Institute
Subjects: Ireland, central bank, convergence criteria, institutional reform, monetary integration, money, national law

OPINION OF THE EUROPEAN MONETARY INSTITUTE

29 October 1997

at the request of the Department of Finance of Ireland under Article 109f(6) of the Treaty
establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the

EMI concerning a draft bill enacting provisions relevant to the role of the Central Bank of

Ireland in the European System of Central Banks and connected matters (“the draft bill”)

(CON/97/20)

1.

On  10  September  1997  the  EMI  received  a  request  for  an  opinion  on  a  draft  bill  enacting

provisions  relevant  to  the  role  of  the  Central  Bank  of  Ireland  (“the  Bank”)  in  the  European

System of Central Banks and connected matters from the Department of Finance of Ireland. No

explanatory memorandum was submitted to the EMI.

2.

The  EMI’s  competence  to  deliver  an  opinion  is  based  on  Article  1.1  of  the  Council  Decision

(93/717/EC) of 22 November 1993 on consultation of the EMI by the authorities of the Member

States  on  draft  legislative  provisions,  as  the  draft  bill  contains  inter  alia  provisions  concerning

currency  legislation,  the  status  and  powers  of  the  Central  Bank  of  Ireland  and  connected

matters.

3.

The  EMI  welcomes  the  timely  adaptation  of  the  statutory  regime  applicable  to  the  Bank  as

currently set out in the Central Bank Acts 1942 to 1997 (respectively referred to in this opinion

as “the 1942/1971/1989/1997 Act”). That statutory regime includes the Central Bank Act 1997,

upon  a  draft  of  which  the  EMI  was  consulted  and  delivered  its  opinion  on  28th  May  1996

(CON/96/04).  Such  adaptation  assists  the  EMI  and  other  Community  institutions  to  assess,  in

accordance  with  their  reporting  obligations  under  the  Treaty,  progress  made  towards  the

fulfilment of the legal requirements for Stage Three.

4.

The EMI notes  in particular that the draft bill addresses almost all of the matters that the EMI

had identified as requiring consideration in the context of timely adaptation towards fulfilment of

the  legal  requirements  for  Stage  Three  as  mentioned  in  the  EMI’s  publication,  “Legal

Convergence in the Member States of the European Union as at August 1997” (October 1997)

(and in the November  1996 Convergence Report).  The  EMI  would,  however,  like  to  raise  the

following detailed comments as set out in the subsequent paragraphs of this opinion.

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5

(Section  3  of  the  draft  bill)  The  EMI  notes  that  although  provision  is  made  for  how  the

proposed sections contained in the bill should be brought into effect, there are no provisions about

the  time  or  times  when  that  will  be,  nor  for  what  periods.  The  EMI  assumes  that  additional

measures are intended  in this regard.  The reference to  the  Irish  pound  as  a  subdivision  of  the

euro, for example, requires to be limited in its application to the transitional period.

6.

(Section 6 of the draft bill) A general provision is proposed by way of a new section 5A to the

1942  Act  by  which  it  is  stated  at  subsection  (1)  that  it  shall  be  lawful  for  the  Bank  to  comply

with its obligations in the Treaty and Statute. However, a proposed subsection 5A(2) states that

the  Bank  “shall  have  regard”  to  the  Treaty  and  Statute  when  exercising  any  power  or

performing  any  function  or  duty  referred  to  in  the  new  section  5A.  It  is  not  clear  whether  the

mandatory  nature  of  the  Treaty  and  Statute  is  thus  unambiguously  expressed.  A  positive

statement that such exercise or performance is to  be subject to the provisions of the Treaty and

Statute would be preferable.

7.

(Section  7  of  the  draft  bill)  Article  2  of  the  ESCB/ECB  Statute  states  that  the  primary

objective of the ESCB shall be to maintain price stability.  The primary statutory objective of the

Bank is proposed to be “to maintain price stability in the interests of the welfare of the people as

a whole.” The direct juxtaposition of these two concepts does not  unambiguously correspond to

Article  2  of  the  Statute..  While  recognising  that  the  maintenance  of  price  stability  is  in  the

interests of the welfare of the  people as whole, it would be  necessary  not  to  seek  to  alter  the

requisite statement of the Bank’s primary objective.

8.

(Section  7  of  the  draft  bill)  The  draft  bill  proposes  a  new  subsection  6(2)  of  the  1942  Act

dealing with the Bank’s secondary objectives. These do not appear to be directly derived from

the  secondary  objectives  mentioned  in  Article  2  of  the  ESCB/ECB  Statute  and,  by  being

described  as  the  Bank’s  “other  objectives”,  may  be  read  as  excluding  those  derived  from  the

ESCB/ECB Statute.

9.

(Section 7 of the draft bill) In the proposed subsection 6(3) the protocol referred to is in fact a

protocol annexed to the Treaty establishing the European Community rather than the Treaty on

European Union.

10.

(Section 7 of the draft bill) Clause 7 of the draft bill proposes a new section 6(4) of the 1942

Act under which the Minister for Finance is proposed to have the power to oblige the Governor

on  behalf  of  the  Board  or  the  Board  to  consult  with  him  on  the  execution  and  performance  of

such functions, powers and duties as are entrusted to the Bank by law. This formulation appears

to  include  the  performance  of  ESCB-related  tasks.  This  explicit  statutory  mechanism  is  one

which  the  EMI  considers  might  be  used  to  influence  the  decision-making  process  within  the

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Bank and, more seriously, within the ESCB, and is, therefore, considered to be incompatible with

the requirement of central bank independence.

11.

(Section 10 of the draft bill) It is proposed in the draft bill to amend section 32 of the 1942 Act

so as to add a provision excluding from voting those directors who are in  the permanent service

of the State on matters relating to ESCB-related tasks. However, no  similar or other  proposal is

made in respect of the remaining non-executive   directors  which would ensure that no conflicts

of interest might arise  in  their  involvement  in  the  performance  of  ESCB-related  tasks.  It  was

pointed out in the EMI’s publication, “Legal Convergence in the Member States of the European

Union as at August 1997” (October 1997) (and in the November 1996 Convergence Report) that

this  is  a  matter  requiring  to  be  dealt  with  in  order  to  satisfy  the  compatibility  requirements  of

Article 108 of the Treaty.

12

(Section 11 of the draft bill)  It  is  proposed  to  widen  the  scope  of  those  subject  to  reporting

obligations  to  include  reporting  agents  designated  by  the  ECB.  However,  section  18(1)  of  the

1971 Act, as amended by section 37 of the 1989 Act, restricts the scope of activities in relation

to which such reporting is to take place to those activities there listed. This list of activities - to

which  no  amendment  is  proposed  -  may  not  be  sufficiently  comprehensive  to  cover  all  the

ECB’s likely statistical requirements in that none of the existing heads (section 18(1) (a) to (f))

clearly embraces statistics on transactions undertaken on behalf of others or by reporting agents

designated by the ECB which are not financial institutions.

13

(Section 16 of the draft bill)

13.1 The draft bill proposes to substitute section 24 of the 1989 Act with  new wording. Section

24 of the 1989 Act currently provides for the monetary unit of the State as being the Irish pound,

and makes provisions for exchange rates. The legislative intention of the draft bill appears to be

to  repeat  parts  of  the  draft  Council  Regulation  on  the  introduction  of  the  euro  to  be  adopted

under  Article  109l  (4),  third  sentence,  of  the  Treaty  establishing  the  European  Community  (OJ

No.C 236/8, 2 August 1997) (“the euro regulation”). However, the approach adopted in the draft

bill is not without difficulties.

13.2 National implementation of regulations is not usually necessary and is indeed impermissible

where it disguises from those subject to the proposed law the Community source of their rights

and  obligations  (Case  39/72  [1973]  E.C.R.  101;  Case  34/73  [1973]  E.C.R.  981).  Legislative

duplication  of  the  euro  regulation  is  inconsistent  with  Community  law  unless  Community

regulations require implementation by national measures (which is not the case with those parts

of the  euro regulation that state the nature of the new currency) such that the incorporation of

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the  texts  of  such  regulations  may  be  justified  for  the  sake  of  coherence  and  in  order  to  make

them comprehensible by the persons to whom they apply (Case 272/83 [1985] E.C.R.).

13.3  And  even  if  the  legislative  repetition  of  the  euro  regulation  were  acceptable  under

Community law, there are features of the proposed section 24 that must require alteration in any

event.

13.4  There  are  inherent  difficulties  in  referring  to  an  item  of  proposed  Community  law  which

remains in draft form, and will not be enacted until 1998. In this context, it may be noted that the

draft  bill  proposes  references  (at  sections  24(1)(3)  and  25(2)  of  the  1989  Act)  to  “the  Council

Regulation” without stating that it has been published only as a draft.

13.5    The  wording  taken  from  the  euro  regulation  does  not  exactly  track  the  original  (for

example,  the  draft  bill  refers  to  “cent”  where  the  euro  regulation  has  “cents”).  Nor  is  the

wording taken from the euro regulation    complete  (for  example,  the  draft  bill  provides  for  the

division of the euro into one hundred cent[s] and that the Irish pound shall be a national currency

unit subdivision of the euro. It does not refer, however, to the contents of Article 6, paragraph 1,

first sentence, of the euro regulation which provides that “the euro shall also be divided into the

national currency units ...”).

13.6  Whilst the EMI accepts the need for legal clarity in the totality of legislation which amounts

to the monetary law of a participating Member State  and  recognises  the  practice  and  need  to

refer in national legislation to the lawful currency of the state, it would recommend that no such

attempt should be made to repeat or reflect the  detailed  wording  of  the  euro  regulation,  which

will have direct effect in all participating Member States.

14

Under Article 105a of the Treaty certain competences in rela tion  to  banknotes  are  provided  to

the ECB. No provision is made in the draft bill to address the fact that  the wording of section 44

of  the  1971  Act  as  inserted  by  section  120  of  the  1989  Act,  which  states  that  issuance  of

banknotes  shall  be  lawful  if  they  are  issued  against  certain  assets,  and  thereby  implies  that

issuance on any other terms would not fall within the powers of the Bank, is not restricted to the

issuance of national banknotes and may therefore be inconsistent with Article 105a. Issuance of

euro banknotes under Article 105a of the Treaty must be effected under uniform conditions in all

participating  Member  States.  The  provision  in  the  1971  Act  may  therefore  be  contrary  to  the

Treaty provisions in that it unduly restricts the Bank’s ability to perform ECSB related tasks.

15

No provision is made in the draft bill to address the wording of sections 10 (1) and  13(1)(b)  of

the 1997 Act, which provide that the consent of the Minister for Finance is required before the

Bank  may  refuse  to  approve  the  rules  of  a  payment  system  or  subsequently  revoke  such  an

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approval.  The  existence  of  such  a  requirement  for  ministerial  consent  is  inconsistent  with  the

ESCB’s  tasks  in  relation  to  payment  systems  and  the  competence  of  the  ECB  to  make

regulations in that regard.

16

No  provision  is  made  in  the  draft  bill  to  address  the  wording  of  section  134  of  the  1989  Act,

which  empowers  the  Minister  for  Finance  to  direct  that  certain  business  transactions  be

suspended if he considers it necessary in the national interest or for the purpose of safeguarding

the  currency  of  the  State.  Such  direction  may  only  be  made  after  having  consulted  the  Bank.

The  existence  of  this  power  does  not  recognise  the  competence  of  the  ESCB  in  the  field  of

monetary  policy  and  the  transfer  to  Community  level  of  all  monetary  powers  of  participating

Member  States.  It  is  suggested  that  the  power  should  be  restricted  to  business  transactions

which are not related to  the  performance  of  ESCB-related  tasks and  that  the  exercise  of  the

power should not be referable to safeguarding the currency of the State.

17.

The  EMI  notes  that  detailed  provisions  have  not  been  included  in  the  draft  bill  concerning  the

amendments  required  to  recognise  ECB  and  Community  competences  in  the  areas  of  the

issuance of banknotes and coins respectively.

18

The EMI has no objection to this opinion being made public.

29 October 1997.