Opinion of the European Monetary Institute at the request of the Portuguese 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 European Monetary Institute (EMI), on a draft Decree-Law (the “draft law”) on certain rules concerning the changeover process for the introduction of the euro in Portugal (CON/98/11)
Date: 1998-04-06
Institutions: European Monetary Institute
Subjects: Euribor, Portugal, central bank, conversion rate, euro, interest, money, public debt, securities

OPINION OF THE EUROPEAN MONETARY INSTITUTE

CON/98/11

At the request of the Portuguese 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  European  Monetary

Institute (EMI), on a draft Decree-Law (the “draft law”) on certain rules concerning the changeover

process for the introduction of the euro in Portugal.

1. On  10  February  1998  the  EMI  received  a  request  for  an  opinion  on  the  draft  law  from  the

Portuguese  Ministry  of  Finance.  An  Explanatory  Memorandum  was  also  submitted  to  the  EMI.

On  17  February  1998  the  EMI  received  from  the  consulting  authority  an  English  version  of  the

draft law, and the present opinion is based on that English translation.

2. The EMI’s  competence  to  deliver  an  opinion  is  based  on  Article  1.1,  first  indent,  of  the  Council

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

the Member States on draft legislative provisions, as the draft law deals, inter alia, with currency

legislation.

3.   The draft law aims to make the necessary adaptations to Portuguese legislation, in particular with

a view to the national implementation of the regulatory framework for the introduction of the euro.

The draft law refers to rounding rules, the legal regime for coinage in Stage Three, the exclusion

of  the  euro  from  the  legal  category  of  “foreign  currency”,  accountancy  rules,  replacement  of

reference interest rates, redenomination of public and private debt, taxation and budget.

4.   The EMI welcomes the initiative of the Portuguese Government to prepare for the introduction of

the euro, so as to ensure the timely implementation of the measures necessary or convenient for

the changeover. The draft law is foreseen as a supplement to the draft EU Council regulation on

the introduction of the euro, and provides for its entry into vigour the day of adoption by Portugal

of the single currency (except Articles 2 and 3(1)(2), concerning the $50 coin, which are effective

upon enactment). The EMI also welcomes that the draft law has given consideration to the views

of the EMI in its reports on legal convergence.

P o s t f a c h  1 0  2 0  3 1 ,   D - 6 0 0 2 0  F r a n k f u r t ,   T e l :  + 4 9  ( 6 9 )  2 7  2 2 7  -  0 ,   F a x :  + 4 9  ( 6 9 )  2 7  2 2 7  -  2 2 7

 
5.

Specific comments are the following:

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(a) The EMI welcomes the legal provisions depriving of legal significance any differences arising

out  of  rounding  rules  in  conversions  between  escudos  and  euros,  and  enabling  the  Ministry  of

Finance to enact secondary regulations as necessity might dictate.

(b)  The  rules  on  accountancy  adequately  reflect  the  guiding  principle  of  “no  prohibition  -  no

compulsion”. The EMI notes that the draft law does consider neither adaptations in the legislation

in the field of company law nor rules for re-denomination of company shares; it does enter neither

the  domain  of  re-denomination  of  quotations  in  equity  markets  nor  of  the  rules  applying  to

commercial  registries,  both  of  which  would  normally  be  a  logical  complement  to  any  re-

denomination of the unit used for corporate accounting and official reporting purposes. It is noted,

however,  that  the  Preamble  already  considers  the  draft  law  as  a  “first  phase  in  the  process  of

legislative  preparation  of  the  Portuguese  legal  system  for  the  introduction  of  the  euro”,  and

implicitly announces further legislative acts.

(c) The discount rate of the Bank of Portugal will be replaced by an interest rate to be fixed by the

Government following consultation with the Bank of Portugal. Other reference interest rates are

to be replaced by “financially equivalent”, and the Ministry of Finance is given statutory powers to

specify such substitute rates. The EMI welcomes the envisaged system as consistent with general

principles  of  Law  and  permitting  avoidance  of  legal  uncertainties  and  of  litigation  risks.  Explicit

references to the EURIBOR and to EONIA might be made by the Ministry of Finance once the

preparatory  work  for  these  reference  rates  is  finalised.  That  explicit  reference  is  highly

recommended : the EMI has always favoured a reference rate able to represent the whole euro

area, to replace the local rates ; EURIBOR, in particular, meets the features necessary to have a

function  in  the  third  stage  corresponding  to  that  performed  at  this  moment  by  the  LISBOR  in

relation to the Escudo.

(d) The EMI welcomes the regime envisaged for re-denomination and re-conventioning of public

debt.  The  method  chosen  for  that  re-denomination,  based  on  individual  holdings,  and  rounding  to

the euro cent, is similar to the method envisaged by many Member States (i.e. Germany, Austria,

Belgium; France and The Netherlands envisage rounding to the euro unit). The enabling authority

given  to  the  Public  Debt  Agency  (Instituto  de  Gestão  do  Crédito  Público)  is  a  useful  device  to

solve specific problems that may arise.

(e) With reference to the re-denomination of private debt, the draft Article 16 paragraph 2 submits

to Portuguese law the re-denomination of debt issued under Portuguese law but “denominated in

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the  currency  of  another  Member  State  ...  having  decided  to  re-denominate  its  debt”.  The

solution  given  by  the  draft  law  to  a  problem  of  international  private  law  is  correct.  Re-

denomination of debt securities during the transitional period has bee construed as a right given by

the  monetary  law  of  the  Community,  Article  8(4)  of  the  draft  EU  Council  regulation  on  the

introduction  of  the  euro,  to  one  of  the  contractual  parties,  the  issuer/borrower;  therefore,  it  is  a

right  introduced  in  the  law  of  the  contract  and  the  modalities  of  its  exercise  pertains  to  the  lex

contractus  -  Portuguese  law.  No  Member  State  has,  so  far,  introduced  legislation  taking  an

approach which may contradict the solution given in the draft law.

(f) The EMI notes that some of the items that other Member States have considered appropriate

to be legislated in relation to the re-denomination of debt securities are not addressed in the draft

law : (i) legal measures to change the tradable nominal amounts of bonds so as to avoid decimals

(so-called re-nominalisation), (ii) allocation to the issuer/borrower of the costs of redenomination,

and  (iii)  a  short  time  limit  for  judicial  challenges  of  re-denomination  measures.  However,  it  is

expected  further  legislative  provisions  in  the  context  of  the  introduction  of  the  euro  where  these

matters might be taken into consideration.

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

6 April 1998