Opinion of the European Central Bank at the request of the Portuguese Ministry of Finance under Articles 109f (6) and 109l (2) of the Treaty establishing the European Community (hereinafter referred to as the "Treaty"), Article 5.3 of the Statute of the European Monetary Institute and Council Decision 93/717/EC of 22 November 1993 on a draft Decree-Law containing measures adapting several Portuguese legislation to the introduction of the euro (CON/98/36)
Date: 1998-08-07
Institutions: European Central Bank
Subjects: Portugal, euro, financial stability, monetary integration, money, national law, securities

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of the Portuguese Ministry of Finance under Articles 109f (6) and 109l (2) of the

Treaty establishing the European Community (hereinafter referred to as the “Treaty”), Article

5.3 of the Statute of the European Monetary Institute and Council Decision 93/717/EC of

22 November 1993 on a draft Decree-Law containing measures adapting several Portuguese

legislation to the introduction of the euro

(CON/98/36)

1. 

On 23 July 1998 the European Central Bank (hereinafter referred to as the “ECB”) received a

request  for  an  opinion  from  the  Portuguese  Ministry  of  Finance  on  a  draft  Decree-Law

containing measures adapting several Portuguese legislation to the introduction of the euro. An

explanatory  note  was  also  submitted  to  the  ECB.  This  opinion  is  based  on  the  English

translation of the Draft Legislative Decree submitted to the ECB by the consulting authority.

2. 

In accordance with Article 109l (2) of the Treaty, the ECB has taken over the advisory functions

of  the  European  Monetary  Institute  (hereinafter  referred  to  as  the  “EMI”),  that  went  into

liquidation  upon  the  establishment  of  the  ECB  on  1 June 1998.  The  ECB’s  competence  to

deliver this opinion is based on Article 1.1, second indent, of the Council Decision (93/717/EC)

of 22 November 1993, as the draft Decree-Law under consultation contains rules which, in the

context  of  national  change-over  legislation,  deal  with  provisions  related  to  monetary  law  that

have  an  impact  on  financial  markets  and,  thus, fall  within  the  consultative  competence  of  the

ECB. In accordance with Articles 12.4 and 47.1, second indent, of the Statute of the European

System  of  Central  Banks  and  of  the  European  Central  Bank  (hereinafter  referred  to  as  the

“Statute”), this Opinion has been adopted by the Governing Council with the contribution of the

General Council.

3. 

The aim of the Decree-Law is to supplement the EU Council Regulations 1103/97 of 17 June

1997  and 974/98  of  3  May  1998,  concerning  the  introduction  of  the  euro,  providing  with  the

adaptations of the national civil, commercial and economic law, setting  out  general  principles

and  rules  applying  to  the  changeover,  during  the  transitional  period,  and  at  the  end  of  the

transitional  period.  In  section  1 it  contains  provisions  dealing  with  changes  in  the  Civil  Code

(Código Civil), in the Commercial Companies Code (Código das Socidedades Comerciais), in

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the  Co-operative  Code  (Código  Cooperativo),  in  the  Decree-Law  no.  248/86,  of  25  August

(individual establishment with limited liability), in the Stock Market Code (Código do Mercado

de  Valores  Mobiliários)  and  in  the  Decrees-Law  no.  125/90  of  16  April  (mortgage  bonds),

408/91 of 17 October (short-term bonds) and 181/92 of 22 August (commercial paper). Section

2  deals  specifically  with  re-denomination  of  transferable  securities,  section  3  with  re-

denomination of direct public debt, section 4 with taxation and public finance law and section 5

with the entry into force and transitional provisions. The Decree-Law is to be effective as from

the  1  January  1999  and  a  number  of  transitory  rules  are  adopted  in  line  with  the  transitional

provisions set out in the EU Council Regulation 974/98 of 3 May 1998.

4. 

The  ECB  welcomes  the  initiative  of  the  Portuguese  Government  to  prepare  for  the  timely

implementation  of  the  measures  necessary  or  appropriate  for  the  changeover  to  the  single

currency  both  in  the  private  and  in  the  public  sector.  The  draft  Decree-Law  constitutes  a

comprehensive piece of legislative work which encompasses a wide range of topics and areas

under an overall intention of facilitating the smooth introduction of the euro in the Portuguese

legal  system  and  in  the  Portuguese  securities  market.  It  introduces  a  simple  administrative

procedure and no additional costs for companies re-denominating their share  capital  into euro

from  the  start  of  Stage  Three.  Moreover,  the  possibility  to  re-denominate  private  bonds  is

foreseen, provided that the same method is retained as for the re-denomination of outstanding

public debt. This is a helpful rule, providing for not preferential treatment of public securities.

The  assessment  is  therefore  positive,  and  no  major  inconsistencies  or  problems  are  to  be

mentioned.

5. 

The  ECB  welcomes  and  assesses  positively  the  provisions  contained  in  the  Decree-Law,  in

particular  the  use  of  the  “legal  tender”  technique  as  criterion  for  the  denomination  of  capital

stock, bonds and securities. This technique would be in line with EU Council Regulation 974/98

of  3  May  1998  by  allowing  a  “dual”  currency  denomination  of  capital  stock,  bonds  and

securities, opening the way to a broad implementation of the “no compulsion, no prohibition”

principle in the Portuguese legislation. Moreover, the change in article 406 of the Stock Market

Code is clearly in line with flexibility in the settlement of market operations. It might be useful

to confirm this interpretation in the explanatory note. In this sense, article 6 of the draft Decree-

Law,  amending  article  406  (1)  of  the  Stock  Market  Code  (Código  do  Mercado  de  Valores

Mobiliários), would be interpreted as allowing the negotiation, quotation and settlement in such

dual legal tender currencies, as from the start of the transition period, of securities and shares

denominated in euro and escudo. In practice, it would be possible to negotiate, quote and settle

in euro securities and shares denominated in escudo, without re-denominating them  (and,  less

important,  vice  versa).  A  different  interpretation  of  article  406  (1)  of  the  Stock  Market  Code

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(Código do Mercado de Valores Mobiliários), as amended by the draft Decree-Law, would be

that securities in euro would be negotiated only in euro and securities in escudo only in escudo.

The ECB considers that this interpretation would be contrasting with the EU Council Regulation

974/98 of 3 May 1998.

6. 

The solutions envisaged in section 2 under the principles of freedom of initiative of the issuer,

unity, information, simplification and neutrality for the re-denomination process are regarded as

highly appropriate for re-denomination, hence they comply with the principles of legal certainty

and respect for the holder’s economic position.

7. 

The  ECB  also  welcomes  and  assesses  positively  the  rules  for  re-denomination  of  transferable

securities that are deemed to be in line with the Commission Reports on the subject. The ECB

notes that the possibility to introduce the “no par value principle” in Portuguese legislation was

not retained (see article 12), as it is the case in the other countries (e.g. Italy and Spain). Article

19 of the draft Decree-Law in considered an advisable measure as an incentive for the smooth

introduction of the euro in the life of the economic agents.

8. 

The ECB confirms that it has no objection to this Opinion being made public by the competent

Portuguese authorities at their discretion.

Done at Frankfurt am Main on 7 August 1998.

For the President of the ECB

[signed]

___________________

Otmar Issing