Opinion of the European Central Bank of 4 November 2004 at the request of the Hungarian Ministry of Finance on a draft law amending the Law on Magyar Nemzeti Bank (CON/2004/35)
Date: 2004-11-04
Institutions: European Central Bank
Subjects: Hungary, board of directors, central bank, national law, price stability

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 November 2004 

at the request of the Hungarian Ministry of Finance  

on a draft law amending the Law on Magyar Nemzeti Bank 

(CON/2004/35) 

1. 

On  13  October  2004  the  European  Central  Bank  (ECB)  received  a  request  from  the  Hungarian 

Ministry of Finance for an opinion on a draft law (hereinafter the ‘draft law’) amending Law LVIII 

of 2001 on Magyar Nemzeti Bank (hereinafter the ‘MNB Law’). 

2. 

The ECB’s competence to deliver an opinion is based on the third indent of Article 2(1) of Council 

Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions1, as the draft law contains provisions concerning a 

national central bank (NCB). In accordance with the first sentence of Article 17.5 of the Rules of 

Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

3. 

The draft law’s officially stated intention is to facilitate the achievement and maintenance of price 

stability  by  increasing  the  number  of  Monetary  Council  members  and  by  further  separating  the 

decision-making and executive tasks. Currently, the Monetary Council consists of nine members. 

The  draft  law  would  introduce  nine  as  a  minimum  and  establish  a  maximum  of  11  members. 

Articles  2,  3  and  6  of  the  draft  law  also  significantly  change  the  composition  and  rules  for 

nominating  Monetary  Council  members.  At  present,  the  Governor  of  Magyar  Nemzeti  Bank 

(MNB),  as  well  as  the  three  Deputy  Governors,  are  Monetary  Council  members  ex  officio.  The 

other five Monetary Council members are nominated by MNB’s Governor, and are, on the Prime 

Minister’s  consent,  appointed  by  the  President  of  the  Republic.  In  addition  the  Governor  is 

nominated by the Prime Minister before being appointed by the President. Following the changes, 

the Governor will continue in the Monetary Council, as will the Deputy Governor responsible for 

monetary policy. Moreover, four members will continue to be nominated by the Governor, and be 

appointed  by  the  President  upon  the  consent  of  the  Prime  Minister.  The  remaining  three  to  five 

members would be nominated by the Prime Minister, with the right of appointment remaining with 

Hungary’s President. Thus, as a result of the amendments, two MNB Deputy Governors would lose 

their ex officio membership of the Monetary Council. It is unclear from the draft law whether they 

could still be nominated by the Governor as other Monetary Council members. 

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OJ L 189, 3.7.1998, p. 42. 

 
 
 
                                                      
4. 

The ECB notes that the current Monetary Council rules in force are compatible with central bank 

independence and provide an appropriate framework for the formulation of monetary policy. This 

view  has  been  reflected  in  both  the  Convergence  Report  of  the  European  Commission  and  the 

ECB’s  Convergence  Report  for  2004.  From  this  point  of  view,  there  would  thus  be  no  need  for 

changes to the Monetary Council’s composition.  

5. 

The  draft  law’s  statement  of  reasons  indicates  that  ‘the  Monetary  Council  is  MNB’s  supreme 

decision  making  body,  so  it  is  not  justified  that  the  Deputy  Governors  responsible  for  executing 

decisions - except the Deputy Governor responsible for monetary policy – participate in taking this 

body’s  decisions’.  While,  as  pointed  out  in  paragraph  3,  it  is  unclear  whether  this  reasoning  has 

actually been transposed into the draft law, there is no convincing need to separate decision-making 

and executive tasks in the field of monetary policy. By way of example, all ECB Executive Board 

members are members of the ECB’s Governing Council, the Eurosystem’s main policy decision-

making body.  

6. 

Credibility is the cornerstone of central banking. A credible monetary policy is a key condition for 

controlling  inflationary  expectations  and  promoting  sustainable  convergence  towards  price 

stability.  An  independent  central  bank  in  a  stable  institutional  environment  forms  the  basis  for 

monetary policy’s credibility. The Treaty’s requirement for central bank independence reflects the 

generally  held  view  that  the  primary  objective  of  price  stability  is  best  served  by  a  fully 

independent  institution  with  a  precisely  defined  mandate.  It  is  therefore  of  utmost  importance  to 

design  an  institutional  structure  that  separates  monetary  policy  from  the  influence  of  short-term 

political interests. The Convergence Reports of the European Monetary Institute (EMI) and of the 

ECB  have,  over  the  years,  consistently  confirmed  the  importance  of  central  bank  independence. 

The functional, institutional, personal and financial aspects of independence have also been further 

refined through ECB opinions.   

7. 

Given  the  relevance  of  central  bank  independence  for  EMU’s  proper  functioning,  this  is 

unambiguously anchored in Article 108 of the Treaty and Article 7 of the Statute of the European 

System of Central Banks and of the European Central Bank and supported by Article 14.2 of the 

Statute.  Article  14.2  provides  for  the  security  of  tenure  of  NCB  Governors.  The  EMI’s  1998 

Convergence Report pointed out that personal independence would be jeopardised if the same rules 

for Governors’ security of tenure were not also applied to other members of NCB decision-making 

bodies involved in the performance of ESCB-related tasks. The abovementioned Treaty and Statute 

provisions require comparable security of tenure, as Article 14.2 of the Statute does not restrict the 

security  of  tenure  of  office  to  Governors,  whilst  Article  108  of  the  Treaty  and  Article  7  of  the 

Statute refer to any members of NCB decision-making bodies rather than to Governors specifically. 

This  applies  in  particular  where  a  Governor  is  primus  inter  pares  between  colleagues  with 

equivalent voting rights or where such other members may have to deputise for the Governor. This 

approach, adopted in the EMI’s 1998 Convergence Report, was fully shared by the Commission in 

its  1998  evaluation  of  the  compatibility  of  NCBs’  statutes  with  the  Treaty  under  Article  121(1) 

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and (2),  and  has  been  accepted  by  the  Council.  The  ECB  has  reiterated  this  principle  in  its 

opinions in response to previous consultations. 

8. 

The ECB notes that according to the draft law, two of the Deputy Governors would lose their ex 

officio membership of the Monetary Council. In this context the ECB would like to point out that 

in order to protect the personal independence of the members of NCB decision-making bodies, any 

reorganisation of an NCB affecting its Monetary Council members’ tenure of office should allow 

incumbents to continue to perform their duties until the end of their term of office for which they 

have been appointed, in accordance with Article 14.2 of the Statute. The tenure of the affected two 

Deputy  Governors  as  Monetary  Council  members  has  not  expired,  and  therefore  the  draft  law 

amounts to an ex lege revocation of these two members on grounds other than those foreseen in the 

abovementioned  provision.  Such  revocation  should  be  avoided  in  the  light  of  Article  108  of  the 

Treaty and Article 14.2 of the Statute. The ECB therefore objects to the termination of two of the 

Deputy Governors’ membership of the Monetary Council prior to the expiry of their term of office.  

9. 

The ECB notes that the draft law increases the Prime Minister’s role and influence in determining 

the Monetary Council’s composition. The argument put forward for this change is enhancement of 

central bank independence. However, as already mentioned the nomination rules for the Monetary 

Council’s members presently in force are compatible with the Treaty and fully serve the purposes 

of operational efficiency and of safeguarding MNB’s independence from the political sphere.  

10.  The  ECB  furthermore  notes  that  it  would  enhance  the  long-term  independence  of  the  decision-

making  body  if  vacancies  in  the  Monetary  Council are  not  filled  ‘en  bloc’,  but  instead  there  is  a 

system in place whereby members are appointed and their term of office expires at different times, 

allowing  sufficient  interim  periods  between  subsequent  appointments.  This  would  ensure  that 

membership  of  the  decision-making  body  is  not  determined  by  political  cycles.  Similarly,  a 

reference may be made to the principle laid down in Article 11.2 of the Statute, so that members of 

the Monetary Council are ‘appointed from among persons of recognised standing and professional 

experience in monetary or banking matters’. 

11.  The ECB notes that Article 4 of the draft law intends to amend the rules in Article 53(1) and (7) of 

the MNB Law relating to the annual adjustment to the remuneration of MNB’s Governor. The new 

provision will link it to planned instead of to actual inflation.  

12.  The ECB further notes that Article 5 of the draft law intends to amend Article 58/A (1) to (3) of the 

MNB  Law,  changing  the  rules  relating  to  the  authority  to  decide  on  the  publication  of  wealth 

declarations  to  be  made  by  the  Governor,  Deputy  Governors,  members  of  the  Monetary  Council 

and members of the Supervisory Board. Although in principle making the Governor and Monetary 

Council  members  subject  to  a  wealth  declaration  requirement  is  acceptable,  it  should  be  fully 

ensured that the application of these provisions takes full account of Article 108 of the Treaty and 

Article 7 of the Statute. The ECB welcomes the transfer of the right to make the abovementioned 

wealth declaration public from Hungary’s Prime Minister and President to Parliament’s Chair, as 

this change further enhances the guarantees of personal independence. 

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13.  The ECB’s General Council has recently approved the 2004 Convergence Report (available on the 

ECB’s  website  at  www.ecb.int).  This  report  includes  an  assessment  of  the  compatibility  of 

Hungary’s relevant national legislation with the Treaty and indicates the necessary adaptations to 

the  MNB  Law.  The  ECB  would  recommend  that  any  amendment  to  the  MNB  Law  should  take 

such assessment into account.  

14.  This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 4 November 2004. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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