Opinion of the European Central Bank of 3 February 2005 at the request of the Italian Ministry of Economic Affairs and Finance on a draft law amending Law Decree No 7 of 25 January 1999, as converted by Law No 74 of 25 March 1999, concerning urgent provisions on Italian participation in the International Monetary Fund’s interventions to confront severe financial crises of its member countries (CON/2005/1)
Date: 2005-02-03
Institutions: European Central Bank
Subjects: International Monetary Fund, Italy, Lebanon, money, national financing, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 3 February 2005 

at the request of the Italian Ministry of Economic Affairs and Finance  

on a draft law amending Law Decree No 7 of 25 January 1999, as converted by Law No 74 of 

25 March 1999, concerning urgent provisions on Italian participation in the International 

Monetary Fund’s interventions to confront severe financial crises of its member countries 

(CON/2005/1) 

1. 

On 22 October 2004 the European Central Bank (ECB) received a request from the Italian Ministry 

of  Economic  Affairs  and  Finance  for  an  opinion  on  a  draft  legislative  proposal  amending  Law 

Decree No 7 of 25 January 1999, as converted by Law No 74 of 25 March 1999 (hereinafter the 

‘Law Decree’), concerning urgent provisions on Italian participation in the International Monetary 

Fund’s  interventions  to  confront  severe  financial  crises  of  its  member  countries  (hereinafter  the 

‘draft law’).  

2. 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  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  addition,  the  ECB  notes  that  its  role  under  Article  237(d)  of  the 
Treaty of ensuring that NCBs fulfil their obligations thereunder2, which includes ensuring that they 

comply with the prohibition on monetary financing laid down in Article 101, makes it necessary to 

ascertain  whether  the  draft  law  is  compatible  with  this  prohibition.  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. 

Article 1(1) of the Law Decree currently authorises the Italian Ministry of Economic Affairs and 

Finance to guarantee the repayment of principal and interest and cover any exchange rate risks on 

credit  lines  extended  by  the  Banca  d’Italia  to  the  International  Monetary  Fund  (IMF)  member 

countries  that  respect  the  conditions  of  the  adjustment  programmes  approved  by  the  IMF,  when 

1  
2 

OJ L 189, 3.7.1998, p. 42. 
See  also  Recital  9  of  Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the 
application of the prohibitions referred to in Articles 104 and 104b(1) of the Treaty, OJ L 332, 31.12.1993, p. 1, which 
provides  that  notwithstanding  the  role  assigned  to  the  Commission  pursuant  to  Article  169  of  the  Treaty,  it  is  for  the 
ECB,  pursuant  to  Articles  109f(9)  (now  117(9))  and  180  (now  237)  of  the  Treaty,  to  ensure  that  NCBs  honour  the 
obligations laid down by the Treaty.  

 
 
 
                                                      
unforeseen circumstances require financial resources additional to those provided by the latter, up 

to  a  cumulative  limit  of  ITL  2  500  billion  (approximately  EUR  1,29  billion),  which  is  the  total 

amount of the possible interventions under that Article. It should be noted that the Law Decree was 

not  submitted  for  consultation  to  the  ECB  at  the  time  of  its  adoption.  The  present  consultation 

refers only to the draft law. The latter would amend the Law Decree to the effect that the Ministry 

of  Economic  Affairs  and  Finance  would  be  authorised,  within  the  abovementioned  cumulative 

limit,  to  guarantee  the  repayment  of  principal  and  interest  and  cover  any  exchange  rate  risks  on 

credit lines extended by the Banca d’Italia to the Lebanese Republic, in respect of an amount not 

higher than EUR 200 million.  

4. 

In the explanatory memorandum accompanying the draft law it is explained that on 23 November 

2002  an  international  conference  was  held  in  Paris  to  support  Lebanon’s  economic  adjustment 

programme,  which  was  convened  by  the  President  of  France  and  attended  by  representatives  of 

various  EU  and  non-EU  countries,  the  IMF  and  the  World  Bank.  On  that  occasion,  the  Italian 

Prime Minister pledged to provide EUR 200 million to support Lebanon’s efforts in the context of 

the stabilisation process of the Middle East. 

5. 

The explanatory memorandum states that the draft law is required since Lebanon does not have a 

standard financed programme in place with the IMF. It further notes that the draft law is considered 

to  be  appropriate  since  (a)  Lebanon  is  a  member  of  the  IMF  and  has  a  regular  relationship 

therewith; (b) the IMF welcomed Lebanon’s efforts and the support of the international community 

at the Paris conference; and (c) the IMF confirmed its willingness at the said conference to closely 

cooperate  with  the  Lebanese  authorities.  The  explanatory  memorandum  then  states  that,  from  a 

fiscal point of view, the draft law (a) does not have an impact on the Italian national budget since it 

provides for a contingent liability within pre-approved limits; and (b) would not have any impact 

on the Italian Government’s budget even if the funding was provided by the latter since as a credit 

it  would  be  a  financial  item  which  would  not  affect  Italy’s  net  borrowing  according  to  EU 

accounting rules. Finally, it states that the Banca d’Italia’s balance sheet and profit and loss account 

‘are completely covered by the full guarantee of the Ministry of Economic Affairs and Finance’. 

6. 

The ECB understands that the draft law concerns a limited financial commitment entered into by 

Italy  to  provide  support  to  a  country  that  is  emerging  from  a  troubled  period  in  its  history. 

However, the draft law must be examined as to its conformity with the abovementioned prohibition 

on monetary financing, contained in Article 101 of the Treaty, which prohibits, inter alia, overdraft 

facilities  or  any  other  type  of  credit  facility  with  the  NCBs  in  favour  of  central  governments. 

Already  in  1993  the  Committee  of  Governors  of  the  central  banks  of  the  Member  States  of  the 

European Economic Community noted that this prohibition is of ‘essential importance’ to ensure 

that  ‘monetary  policy  [is  not]  hindered  in  the  pursuit  of  its  primary  objective  of  price  stability. 

Furthermore, central bank financing of the public sector lessens the pressure for fiscal discipline’3. 

3  

Letter to Commission President Delors of 20 April 1993.  

2 

 
                                                      
Therefore,  this  prohibition  must  be  interpreted  in  a  strict  manner,  subject  only  to  certain  limited 

exemptions  contained  in  Article  101(2)  of  the  Treaty  and  Council  Regulation  (EC)  No  3603/93. 

Article 1(1) of that Regulation provides that ‘any financing of the public sector’s obligations vis-à-

vis third parties’ is a ‘type of credit facility’ which is prohibited by Article 104 (now 101) of the 

Treaty.  The  Regulation  also  contains  a  number  of  limited  and  explicit  exemptions  from  the 

prohibition on monetary financing. In particular, Article 7 provides that ‘The financing by the … 

national  central  banks  of  obligations  falling  upon  the  public  sector  vis-à-vis  the  International 

Monetary Fund … shall not be regarded as a credit facility within the meaning of Article 104 of the 

Treaty’.  Recital  14  sets  out  the  rationale  behind  this  exemption,  stating  that  it  is  appropriate  to 

authorise the financing by the central banks of obligations falling upon the public sector vis-à-vis 

the  IMF  as  this  financing  results  in  foreign  claims  which  have  all  the  characteristics  of  reserve 

assets.  

7. 

It is stated in the explanatory memorandum that under the draft law credit lines would be extended 

by the Banca d’Italia to Lebanon to fulfil the Italian Prime Minister’s commitment to provide EUR 

200 million to support that country. Therefore, the purpose of the draft law may be considered as 

authorising  the  ‘financing  of  the  public  sector’s  obligations  vis-à-vis  third  parties’  which  is 

prohibited  by  the  abovementioned  Article  1(1)  of  Regulation  (EC)  No  3603/93.  It  is  therefore 

crucial  to  determine  whether  the  draft  law  falls  within  the  scope  of  the  exemption  contained  in 

Article  7.  More  specifically,  the  legal  question  to  be  clarified  is  whether  the  Banca  d’Italia’s 

extension of credit to Lebanon can be characterised as its financing of an obligation of the Italian 

State ‘vis-à-vis the IMF’. Although the ECB understands that the IMF takes a favourable view of 

the  international  community’s  support  for  Lebanon,  it  notes  that  Lebanon  does  not  have  any 

financial assistance programme in place with the IMF. The fact that the draft provision constitutes 

an  amendment  which  will  be  introduced  into  an  act  entitled  ‘Urgent  provisions  on  Italian 

participation  in  the  [IMF’s]  interventions  to  confront  severe  financial  crises  of  its  member 

countries’ does not affect  the nature of the obligations it concerns. The available facts, including 

the provisions of the draft law itself identifying Lebanon as the direct beneficiary of the financing 

in question, indicate that the Italian Government’s commitment to Lebanon does not derive from 

any obligation of the Italian State vis-à-vis the IMF, including an IMF-administered mechanism. It 

is also clear that the extension of a credit line to Lebanon by the Banca d’Italia would not result in 

any  claim  on  the  IMF.  Therefore  this  financing  should  not  be  considered  as  a  fulfilment  of  any 

obligation  towards  the  IMF  and  the  Article  7  exemption  cannot  be  invoked  to  allow  for  Banca 

d’Italia’s  proposed  financing  of Lebanon  as  set  out  in  the  draft  law.  In  addition,  it  would  appear 

that the credit lines to be extended by the Banca d’Italia to Lebanon would be denominated in euro. 

Such a euro-denominated loan would not have the characteristics of a reserve asset, as mentioned 

in Recital 14. In conclusion, the extension of a credit line by the Banca d’Italia to Lebanon under 

the draft law would thus breach the prohibition on monetary financing contained in Article 101 of 

the Treaty. 

3 

 
8. 

This opinion will be published on the ECB’s website upon formal presentation of the draft law to 

the  Parliament  by  the  Italian  Government.  In  any  event,  this  opinion  will  be  published  at  the 

latest six months after the date of its adoption. 

Done at Frankfurt am Main, 3 February 2005. 

[ signed ] 

The President of the ECB 

Jean-Claude TRICHET 

4