Opinion of the European Central Bank of 24 May 2007 at the request of the Hungarian Ministry of Finance on a draft law amending the Law on the Magyar Nemzeti Bank (CON/2007/14)
Date: 2007-05-24
Institutions: European Central Bank
Subjects: Hungary, board of directors, institutional activity, monetary policy, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 24 May 2007 

at the request of the Hungarian Ministry of Finance  

on a draft law amending the Law on the Magyar Nemzeti Bank 

(CON/2007/14) 

Introduction and legal basis 

On 27 April 2007 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 the 

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

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article  105(4)  of  the  Treaty  establishing  the 

European Community and 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 relates to the Magyar Nemzeti Bank. 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. 

1. 

Purpose of the draft law 

The Ministry of Finance has indicated that the purpose  of the draft law is to facilitate the  efficient and 

economical functioning of the Magyar Nemzeti Bank by changing its governance structure. The draft law 

would  abolish  the  Board of  Directors  and  transfer  most  of  its  functions  to  the  Magyar  Nemzeti  Bank’s 

Governor.  In  addition,  the  draft  law  would  decrease  the  number  of  Monetary  Council  members. 

Currently,  the  Monetary  Council  consists  of  a  minimum  of  nine  and  a  maximum  of  11  members.  The 

draft law would reduce the number of members to a minimum of five and a maximum of seven members. 

The terms of office for the current members would remain unaffected. Finally, the draft law would also 

modify  the  scope  of  the  Magyar  Nemzeti  Bank’s  obligation  to  provide  information  to  the  Ministry  of 

Finance. 

1 

OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
 
 
                                                      
2. 

General observations 

2.1  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.  Over  the  years  the  convergence  reports  of  the  European  Monetary  Institute 

(EMI) and of the ECB have 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. 

2.2  One consideration in the context of central bank independence is the need for a central bank legal 

framework  that  provides  a  stable  and  long-term  basis  for  the  central  bank’s  functioning.  With 

regard to the Hungarian central bank, the ECB notes that the Law on the Magyar Nemzeti Bank has 

been amended on several occasions in recent years, often substantially changing the central bank’s 

legal framework, and finds that the introduction of different legal concepts within such a relatively 

short time has adversely affected the Magyar Nemzeti Bank’s stability. In addition, the ECB notes 

that the draft law still does not address all the issues highlighted in the ECB’s Convergence Report 

from December 2006. 

3. 

Specific observations 

Changes in the Magyar Nemzeti Bank’s governance structure  

3.1  According to the draft law, the Magyar Nemzeti Bank’s Board of Directors, which is in charge of 

the  implementation  of  monetary  policy  and  the  running  of  the  Magyar  Nemzeti  Bank,  would  be 

abolished. Its powers would be transferred to the Magyar Nemzeti Bank’s Governor, who would be 

entrusted to carry out these functions as an individual. The ECB understands that the objective for 

introducing this change is efficiency and has no objections to this institutional set-up as such. 

2 

 
 
 
 
 
Membership in the Monetary Council 

3.2  With regard to the draft law’s transitional measures on membership in the Magyar Nemzeti Bank’s 
Monetary Council, the ECB notes, as in its earlier opinions2, that they should be compatible with 

Article 14.2 of the Statute of the European System of Central Banks and the ECB. 

3.3 

In  general,  the  principle  of  personal  independence,  as  laid  down  in  Article  14.2  of  the  Statute 

requires that the same rules for the security of tenure of office of Governor apply to other members 

of NCB decision making-bodies involved in the performance of ESCB-related tasks. This applies, 

in  particular,  where  a  governor  is  first  among  equals  between  colleagues  with  equivalent  voting 

rights. Thus, any NCB reorganisation measure affecting the tenure of office of the members of its 

decision-making bodies involved in the performance of ESCB-related tasks should ensure that they 

continue to perform their  duties until the end of their appointed term, in accordance with Article 
14.2 of the Statute3. In this respect the draft law specifically provides that the term of office of the 

current members of the Monetary Council should remain unaffected by the foreseen amendments. 

In  this  context,  the  ECB  notes  that  the  effects  of  the  expiration  of  the  mandates  for  the  current 

individual members of the Monetary Council, in the event that the euro is introduced during their 

mandates, should be clarified in a manner respecting the principle of personal independence. 

3.4  

In line with its previous opinions the ECB would also emphasise that not filling vacancies in the 

Monetary  Council  en  bloc  enhances  the  long-term  independence  of  the  decision-making  body. 

Instead  members’  appointments  and  expiry  of  their  term  of  office  should  be  at  different  times, 

allowing  sufficient  interim  periods  between  subsequent  appointments.  This  ensures  that  political 

cycles  do  not  determine  membership.  Similarly,  Article  112(2)(b)  of  the  Treaty  establishes  the 

principle  that  members  of  the  ECB’s  Executive  Board  are  ‘appointed  from  among  persons  of 

recognised  standing  and  professional  experience  in  monetary  or  banking  matters’.  This  principle 

should also apply to Monetary Council members. 

Information sharing with the Minister for Finance 

3.5  A new provision of the draft law would require the Magyar Nemzeti Bank’s Governor to inform 

the  Minister  for  Finance  of  all  important  decisions  regarding  the  Magyar  Nemzeti  Bank’s 

operations,  together  with  the  documents  these  decisions  are  based  on.  The  proposed  amendment 

would broaden the scope of the Magyar Nemzeti Bank’s obligation to provide information to the 

Government.  

2  

See ECB Opinion CON/2007/6 of 7 March 2007 at the request of the German Ministry of Finance on a draft Eighth Law 
amending the Law on the Deutsche Bundesbank, ECB Opinion CON/2006/44 of 25 August 2006 at the request of the 
Banca d’Italia on the amended Statute of the Banca d’Italia, ECB Opinion CON/2006/32 of 22 June 2006 at the request 
of  the  French  Senate  on  draft  law  on  the  Banque  de  France,  ECB  Opinion  CON/2004/35  of  4  November  2004  at  the 
request  of  the  Hungarian  Ministry  of  Finance  on  a  draft  law  amending  the  Law  on  Magyar  Nemzeti  Bank  and  ECB 
Opinion CON/2004/16 of 11 May 2004 at the request of the Italian Ministry of Economic Affairs and Finance on a draft 
law on the protection of savings. 

3        See the abovementioned opinions. 

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3.6  Currently  the  Magyar  Nemzeti  Bank  is  obliged  to  provide  the  Government  with  information  on 

monetary  developments  and  other  important  issues  relating  to  its  basic  tasks  on  an  ad  hoc  basis, 

and on foreign exchange transactions and gold and foreign exchange reserves  on a weekly basis. 

The  scope  of  obligation  currently  in  force  appears  adequate  to  satisfy  the  Government’s 

information needs. Any obligation imposed on the Magyar Nemzeti Bank to provide information to 

the Government must be within the limits of central bank independence. As a minimum, therefore, 

the draft law (i) should clarify that there is no obligation to consult or inform the Government ex 

ante, i.e. in advance of the decisions being taken; (ii) should not contain a requirement to submit to 

the  Government  the  documents  that  the  decisions  are  based  on;  and  (iii)  should  ensure  that  the 

provision  of  information  under  the  new  Article  41  (3)  of  the  Law  on  the  Magyar  Nemzeti  Bank 

complies  with  the  principles  set  out  below.  The  ECB’s  Convergence  Reports  in  May  and 

December 2006 described the prohibition on ex ante consultation relating to national central banks’ 

(NCBs) decisions as ‘An express statutory obligation for an NCB to consult third parties ex ante 

provides  the  latter  with  a  formal  mechanism  to  influence  the  final  decision  and  is  therefore 

incompatible with the Treaty and the Statute. However,  dialogue  between  NCBs  and  third  parties, 

even  when  based  on  statutory  obligations  to  provide  information  and  exchange  views,  is 

compatible with central bank independence provided that: 

– 

– 

– 

this  does  not  result  in  interference  with  the  independence  of  the  members  of  the  NCB’s 

decision-making bodies; 

the special status of Governors in their capacity as members of the ECB’s General Council 

is fully respected; and 

confidentiality requirements resulting from the Statute are observed.’ 

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

Done at Frankfurt am Main, 24 May 2007. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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