Opinion of the European Central Bank of 3 August 2012 on the stabilising budgetary policy and the creation of an anti-crisis treasury reserves account at Lietuvos bankas (CON/2012/63)
Date: 2012-08-03
Institutions: European Central Bank
Subjects: Lithuania, budget policy, central bank, financial stability, national law, public debt, public finance

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 3 August 2012  

on the stabilising budgetary policy and the creation of an anti-crisis treasury reserves account at 

Lietuvos bankas 

(CON/2012/63) 

Introduction and legal basis 

On 20 June 2012, the European Central Bank (ECB) received a request from the Lithuanian Ministry of 

Finance for an opinion on a draft law on the stabilising budgetary policy (hereinafter the ‘draft law’) and 

a draft law amending the Law on State debt (hereinafter the ‘draft law on State debt’) (together referred to 

as the ‘draft laws’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union 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 laws relate to Lietuvos bankas. 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 laws 

1.1  The  purpose  of  the  draft  law  is  to  provide  a  means  of  responsible  management  for  sustainable 

public  finances,  inter  alia  by  creating  an  anti-crisis  treasury  reserves  account  (hereinafter  the 

‘special account’) at Lietuvos bankas. The primary purpose is to finance Lithuanian governmental 

functions  in  difficult  times,  including  measures  to  strengthen  financial  stability,  provided  by  the 
Law  on  financial  sustainability2.  According  to  the  draft  law,  the  Lithuanian  Government  may 

officially declare difficult times if one of the following circumstances arises: 

(a)   GDP is decreasing or not increasing sufficiently, in particular: 

(i)  

chain-linked volume of GDP per calendar quarter is decreasing or increasing by less 

than  1%  compared  to  the  respective  quarter  of  the  previous  year,  or,  according  to 

Lietuvos  bankas’  assessments,  the  chain-linked  volume  of  GDP  will  decrease  or 

increase by less than 1% during the current or next calendar year;  

1  
2  

OJ L 189, 3.7.1998, p. 42. 
Valstybės žinios, 2009, No 93-3985. 

 
 
 
 
                                                 
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(ii)   nominal  GDP  per  calendar  quarter  is  increasing  by  less  than  3%,  or,  according  to 

Lietuvos bankas’ assessments, the nominal GDP will increase by less than 3% during 
the current or next calendar year3;  

the Lithuanian Government is not able to borrow at less than 6% of an annual interest rate 
and decides not to issue government securities4;  

the Lithuanian Government needs to finance measures to strengthen the financial stability of 
the banking system5. 

(b)  

(c) 

If  a  crisis  was  not  officially  declared,  the  funds  could  also  be  used  to  increase  Lietuvos  bankas’ 

regulatory capital and reduce general government debt if it becomes higher than 55% of GDP. 

1.2  The draft law will enter into force on 1 July 2013 and the provisions covering the use of funds in 

the  special  account  to  increase  the  regulatory  capital  of  Lietuvos  bankas  will  be  valid  until 

introduction of the euro in Lithuania. 

1.3  The  draft  law  on  State  debt  provides  that  Lietuvos  bankas  will  sign  an  agreement  with  the 

Lithuanian Government allowing Lietuvos bankas to use and make financial investments with the 

funds  in  the  special  account.  The  draft  law  on  State  debt  is  intended  to  enter  into  force  on 

1 July 2013 and apply from 1 January 2014. 

2. 

General observations  

The ECB welcomes the draft law, which creates a fiscal reserve for difficult times. The ECB understands 

that  the  draft  laws  are  part  of  the  legislative  package  transposing  Council  Directive  2011/85/EU  of 
8 November 2011 on requirements for budgetary frameworks of the Member States6 and are intended to 

fully  comply  with  the  Stability  and  Growth  Pact  and  the  Treaty  on  Stability,  Coordination  and 

Governance  in  the  Economic  and  Monetary  Union.  In  this  regard,  the  ECB  suggests  removing  any 

provisions possibly in conflict with the Union fiscal governance framework, i.e. Article 5 of the draft law 

that contains details about long-term budgetary policy stimulating aggregate demand, 3% consumer price 

index inflation and the current account deficit exceeding 8% of GDP. 

3. 

Definition of difficult times 

3.1  The ECB recommends that the criteria for the Government to declare difficult times are narrowed, 

e.g.  to  a  negative  real  GDP  growth  instead  of  GDP  growth  up  to  1%;  however,  other  criteria 
(including a natural disaster, a severe economic downturn7 or a financial crisis etc.) must also be 

3  
4  
5  
6  
7  

Article 6(1)(1) to 6(1)(4) of the draft law.  
Article 6(1)(5) of the draft law. 
Article 6(2) of the draft law. 
OJ L 306, 23.11.2011, p. 41.  
As  defined  in  Article  2(2)  of  Council  Regulation  (EC)  No  1467/97  of  7  July  1997  on  speeding  up  and  clarifying  the 
implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6), referring to a ‘negative annual GDP volume 
growth  rate’  and  an  ‘accumulated  loss  of  output  during  a  protracted  period  of  very  low  annual  GDP  volume  growth 
relative to its potential’. 

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taken  into  account  when  defining  the  circumstances  leading  to  the  declaration  of  difficult  times. 

Alternatively,  the  criteria  could  be  broadly  defined  to  allow  the  authorities  some  discretion  in 

reacting to unforeseeable events, but when declaring difficult times, there must be joint agreement 

to do so by several authorities, e.g. the Prime Minister, the Finance Minister, the Chairperson of the 

Board of Lietuvos bankas and the Chair of the Parliament. 

3.2 

In  addition,  as  regards  the  Lithuanian  Government’s  ability  to  borrow,  the  ECB  recommends 

replacing  a  reference  to  the  specific  fixed  benchmark  of  an  annual  interest  rate  of  6%  with  a 

reference to an established variable benchmark. 

3.3 

In regard to the financial stability of the banking system, the ECB recommends making references 
to  other  relevant  national  legislation8  to  ensure  that  the  appropriate  national  authorities  are 

consistently involved in making decisions. 

4. 

Definition of general government debt 

4.1  The  ECB  understands  that  the  term  ‘general  government  debt’  in  the  draft  law  has  the  same 

meaning  as  in  Article  1(5)  of  Council  Regulation  (EC)  No  479/2009  of  25  May  2009  on  the 

application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the 
European  Community9.  For  the  purpose  of  clarity,  however,  the  ECB  suggests  inserting  the 

definition  of  general  government  debt  in  the  list  of  definitions  and  clarifying  the  valuation  and 
consolidation of general government debt and the financial instruments covered10. 

4.2  The  ECB  also  recommends  that  the  level  of  debt  mentioned  in  Article  3(2)(2)  of  the  draft  law 

should additionally refer to the abovementioned Protocol and to Regulation (EC) No 479/2009. 

5. 

Definition of ‘secure and profitable investment return’ 

5.1  The draft law requires Lietuvos bankas to use funds in the special account for financial investments 
at  a  ‘secure  and  profitable  investment  return  per  year11,’  which  should  not  be  lower  than  (a)  an 

investment return from the foreign reserves invested by Lietuvos bankas during the same period; or 

(b) a yearly investment return from the investments in German government securities, whichever is 

higher.  The  ECB  recommends  replacing  the  reference  to  return  requirements  and  investment 

horizon by a reference to the risk profile of investments. A detailed investment mandate specifying 

the  duration,  credit  quality  of  financial  instruments,  other  requirements  and  objectives  should  be 
specified  in  an  agreement  with  Lietuvos  bankas12  as  this  will  have  a  considerable  impact  on  the 

8  

9  
10  

E.g.  Government  Resolution  No  1253  of  24  November  2008  on  the  approval  of  the  financial  crisis  prevention  and 
management plan (Valstybės žinios, 2008, No 140-5549). 
OJ L 145, 10.6.2009, p. 1. 
See  ECB  Opinion  CON/2011/96,  paragraph  5.  All  ECB  opinions  are  available  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
11    Article 4(7)(1) of the draft law. 
12  

As referred to in Article 4(6) of the draft law. 

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return. If the return is based on a specific investment horizon, the objective should be to immunise 

the interest rate risk by using a similar duration. 

5.2  The profitability depends on price movements during the holding period and can normally only be 

confirmed ex post, after the holding period has expired. Moreover, when a ‘secure’ instrument is 

referred  to,  normally  a  minimum  credit  rating  of  eligible  instruments  is  stated.  This  will  not 

guarantee  whether  the  instrument  or  asset  class  is  ‘profitable’,  so  the  use  of  this  concept  is  not 

recommended in this context. 

6. 

Central bank independence and prohibition on monetary financing 

6.1  Central bank independence 

The ECB takes note of the recognition of Lietuvos bankas’ expertise in the stability of the financial 

market by entrusting it with the management of the special account’s funds, including its financial 

investments,  and  by  including  Lietuvos  bankas  in  the  decision-making  process  in  regard  to  the 

declaration  of  start/end  of difficult times.  In  this  respect,  the  ECB  notes  that  any  involvement  of 

Lietuvos bankas in application of the measures provided by the draft law must be compatible with 

the  Treaty.  The  ECB  expects  that,  when  implementing  the  measures  provided  by  the  draft  law, 

Lietuvos  bankas’  involvement  will  be  fully  compatible  with  its  institutional  and  financial 
independence13 to safeguard the proper performance of its tasks under the Treaty and the Statute of 

the European System of Central Banks and of the European Central Bank. The principle of central 

bank independence, inter alia, requires that Member States do not put their national central banks 

(NCBs) in a position where they have insufficient financial resources and inadequate net equity to 

carry out their tasks related to the European System of Central Banks or Eurosystem. 

6.2  Prohibition on monetary financing 

6.2.1  It is important to safeguard compliance with the monetary financing prohibition under Article 123 

of the Treaty. This prohibition is designed to prevent NCBs from providing overdraft facilities or 

any  other  type  of  credit  facility  to  the  public  sector,  which  includes  any  financing  of  the  public 

sector’s obligations in relation to third parties. The ECB expects that Lietuvos bankas’ involvement 

in  the  procedure  provided for  in  the  draft  law  will  comply  not  only  with  the  principle  of  central 

bank independence as specified in the paragraphs above but also with the prohibition on monetary 

financing laid down in Article 123(1) of the Treaty, read in conjunction with 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 Treaty14. 

6.2.2  In particular, the draft law refers to activities to be carried out by Lietuvos bankas as a fiscal agent 

of  the  State.  Taking  into  account  the  express  recognition  in  Article  21.2  of  the  Statute  of  the 

provision of fiscal agency services as a legitimate function traditionally performed by  NCBs, the 

13  
14  

ECB’s Convergence Report, May 2012, p. 21-27. 
OJ L 332, 31.12.1993, p. 1. 

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provision by central banks of such services complies with the prohibition on monetary financing, 

provided that they remain within the field of the fiscal agency function and do not constitute central 

bank financing of public sector obligations vis-à-vis  third parties or central bank crediting of the 

public  sector  outside  the  narrowly  defined  exceptions  specified  in  Regulation  (EC)  No  3603/93. 

National legislation that enables an NCB to hold government deposits and to service government 

accounts does not raise concerns about compliance with the monetary financing prohibition as long 

as such provisions do not allow the extension of credit, including overnight overdrafts. Moreover, 

an  NCB  providing  fiscal  agent  services  without  remuneration  does  not  raise  monetary  financing 
concerns, provided they are core fiscal agent services15. 

6.2.3  The ECB understands that Lietuvos bankas’ fiscal agent services provided for under the draft law 

will not result in any central bank funds being provided to the State or the State’s obligations being 

financed by Lietuvos bankas, including by means of bridge financing. 

6.3  Maximum return from investments 

6.3.1  Article  4(7)(1)  of  the  draft  law  provides  that  Lietuvos  bankas  may  seek  lower  than  maximum 

returns  from  investments  of  the  funds  in  the  special  account,  if  the  investments  are  necessary  to 

achieve or maintain price stability or if requiring the maximum annual return would not achieve or 

maintain  price  stability.  This  provision  would  not  be  compatible  with  the  principle  of  functional 

and institutional independence of an NCB, if the State interferes with the independent decision by 

Lietuvos bankas on whether and under which conditions investments are necessary for achieving or 

maintaining price stability. Furthermore, the ECB understands that the draft law does not require a 

specific return  from  such  investments. The  ECB  recommends  clarifying  the  wording  of the draft 

law to avoid any doubt. Generally an NCB is expected to exercise financial prudence, but the sole 

objective of its monetary policy operations is price stability not profit. 

6.3.2  In addition, and with reference to the considerations under Section 5 above, the ECB understands 

that Lietuvos bankas is under an obligation to use all possible means to reach the objectives set out 

in the draft law in term of returns but that Lietuvos bankas is not required to reach any particular 

result.  Therefore,  Lietuvos  bankas  will  not  be  asked  to  compensate  on  its  own  funds  or  be 

‘penalised’ for any unattained result in terms of returns. This is of particular relevance due to the 

precise conditions and deadlines also contained in the draft law for possible repayments of funds 

held in the special account to the general account of the State.  

6.3.3  In this context, as there are no explicit provisions in either draft law regarding the responsibility for 

losses  from  (interrupted)  financial  investments  or  unattained  investment  returns,  the  draft  laws 

should  specify  that  Lietuvos  bankas,  as  fiscal  agent  for  the  State,  has  no  responsibility  for  those 

losses and the State must cover them. 

15  

ECB’s Convergence Report, May 2012, p. 30. 

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6.3.4  The ECB understands that, if the special account’s funds are entered into Lietuvos bankas’ balance 

sheet,  the  respective  accounting  information  will  be  disclosed  in  the  ‘notes’  part  of  the  annual 
financial statement of Lietuvos bankas16, rather than in a separate statement17. 

6.4 

Increase of Lietuvos bankas’ statutory capital 

6.4.1  Whereas  the  draft  law  remains  silent  as  to  whether  the  funds  in  the  special  account,  used  for 

increasing Lietuvos bankas’ statutory capital, should also remain there if the State urgently needs 

additional financial resources to deal with a crisis situation, the ECB understands that this statutory 

capital, once it has been increased by the funds in the special account, cannot be reduced again at 

short notice nor with a different procedure from the one provided in the draft law for the increase of 
the  capital18.  The  draft  law  should  contain  an  explicit  safeguard  pertaining  to  this  situation.  A 

Member State may not impose reductions of capital on an NCB without the ex ante agreement of 

the  NCB’s  decision-making  bodies  that  must  ensure  that  the  NCB  has  sufficient  financial  means 
and adequate net equity to fulfil its mandate19. 

6.4.2  The ECB recommends that a reference in Article 10(2) of the draft law to the ‘accounting value’20 

of the financial investments, which is to be taken into account when increasing Lietuvos bankas’ 

statutory  capital,  should  be  replaced  by  a  reference  to  the  ‘market  value  at  the  moment  of  the 

capital increase’ to avoid a situation where the intended capital increase is not adequately funded, 

e.g. if the accounting value is significantly above the market value. 

6.4.3  Finally, the ECB understands that the draft law provisions, while giving a deadline of the date of 

introduction  of  the  euro  in  Lithuania  to  use  funds  in  the  special  account  to  increase  Lietuvos 

bankas’  statutory  capital,  do  not  limit  the  general  possibility  –  also  after  euro  introduction  –  to 
increase Lietuvos bankas’ statutory capital from other funds21. 

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

Done at Frankfurt am Main, 3 August 2012. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO 

16  
17   

18  
19   
20  
21  

Article 12 of the draft law. 
Financial  statements  of  Lietuvos  bankas  currently  comprise  the  following  elements:  balance  sheet,  profit  and  loss 
accounts and explanatory notes.  
See Article 10 of the draft law.  
ECB’s Convergence Report, May 2012, p. 33. 
Article 10(2) of the draft law.  
Article 20(2) of the Law on Lietuvos bankas provides that the statutory capital of  Lietuvos bankas, currently LTL 200 
million comes from State funds and/or Lietuvos bankas’ profits. 

6