Opinion of the European Central Bank of 2 October 2012 on preparations and legal amendments required for the introduction of the euro (CON/2012/73)
Date: 2012-10-02
Institutions: European Central Bank
Subjects: Latvia, central bank, convergence criteria, euro, euro area, institutional activity, money, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 2 October 2012  

on preparations and legal amendments required for the introduction of the euro 

(CON/2012/73) 

Introduction and legal basis 

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

Finance for an opinion on a draft law on the introduction of the euro (hereinafter the ‘draft law on the 

euro’), a draft law on amendments to the Law on Latvijas Banka (hereinafter the ‘draft law on Latvijas 

Banka) and a draft law on amendments to the Law on prevention of conflict of interests in activities of 

public  officials  (hereinafter  the  ‘draft  law  on  PCI’)  (hereinafter  collectively  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  first,  second  and  third  indents  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 currency matters, means of 

payment  and  Latvijas  Banka.  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 

The  purpose  of  the  draft  laws  is  to  prepare  for  the  introduction  of  the  euro  and  to  ensure  the 

compatibility  of  Latvian  legislation  with  the  Treaty  and  the  Statute  of  the  European  System  of 

Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), as well as 

Latvia’s compliance with all adaptation requirements under Article 131 of the Treaty.  

1.1  The draft law on the euro 

The purpose of the draft law on the euro is to ensure that the introduction of the euro in Latvia is 

done in an efficient and transparent manner. In particular, the draft law determines measures related 

to  the  cash  changeover,  the  exchange  of  non-cash  and  electronic  money  and  the  dual  display  of 

prices of goods and services. It also provides for measures for the adaption of accounting practices 

and  the  adjustment  of  financial  markets  for  the  introduction  of  euro,  as  well  as  provisions 

concerning the amendment and enforcement of the law.  

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
 
                                                 
ECB-PUBLIC 

1.2  The draft law on Latvijas Banka and the draft law on PCI 

The draft law on Latvijas Banka addresses a number of issues raised by the ECB and the European 
Commission in their Convergence Reports2 in relation to the Law on Latvijas Banka. In particular, 

amendments are made to the provisions concerning Latvijas Banka’s independence, prohibitions on 

monetary  financing  and  privileged  access  and  the  legal  integration  of  Latvijas  Banka  into  the 

Eurosystem. 

The draft law on PCI addresses a personal independence issue previously identified by the ECB in 
relation to Article 31 of the Law on Latvijas Banka3. It now clarifies that the Governor, the deputy 

Governor and members of the Council of Latvijas Banka are only permitted to hold other offices in 

accordance  with  laws  or  international  agreements  ratified  by  the  Latvian  Parliament,  Cabinet 

regulations and order and only if the holding of other offices does not threaten the independence of 

Latvijas Banka. 

2. 

Observations on the draft law on the euro  

2.1  Article  3  of  the  draft  law  on  the  euro  provides  that  the  day  on  which  the  euro  is  introduced  in 

Latvia shall be the day on which the Council abrogates the derogation. The ECB notes that this day 

may  not  happen  to  coincide  with  the  day  on  which  the  abrogation  enters  into  force.  Therefore, 

Article  3  should  be  amended  to  explicitly  refer  to  the  entry  into  force  of  the  abrogation  of  the 

derogation. 

2.2 

In this context, the ECB also notes that Article 44 of the Treaty establishing the European Stability 
Mechanism (ESM)4 (hereinafter the ‘ESM Treaty’) provides that the ESM Treaty shall be open for 
accession by other Member States of the EU upon their application for membership5. These ‘other’ 

Member  States  are  those  which  have  not  adopted  the  euro  at  the  time  of  signature  of  the  ESM 

Treaty.  Article  44  of  the  ESM  Treaty  provides  further  that  the  Member  State  shall  file  with  the 

ESM its application for membership after the adoption by the Council of the European Union of the 

decision  to  abrogate  the  Member  State’s  derogation  from  adopting  the  euro  in  accordance  with 

Article  140(2)  of  the  Treaty.  Article  44  of  the  ESM  Treaty  also  provides  that,  following  the 

approval  of  the  application  for  membership  by  the  ESM’s  Board  of  Governors,  the  new  ESM 

Member shall accede upon deposit of the instruments for accession with the Depository. 

3. 

Observations on the draft law on Latvijas Banka and draft law on PCI 

3.1  The  ECB  welcomes  the  Latvian  government’s  efforts  to  achieve  the  required  level  of  legal 

convergence and notes that the legal convergence of the amended Law on Latvijas Banka will be 

2  
3 
4  
5  

See the ECB’s Convergence Report 2012, p. 237; European Commission Convergence Report 2012, p. 71. 
See the ECB’s Convergence Report 2012, p. 238. 
http://www.european-council.europa.eu/media/582311/05-tesm2.en12.pdf. 
Recital  7  of  the  ESM  Treaty  states  ‘All  euro  area  Member  States  will  become  ESM  Members.  As  a  consequence  of 
joining  the  euro  area,  a  Member  State  of  the  European  Union  should  become  an  ESM  Member  with  full  rights  and 
obligations, in line with those of the Contracting Parties’. 

2 

 
 
 
                                                 
ECB-PUBLIC 

also  assessed  in  the  ECB’s  next  Convergence  Report.  In  the  meantime,  the  ECB  makes  the 

following observations as regards the central bank independence and legal integration of Latvijas 

Banka into the Eurosystem. 

3.2 

Institutional independence 

The draft law on Latvijas Banka amends Article 43 of the Law on Latvijas Banka concerning the 

powers  of  the  independent  external  auditors  of  Latvijas  Banka  in  a  manner  compatible  with  the 

Treaty. In addition, the ECB notes that Article 43(1) of the Law on Latvijas Banka provides that 

the  Parliament  shall  supervise  Latvijas  Banka.  The  ECB  understands  that  ‘supervision’  in  this 

context  refers  to  the  Parliament’s  right  to  ask  questions  pursuant  to  the  Law  on  the  Rules  of 
Procedure  of  the  Parliament6  so  as  to  enhance  Latvijas  Banka’s  accountability  for  its  decisions. 

This is compatible with the principle of institutional independence of Latvijas Banka.  

3.3  Financial independence 

3.3.1  The ECB welcomes the proposed increase of Latvijas Banka’s capital. The principle of financial 

independence requires a national central bank (NCB) to have sufficient means not only to perform 

its  ESCB  or  Eurosystem-related  tasks  but  also  its  national  tasks  e.g.  financing  its  administration 

and own operations. Such financial independence is assessed from the perspective of whether any 

third party is able to exercise either direct or indirect influence not only over an NCB’s tasks but 

also over its ability to fulfil its mandate, both operationally in terms of manpower, and financially 
in  terms  of  appropriate  financial  resources7.  In  this  respect,  financial  independence  primarily 
implies  that  an  NCB  should  always  be  sufficiently  capitalised8.  In  particular,  the  ECB  is  of  the 

view that the higher the level of capital, reserves and provisions against financial risks is, the higher 

the  safeguards  against  future  losses  are.  For  this  reason,  an  NCB  must  be  free  to  independently 

create  financial  provisions  to  safeguard  the  real  value  of  its  capital  and  assets.  Furthermore, 

Member  States  may  not  hamper  NCBs  from  building  up  their reserve  capital  to  a  level  which is 
necessary  for  a  member  of  the  Eurosystem  to  fulfil  its  tasks9.  As  mentioned  in  the  ECB’s 
Convergence Reports 2010 and 201210, any situation should be avoided whereby for a prolonged 

period of time an NCB’s net equity is below the level of its statutory capital or is even negative, 

including  where  losses  beyond  the  level  of  capital  and  the  reserves  are  carried  over.  Any  such 

situation may negatively impact on the NCB’s ability to perform not only its ESCB or Eurosystem-

related tasks but also its national tasks. Moreover, such a situation may affect the credibility of the 

Eurosystem’s monetary policy. Therefore, the event of an NCB’s net equity becoming less than its 

statutory  capital  or  even  negative  would  require  that  the  respective  Member  State  provides  the 

NCB with an appropriate amount of capital at least up to the level of the statutory capital within a 

6  
7 
8 

9 
10 

Saiemas Kārtības rullis, "LV", 96 (227), 18.08.1994. 
See the ECB’s Convergence Report 2012, p. 26. 
See the ECB’s Convergence Report 2012, p. 25; see also Opinion CON/2010/88. All ECB opinions are published on the 
ECB’s website at www.ecb.europa.eu. 
See the ECB’s Convergence Report 2012, p. 27; see also, in this regard, Opinion CON/2008/34, paragraph 4.2. 
See the ECB’s Convergence Report 2010, pp. 21 and 22 and the ECB’s Convergence Report 2012, pp. 25 and 26. 

3 

 
                                                 
ECB-PUBLIC 

reasonable  period  of  time  so  as  to  comply  with  the  principle  of  financial  independence.  The 

financial independence of a central bank may also be strengthened by arrangements whereby the 

operational costs for the discharge of some of the latter’s tasks are borne by the entities concerned 
by such tasks11. 

3.3.2  The  ECB  understands  that  the  competent  Latvian  authority  has  closely  cooperated  with  Latvijas 

Banka in order to determine the level of authorised and paid-up capital to be effectively increased. 

Such  cooperation  not  only  serves  to  respect  Latvijas  Banka’s  financial  independence,  but  it  also 

takes account of the fact that Latvijas Banka is best placed to assess its required level of reserve 
capital12. 

3.3.3  The ECB welcomes the new wording of Article 181(1) of the Law on Latvijas Banka pursuant to 

which Latvijas Banka transfers parts of its profit to the State budget following the approval of the 

annual report by the Council of Latvijas Banka and only after covering losses accumulated in the 

previous  years,  if  any.  This  reflects  requirements  arising  from  the  financial  independence 
principle13.  The  ECB  also  welcomes  new  paragraph  2  that  entitles  Latvijas  Banka  to  reduce  the 

percentage  share  of  the  payment  for  the  usage  of  state  capital  where  it  is  needed  to  increase  the 

reserve capital of Latvijas Banka in relation to the financial risks it is exposed to when executing its 

tasks.  

3.4   Personal independence 

3.4.1  The ECB welcomes the reference in Article 22(4) of the Law on Latvijas Banka to Article 14.2 of 

the Statute of the ESCB as regards the grounds for dismissal of the Governor, the Deputy Governor 
or a member of the Council of Latvijas Banka. As specified in the ECB’s Convergence Reports14, 

NCB statutes must ensure that Governors and other members of an NCB’s decision making bodies 

may not be dismissed for reasons other than those mentioned in Article 14.2. The purpose of this 

requirement is to prevent the authorities involved in the appointment of Governors, particularly the 

government or parliament, from exercising their discretion to dismiss a Governor.  

Under  Article  22(4)  of  the  Law  on  Latvijas  Banka,  as  a  precondition  for  the  Latvian  Parliament 

deciding to dismiss the Governor, Deputy Governor or a member of the Council of Latvijas Banka 

based  on  serious  misconduct  (being  a  ground  for  dismissal  provided  by  Article  14.2),  a  national 

court  has  to  find  the  relevant  official  guilty  of  breaching  the  law.  The  ECB  acknowledges  that 

under Article 22(4) the court is entitled to rule only on a breach of law by the relevant official but it 

does not have the power to decide whether the breach of law amounts to serious misconduct. Still, 

Article 22(4) limits the scope of the Union law concept of ‘serious misconduct’ to breaches of the 
law,  whereas  the  conditions  for  dismissal  should  not  be  specified  by  the  national  legislator15. 

Article  22(4)  should  either  be  fully  aligned  with  Article  14.2  or  should  omit  any  mention  of 

11 
12 
13  
14 
15 

See Opinion CON/2012/35, paragraph 2.  
See the ECB’s Convergence Report 2012, p. 27; see also Opinion CON/2010/88, paragraph 2.1. 
See the ECB’s Convergence Report 2012, p. 27. 
See, for example, the ECB’s Convergence Report 2012, p. 24.  
See Opinion CON/2011/38 paragraph 2.1; see also Opinions CON/2012/26 and CON/2012/43. 

4 

 
                                                 
ECB-PUBLIC 

grounds for dismissal, given that Article 14.2 is directly applicable. Further, the ECB recommends 

that the procedures, including any court ruling, for the dismissal of the Governor, Deputy Governor 

or  a  member  of  the  Council  of  Latvijas  Banka  be  kept  clearly  distinct  from  the  substantive 

provisions on the grounds for dismissal, i.e. in a separate legal provision, to ensure full consistency 

with the provisions of the Statute of the ESCB.  

3.4.2  Personal independence also entails ensuring that no conflict of interest arises between the duties of 

members  of  NCB  decision-making  bodies  involved  in  the  performance  of  ESCB-related  tasks  in 

relation to their respective NCBs (and of Governors in relation to the ECB) and any other functions 

which such members of decision-making bodies may have and which may jeopardise their personal 

independence.  As  a  matter  of  principle,  membership  of  a  decision-making  body  involved  in  the 

performance of ESCB-related tasks is incompatible with the exercise of other functions that might 

create a conflict of interest. In particular, members of such decision-making bodies may not hold an 

office or have an interest that may influence their activities, whether through office in the executive 

or legislative branches of the state or in regional or local administrations, or through involvement in 

a business organisation. Particular care should be taken to prevent potential conflicts of interest on 
the part of non-executive members of decision-making bodies16. The clarification in the draft law 

on  PCI  addresses  the  ECB’s  concerns  in  a  way  which  adheres  to  the  principle  of  institutional 

independence. However, national laws, international agreements, national regulations or orders that 

would  permit the  Governor  and  the  other  members  of  the  Council  of  Latvijas Banka to combine 

their office with other offices pursuant to the draft law on PCI may raise concerns as regards their 

personal independence as referred to in Article 130 of the Treaty. The draft law on PCI should be 

further amended to clarify that holding other offices may be permitted if it does not pose a threat, 

not  only  to  the  independence  of  Latvijas  Banka,  but  also  to  the  personal  independence  of  the 

Governor, Deputy Governor and of the other members of the Council of Latvijas Banka. 

3.5   Legal integration into the Eurosystem  

Article 34(3) of the Law on Latvijas Banka does not recognise the ECB’s powers with respect to 

‘the requirements for euro cash processing systems and the quality requirements for euro banknote 

processing,  as  well  as  the  registration  and  reporting  requirements  for  merchants  engaged  in  cash 

processing  and  recycling’.  In  particular,  the  ECB  considers  it  essential  that  any  draft  legislation 

implementing Decision ECB/2010/14 on the authenticity and fitness checking and recirculation of 
euro  banknotes17  does  not  deviate  from  its  common  provisions,  unless  explicitly  provided  for  in 
Decision ECB/2010/1418.Therefore, the Law on Latvijas Banka should provide that such activities 
are performed in compliance with Union law19.  

16  
17  
18   
19  

See the ECB’s Convergence Report 2012, p. 25.  
OJ L 267, 9.10.2010, p. 1.  
See Opinion CON/2011/94. 
See,  in  particular,  Article  6(1)  of  Council  Regulation  (EC)  No  1338/2001  of  28  June  2001  laying  down  measures 
necessary for the protection of the euro against counterfeiting (OJ L 181, 4.7.2001, p. 6) and Decision ECB/2010/14. 

5 

                                                 
ECB-PUBLIC 

3.6    Contribution to financial stability 

In  accordance  with the Eurosystem’s  role  under  Article  127(5)  of the Treaty  to  contribute to the 

smooth conduct of policies pursued by competent authorities relating to the prudential supervision 

of credit institutions and the stability of the financial system, and taking into account institutional 
developments, such as the central banks’ support to the European Systemic Risk Board20, the ECB 
is of the view, in line with its stance on this issue21, that the task of contributing to the stability of 
the financial system should be explicitly referred to in the Law on Latvijas Banka22. 

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

Done at Frankfurt am Main, 2 October 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

20  

21  

22  

See  recital  9  of  Council  Regulation  (EU)  No  1096/2010  of  17  November  2010  conferring  specific  tasks  upon  the 
European  Central  Bank  concerning  the  functioning  of  the  European  Systemic  Risk  Board  (OJ  L  331,  15.12.10,  p.162) 
and recital 6 of Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on 
European  Union  macro-prudential  oversight  of  the  financial  system  and  establishing  a  European  Systemic  Risk  Board 
(OJ L331, 15.12.10, p.1). 
See  Opinions  CON/2004/16,  paragraph  5,  Opinion  CON/2007/31,  paragraph  3.1,  CON/2010/10,  paragraph  2.3,  and 
CON/2012/44, paragraph 2.2. 
The  ECB  notes  that  this  reference  to  the  contribution  of  the  central  banks  to  financial  stability  or  the  stability  of  the 
banking or financial system is provided for in various statutes of NCBs, including the following: Austria: Art. 44b(1) of 
the Federal Act on the Oesterreichische Nationalbank; Belgium: Art. 12 of the Law establishing the Organic Statute of 
the National Bank of Belgium; Bulgaria: Art. 2.6 of the Law on the Bulgarian National Bank; Cyprus: Article 6.2 of the 
Central  Bank  of  Cyprus  Laws  of  2002  to  2007;  Czech  Republic:  Art.  2(2)  of  the  Act  on  the  Czech  National  Bank; 
Estonia: §2(3) of the Eesti Pank Act; Finland: Section 3 of the Act on the Bank of Finland; Hungary: Art. 12 of the Law 
on the Magyar Nemzeti Bank; Ireland: Section 26(2)(a) of the Central Bank Reform Act 2010; Lithuania: Art. 8(4) of the 
Law on the Bank of Lithuania; Luxembourg: Art. 2.6 of the Organic law of the Banque centrale du Luxembourg; Malta: 
Art. 5 of the Central Bank of Malta Act; The Netherlands: Section 3(2) of the Bank Act 1998; Poland: Art. 3 of the Act 
on the National Bank of Poland; Romania: Art. 2 of the Law on the Statute of the Banca Naţională a României; Slovenia: 
Art. 4(3) of the Banka Slovenije Act; Slovakia: Art. 2(3) of the Act on the National Bank of Slovakia; United Kingdom: 
Section 2A of the Bank of England Act 1998. 

6