Opinion of the European Central Bank of 11 December 2012 on the implementation of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (CON/2012/105)
Date: 2012-12-11
Institutions: European Central Bank
Subjects: Lithuania, Treaty on Stability, Coordination and Governance, budget policy, central bank, competence of the institution, coordination of EMU policies, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 11 December 2012  

on the implementation of the Treaty on Stability, Coordination and Governance in the Economic 

and Monetary Union 

(CON/2012/105) 

Introduction and legal basis 

On 9 November 2012, the European Central Bank (ECB) received a request from the Lithuanian Ministry 

of Finance for an opinion on a draft constitutional law on the sustainability of general government sector 

finances  (hereinafter  the  ‘draft  constitutional  law’)  and  the  draft  law  amending  the  Law  on  Lietuvos 

bankas (hereinafter the ‘draft amending law’) (collectively referred to as the ‘draft legislation’). 

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  (TFEU)  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  legislation  relates  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 legislation 

1.1  The draft legislation aims to implement certain provisions of the Treaty on Stability, Coordination 
and Governance in the Economic and Monetary Union (TSCG)2 to strengthen fiscal discipline by 

(a)  establishing  a  ‘balanced  budget  rule’  and  an  automatic  correction  mechanism,  and  (b) 

introducing a stricter surveillance mechanism, which includes the designation of Lietuvos bankas 

as an institution responsible at national level for monitoring compliance with the balanced budget 

rule. 

1.2  The draft constitutional law sets a medium-term objective of ensuring that the general government 

sector finances are in surplus, balanced or close to balance3. 

1.2.1  It  aims  to  achieve  this  objective  by  improving  the  structural  balance  of  the  general  government 

1  
2  

3  

OJ L 189, 3.7.1998, p. 42.   
The TSCG was signed by 25 Member States on 2 March 2012 and will come into force on 1 January 2013, provided that 
twelve euro area Member States have deposited their instrument of ratification, or on the first day of the month following 
the  deposit  of  the  twelfth instrument  of ratification  by  a euro  area  Member  State,  whichever  is earlier  http://european-
council.europa.eu/eurozone-governance/treaty-on-stability.  The  Lithuanian  Parliament  ratified  the  TSCG  on  28  June 
2012 and deposited the ratification instrument with the Council of the European Union on 6 September 2012. 
This implements Article 3(1)(a) of the TSCG. 

 
 
 
 
                                                 
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sector in the medium-term. 

1.2.2  The draft constitutional law sets two ratios for assessing the management of the structural balance 

of the general government sector: the planned structural target, and the minimum executive target. 

Non-implementation of these ratios is intended to trigger automatic corrective measures. 

1.2.3  The draft constitutional law provides for several escape clauses. For example, ‘the obligation under 

the TSCG’ does not have to be fulfilled and the automatic corrective measures will not be triggered 

if the expected public sector deficit is higher than 3% of GDP or if one of the following exceptional 

circumstances occurs: (a) actual production is or will be below the potential production for at least 

two consecutive calendar years ; (b) the GDP chain volume for the current quarter of the calendar 

year  has  continued  to  decrease,  as  compared  to  the  respective  quarter  of  the  preceding  calendar 

year,  or  (c)  the  GDP  chain  volume  for  the  current  calendar  year  will  continue  to  decrease,  as 

compared to the preceding year. 

1.3  The  draft  legislation  designates  Lietuvos  bankas  as  the  institution  responsible  for  budget  policy 

control at national level. Its main task is to strengthen the implementation and transparency of the 

correction  mechanisms.  This  includes:  (a)  monitoring  the  preparation  and  implementation  of  the 

planned  structural  target;  (b)  assessing  and  making  public  communications  about  whether  the 

planned  structural  target  or  the  minimum  executive  target  will  be  reached;  (c)  approving  the 

expected economic developments scenario prepared by the Ministry of Finance; (d) delivering an 

opinion  to  the  Parliament  on  whether  the  planned  budgetary  policy  is  appropriate  to  achieve  the 

planned structural target. 

2. 

General observations  

2.1  The  ECB  welcomes  the  consulting  authority’s  initiative  and  the  objective  of  implementing  the 

TSCG. This is particularly important for Lithuania, since it has been subject to the excessive deficit 

procedure  since  July  2009  in  order  to  bring  the  government  deficit  below  3%  of  GDP,  and  the 

deadline  for  correction  of  the  deficit  has  been  extended  to  2012.  In  addition,  with  a  view  to  the 

introduction  of  the  euro  in  Lithuania,  it  is  important  that  the  fiscal  framework  contributes  to  the 

prevention of renewed macroeconomic imbalances.   

2.2  As  regards  the  methodology  for  the  national  implementation  of  the  TSCG,  the  ECB  draws  the 

consulting  authority’s  attention  to  the  guidance  provided  by  the  European  Commission  and  the 

Council,  in  particular,  the  Common  principles  on  national  fiscal  correction  mechanisms 
(hereinafter the ‘common principles’)4 and the Specifications on the implementation of the Stability 

4  

Communication from the Commission: Common principles on national fiscal correction mechanisms (COM(2012) 342 
final, 
http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0342:FIN:EN:PDF  

Available 

2012). 

June 

20 

at: 

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and  Growth  Pact  and  Guidelines  on  the  formal  and  content  of  Stability  and  Convergence 
Programmes5.  

The ECB also notes that the European Commission will present a report on the national provisions 

implementing the TSCG provisions adopted by the Member States which have signed and ratified 
the TSCG6 and will have the competence to assess compliance with Article 3(2) of the TSCG. 

2.3  Article  14(5)  of  the  TSCG  provides  Lithuania  as  a  Member  State  with  a  derogation  with  the 

opportunity to declare its intention to be bound by all or part of the provisions in Titles III (Fiscal 
Compact)  and  IV  (Economic  Policy  Coordination  and  Convergence)  of  the  TSCG7  at  an  earlier 

date than that when the abrogation of the derogation in accordance with Article 140(2) of the TFEU 

takes  effect.  The  ECB  notes  that,  the  draft  legislation  will  only  enter  into  force  as  from  the  date 

when the abrogation of the derogation takes effect, i.e. once the euro is introduced in Lithuania. 

3. 

Specific observations  

The ECB notes several issues with regard to the draft legislation. 

3.1    The  concepts  and  definitions  used  in  the  draft  constitutional  law  should  be  fully  consistent  with 

existing Union legislation (such as the TSCG and the Stability and Growth Pact8). 

3.1.1  Both definitions of ‘general government balance indicator’ and ‘general government sector debt’ in 

the draft constitutional law should refer to 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. In addition, the European Commission (Eurostat) validates 

and  publishes  deficit  (surplus)  and  debt  data  for  the  general  government  sector  pursuant  to  the 

excessive deficit procedure definition. 

3.1.2  Article  4  of  the  draft  constitutional  law  contains  concepts  of  ‘agreed  bias’,  ‘minimum  executive 

target’,  ‘planned  structural  target’  and  ‘structural  investment’,  which  are  not  contained  in  the 

TSCG. The draft legislation must be fully compatible with the concepts and methodology used in 

the TSCG and the existing Stability and Growth Pact legislation.  

3.2   The escape clauses provided for in Articles 3(3), 5(4), 6(2), and 7(3) of the draft constitutional law 
are broader than those in the TSCG. The ECB underlines that, in line with the common principles10, 

escape clauses should be based on Union agreed notions, in order to promote consistency and avoid 

5  

6  
7  
8  

9  
10  

of 

(3 

content 

Stability 

September 

Programmes 

and  Convergence 

Code of conduct: Specifications on the implementation of the Stability and Growth Pact and Guidelines on the format 
and 
at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/code_of_conduct_en.pdf  
Article 8(1) of the TSCG. 
Titles III (Fiscal Compact) and IV (Economic Policy Coordination and Convergence). 
The  Stability  and  Growth  Pact  is  enshrined  in  two  main  Council  Regulations:  (1)  the  ‘preventive  arm’,  Council 
Regulation  (EC)  No  1466/97  of  7  July  on  the  strengthening  of  the  surveillance  of  budgetary  positions  and  the 
surveillance  and  coordination  of  economic  policies  (OJ  L  209,  2.8.1997,  p.  1);  and  (2)  the  ‘corrective  arm’,  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). 
OJ L 145, 10.6.2009, p. 1. 
Principle 6 (escape clauses). 

2012).  Available 

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overly  permissive  definitions  of  exceptional  circumstances.  The  suspension  of  the  correction 

mechanism  should  be  limited  in  time,  and  a  minimum  pace  of  adjustment  should  follow  the  exit 

from the escape clause.  

3.3   The ‘unjustified failure of execution of the minimum executive target’11 lacks sufficient automatic 

follow-up.  The  Prime  Minister’s  oral presentation  in  the  Lithuanian  Parliament  on  the  reasons  to 

justify  such  failure  of  execution  and  on  the  guidelines  for  avoidance  of  such  circumstances  is 

insufficient in this regard.  

3.4   Article 11 of the draft constitutional law needs to be clarified in order to ensure that the method for 

calculating the cyclical position of the economy is consistent with the official method used in the 
European semester for economic policy coordination12. 

3.5   The  draft  constitutional  law  is  complex  and  would  benefit  from  greater  clarity,  which  could  be 

achieved by following more closely the provisions of the TSCG. The ‘implementing legal act’ as 

referred to in Article 11 of the draft constitutional law is a more appropriate legal instrument for 

addressing  not  only  the  methodology  for  the  calculation  of  the  multi-annual  growth  average,  but 

also  other  issues  of  a  technical  nature,  including  a  number  of  formulas,  currently  present  in  the 

draft constitutional law. In using this instrument, the national legislator will also be able to take into 

account  any  future  technical  developments  at  European  level  by  incorporating  these  in  the 

implementing legal act.  

4. 

Lietuvos bankas’ role 

4.1  Lietuvos bankas’ conclusions as regards the implementation of the planned structural target and the 

minimum executive target will be crucial for activating corrective measures, i.e. amendments to the 

budgetary laws relating to the current year or upcoming years.  

4.2  Lietuvos  bankas  will  also  assess  and  approve  the  expected  economic  developments  scenario 

prepared  by  the  Ministry  of  Finance  and  will  consider  whether  the  planned  budgetary  policy  is 

appropriate to reach the planned structural target. 

4.3   The ECB understands that Lietuvos bankas’ role as ‘budget policy control institution’ is intended to 

implement the role of the institution responsible in Lithuania for monitoring compliance with the 

rules set out in Article 3(1) of the TSCG. In this respect, Lietuvos bankas’ role, as specified in the 
draft legislation, should not go beyond the role of a monitoring institution13. The provisions of the 

draft constitutional law, which contain the obligation on Lietuvos bankas to approve the expected 

economic developments scenario prepared by the Ministry of Finance, raise particular concern in 

this  respect.  Ensuring  compliance  with  the  obligations  under  Article  3(1)  of  the  TSCG  is  the 

responsibility of the Lithuanian government.  

11  
12  
13  

Article 9 of the draft constitutional law. 
Article 2a of Regulation (EC) No 1466/97. 
See also principle 7 (the role and independence of monitoring institutions) of the common principles.  

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In  addition,  the  powers  of  Lietuvos  bankas  under  the  draft  constitutional  law  and  the  draft 

amending law should be aligned to avoid any inconsistencies between the two draft laws. 

4.4   The  ECB  also  notes  that  any  involvement  of  Lietuvos  bankas  in  the  application  of  the  balanced 

budget rule must ensure that these functions will not affect Lietuvos bankas’ ability to carry out its 

ESCB-related tasks from an operational and financial point of view. Financial independence, which 

is an element of the central bank independence referred to in Article 130 of the Treaty, requires an 

NCB to have sufficient means not only to perform its ESCB-related tasks but also its national tasks 
(e.g. financing its administration and own operations)14. 

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

Done at Frankfurt am Main, 11 December 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

14   

See the ECB’s Convergence Report, 2012, p. 25. 

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