Opinion of the European Central Bank of 18 December 2013 on public finances (CON/2013/90)
Date: 2013-12-18
Institutions: European Central Bank
Subjects: Luxembourg, budgetary equilibrium, central bank, national budget, national law, national planning

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 18 December 2013 

on public finances 

(CON/2013/90) 

Introduction and legal basis 

On 12 July 2013, the European Central Bank (ECB) received a request from the Luxembourg Ministry of 
Finance for an opinion on a draft law on coordination and governance of public finances1 (hereinafter the 

‘draft law’). 

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  provisions2,  as  the  draft  law  relates  to  the  Banque  centrale  du  Luxembourg  (BCL).  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 

1.1  The main purpose of the draft law is to improve Luxembourg’s legislation on public finances and 

budgetary framework in the light of the Treaty on Stability, Coordination and Governance in the 
Economic  and  Monetary  Union3  (hereinafter  the  ‘TSCG’),  Regulation  (EU)  No  473/2013  of  the 

European  Parliament  and  of  the  Council  of  21  May  2013  on  common  provisions  for  monitoring 

and assessing draft budgetary plans and ensuring the correction of excessive deficit in the Member 
States in the euro area4 and Council Directive 2011/85/EU of 8 November 2011 on requirements 
for budgetary frameworks of the Member States5. The draft law is scheduled to enter into force on 

1 January 2014. 

1.2  To this end, the draft law aims at reflecting the requirements laid down in Article 3(1) of the TSCG 

in respect of central and local government, as well as social security fund sub-sectors. These are, 

inter alia, that the budgetary position of the general government of a contracting party to the TSCG 

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5 

The full title of the draft law is ‘Law on the coordination and governance of public finances, amending the amended Law 
of 8 June 1999 on budget, accounting and treasury as well as the amended Law of 10 March 1969 setting up a general 
inspection of the public finances’. 
OJ L 189, 3.7.1998, p. 42. 
The TSCG was signed by 25 Member States on 2 March 2012. It entered into force on 1 January 2013, on the basis that 
12 euro area Member States had deposited their ratification instruments by that date. 
OJ L 140, 27.05.2013, p. 11. 
OJ L 306, 23.11.2011, p. 41. 

 
 
 
 
                                                            
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shall  be  balanced  or  in  surplus,  and  supported  by  a  medium-term  budgetary  objective  and  an 

adjustment  path,  as  well  as  a  correction  mechanism  to  be  automatically  triggered  in  case  of 

significant deviation from the medium-term objective or the adjustment path towards it. 

1.3  The  BCL,  without  prejudice  to  its  own  tasks,  will  be  entrusted  with  the  tasks  of  monitoring 

compliance at national level with the abovementioned requirements, assessing macroeconomic and 

budgetary forecasts established for the purpose of general government fiscal planning, as well as 

conducting all other assessments required under Article 5(2) of Regulation (EU) No 473/2013. 

1.4 

In order to make Luxembourg’s legislation on public finances compliant with the abovementioned 

requirements and to implement Directive 2011/85/EU, the draft law establishes that the medium-

term objective and adjustment path towards it be laid down in the multiannual financial planning 

law.  This  will  cover  the  same  period  as  the  subsequent  update  of  the  stability  and  growth 

programme.  In  addition,  the  amended  Law  of  8  June  1999  on  budget,  accounting  and  treasury 
(hereinafter ‘the Budget Law’)6 will be further amended, with the effect that a budgetary procedure 

would enter into force if Parliament does not approve the national budget by 1 January of the year 

to which the budget applies. 

2. 

General observations  

2.1 

In  accordance  with  Article  2(1)  of  Council  Decision  98/415/EC,  the  relevant  Member  State 

authorities  shall  consult  the  ECB  on  any  draft  legislative  provision  within  the  latter’s  field  of 

competence  pursuant  to  the  Treaty,  unless  the  exclusive  purpose  of  such  provisions  is  the 

transposition of Union legal acts into Member States’ national laws. The Luxembourg Ministry of 

Finance has  accordingly sought the ECB’s opinion on the draft law, which, in the context of the 

implementation  of  the  TSCG  and  of  certain  provisions  of  Directive  2011/85/EU  and  Regulation 

(EU)  No  473/2013,  entrusts  the  BCL  with  new  tasks  and  amends  the  Budget  Law.  The  ECB 

welcomes the opportunity to give its opinion on this draft law, which aims to improve the national 

budgetary framework in terms of consistency with the reinforced Union governance framework and 

the sustainability of public finances. 

2.2  Although Luxembourg is not subject to an excessive deficit procedure, enactment of the draft law 
is of the utmost importance in the light of the structural fiscal challenges it faces7 and of the urgent 

need to modernise its legal budgetary framework, which is still based on an annual budget exercise. 

3. 

Form of implementation of the balanced budget rule and correction mechanism 

3.1  Article  3(2)  of  the  TSCG  provides  that  the  ‘balanced  budget  rule’  takes  effect  in  national  law 

through  ‘provisions  of  binding  force  and  permanent  character,  preferably  constitutional,  or 

otherwise  guaranteed  to  be  fully  respected  and  adhered  to  throughout  the  national  budgetary 

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7 

Mémorial, 11.06.1999, A, No. 68, p. 1448. 
See the BCL opinions on the draft budgetary laws in respect of the years from 2008 to 2012 inclusive, available on the 
BCL’s website at www.bcl.lu. 

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processes’. In accordance with the  Communication from the Commission on Common principles 
on  national  fiscal  correction  mechanisms  (hereinafter  the  ‘Common  Principles’)8  adopted  in 

accordance  with  Article  3(2)  of  the  TSCG,  the  legal  status  of  the  correction  mechanism  to  be 
triggered in case of significant observed deviations9, ‘should be such that their provisions cannot be 

simply altered by budgetary law’. 

3.2  The  ECB  notes  that  the  draft  law  has  been  designed  as  an  ordinary  legal  act,  which  could  be 

deviated  from  by  any  other  ordinary  law  (including  any  budget  laws).  The  ECB  invites  the 

consulting authorities to reconsider the form of the national legal act implementing the TSCG since 

the  mere  enactment  of  the  draft  law,  while  constituting  a  timely  and  necessary  step  towards 

implementing the TSCG, does not guarantee the primacy of the rule laid down in Article 3(1) of the 

TSCG  in  Luxembourg’s  legal  system.  A  possible  way  forward  that  the  Luxembourg  authorities 

may  want  to  consider  is  to  reflect  the  principle  of  a  balanced  budget  in  the  Luxembourg 

Constitution. 

4. 

The nature of the correction mechanisms 

4.1  Article  3(1)(e)  of  the  TSCG  requires  the  automatic  triggering  of  a  correction  mechanism  in  the 

event  of  significant  observed  deviations  from  the  medium-term  objective  or  the  adjustment  path 

towards  it.  This  correction  mechanism  shall  include  the  obligation  to  implement  measures  to 

correct the deviations over a defined period of time. Common Principle 4 further provides that pre-

determined  rules  shall  frame  the  size  and  timeline  of  the  correction,  thereby  limiting,  though  not 

entirely  ruling  out,  the  scope  for  discretion  in  devising  the  response  to  a  significant  budgetary 

deviation. In addition, a Member State is expected to restore the medium-term objective as fast as 

is  reasonably  possible,  which  generally  means  either  in  the  year  immediately  following  the 

occurrence of the deviation or the subsequent year. 

4.2  While the draft law improves the medium-term budgetary framework in line with the requirements 

of the TSCG, the mechanism for correcting observed deviations lacks automaticity. Moreover, the 

draft  law  does  not  sufficiently  detail  the  specificities  of  the  correction  mechanism.  In  particular, 

Article 6 of the draft law specifies only that the government shall include measures to re-establish 

the  path  provided  for  in  the  multiannual  planning  law,  no  later  than  in  the  draft  budget  for  the 

coming year. In this context, it would be useful for the Luxembourg legislator to consider adopting 

a  more  stringent  deadline  for  taking  corrective  measures,  by  which  the  pace  of  implementation 

would be quickened and the automaticity of the mechanism would be strengthened. Furthermore, 

the  draft  law  fails  to  specify  the  nature  of  the  measures  to  be  taken  and  leaves  it  to  the 

government’s discretion, which is not in line with the abovementioned provisions of the TSCG and 

Common Principle 4. Effective coordination across the different sublevels of government might be 

considered to achieve this purpose. 

8 
9 

COM(2012) 342 final. 
See Article 3(1)(e) of the TSCG. 

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5. 

Assumption of new tasks by the BCL 

5.1  The draft law entrusts the BCL with new tasks: it designates the BCL as the independent institution 

monitoring  compliance  with  Article  3(1)  of  the  TSCG,  and  makes  it  responsible  for  assessing 

macroeconomic forecasts for the purpose of general government fiscal planning and for conducting 

all other assessments pursuant to Article 5(2) of Regulation (EU) No 473/2013. These new tasks 

are  not  provided  for  in  the  Law  of  23  December  1998  on  monetary  status  and  on  the  Banque 
centrale du Luxembourg10 (hereinafter the ‘BCL Law’). 

5.2  Without  prejudice  to  the  Governing  Council’s  powers  under  Article  14.4  of  the  Statute  of  the 

European System of Central Banks (hereinafter the ‘Statute of the ESCB’), national central banks 

(NCBs) may perform functions other than those specified in the Statute of the ESCB provided that 

such functions do not interfere with the objectives and tasks of the ESCB and do not infringe upon 
the independent execution by the NCB of its ESCB tasks11. 

5.3  The BCL role provided for in the draft law pursuant to Article 3.2 of the TSCG would imply, in 

accordance  with  Common  Principle  7,  that  the  BCL,  in  order  to  support  the  credibility  and 

transparency  of  the  correction  mechanism,  would  monitor  compliance  with  the  numerical  fiscal 

rules incorporated in the national budgetary processes, as well as with the medium-term budgetary 

objectives  included  in  the  multiannual  financial  planning  and  provide  public  assessments  with 

regard  to:  (a) the  occurrence  of  circumstances  warranting  the  activation  of  the  correction 

mechanism; (b) whether the correction is proceeding in accordance with national rules and plans; 

(c) the occurrence of circumstances for triggering, extending and exiting escape clauses. Similarly, 

the  BCL’s  role  provided  for  in  the  draft  law  pursuant  to  Article  5(2)  of  Regulation  (EU) 

No 473/2013 would imply that the BCL, in addition to monitoring compliance with the fiscal rules 

identified  in  this  Article,  must  provide  assessments,  inter  alia,  on  fiscal  matters  broadly  equal  to 
those contained in Common Principle 712. Furthermore, the draft law gives a general responsibility 

to the BCL to assess macroeconomic and budgetary forecasts established for the purpose of general 

government fiscal planning. 

5.4 

It  is  acknowledged  that  an  NCB  commonly  monitors  various  types  of  information  in  order  to 

properly  assess  current  and  prospective  developments  that  are  relevant  for  monetary  policy. 

Monitoring  fiscal  developments  is  a  task  that  an  NCB  carries  out  on  a  regular  basis  in  order  to 

properly assess the stance to be taken in monetary policy. Moreover, NCBs may present their views 

on relevant fiscal developments on the basis of their monitoring activity and the independence of 

10 
11 
12 

Mémorial, 24.12.1998, A, No 112, p. 2980. 
See paragraph 2 of Opinion CON/2013/56. 
According to Article 5(2), these assessments would cover ‘(a) the occurrence of circumstances leading to the activation of 
the correction mechanism for cases of significant observed deviation from the medium-term objective or the adjustment 
path towards it in accordance with Article 6(2) of Regulation (EC) No 1466/97; (b) whether the budgetary correction is 
proceeding in accordance with national rules and plans; (c) any occurrence or cessation of circumstances referred to in 
the tenth subparagraph of Article 5(1) of Regulation (EC) No 1466/97, which may allow a temporary deviation from the 
medium-term  budgetary  objective  or  the  adjustment  path  towards  it,  provided  that  such  a  deviation  does  not  endanger 
fiscal sustainability in the medium term’. 

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their  advice,  with  a  view  to  also  contributing  to  the  proper  functioning  of  European  Monetary 

Union.  In  this  respect,  the  monitoring  of  fiscal  developments  by  Eurosystem  central  banks  for 

monetary  policy  purposes  should  be  based  on  the  full  access  to  all  relevant  public  finance  data.  

Accordingly, the BCL should be granted unconditional, timely and automatic access to all relevant 

public  finance  statistics.  The  BCL’s  current  role  in  monitoring  fiscal  developments  should  be 

enhanced  through  obtaining  unconditional,  timely  and  automatic  access  to  all  relevant  public 

finance statistics. In any event, the BCL should retain any role it may already have regarding the 

production  and  quality  control  of  government  finance  statistics  in  accordance  with  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  Community13,  Guideline 

ECB/2013/23  on  government  finance  statistics,  and  the  memorandum  of  understanding  on  the 

cooperation  between  the  members  of  the  European  Statistical  System  (ESS)  and  the  members  of 
the ESCB, dated 24 April 201314. 

5.5  However,  as  indicated  by  the  ECB  in  a  recent  opinion,  an  NCB’s  role  should  not  go  beyond 

monitoring activities that result from or are linked – directly or indirectly – to the discharge of their 
monetary policy mandate15. The ECB is of the view that the monetary policy mandate as well as an 

NCB’s  independence  run  the  risk  of  being  undermined  if  the  NCB  takes  up  the  monitoring 

activities  set  out  in  Article  5  of  Regulation  (EU)  No  473/2013  and  Article  4  of  Directive 

2011/85/EU.  This  would  likely  pose  risks  to  the  discharge  of  its  monetary  policy  mandate,  inter 

alia,  for  the  following  reasons.  First,  as  regards  involvement  in  macro-economic  forecasting  in 

accordance with Directive 2011/85/EU, an NCB could become subject to guidelines or scrutiny by 
national or European authorities under Article 4(5) of Directive 2011/85/EU16. As a result, an NCB 

might  be  required  to  disclose  its  view  of  the  economic  outlook  according  to  principles  and/or  a 

schedule different from that for publishing the economic projection it deems relevant for monetary 

policy purposes. This would represent an impairment of the independence of the NCB. Second, as 
regards the provision of assessments of fiscal policy17, the formal mandate to scrutinise government 

policies  in  the  form  of  public  opinions  would  put  the  NCB  in  a  position  that  could  regularly 

conflict  with  fiscal  policy-making.  The  economic  assessment  of  fiscal  and  macroeconomic 

developments is never entirely mechanical and always contains an element of judgement. It is thus 

easily subject to political controversy. This, in turn, could affect the working relations between the 

NCB and the government, affect the public perception of the NCB as well as possibly undermine 

13 
14 

15 
16 

17 

OJ L 145, 10.06.2009, p. 1. 
Available on www.ecb.europa.eu. The Memorandum of Understanding facilitates close cooperation between the ESS and 
the  ESCB  in  areas  of  shared  responsibility  or  common  interest,  thereby  increasing  the  potential  synergies  in  the 
production inter alia of government finance statistics. 
See paragraph 4.3 of Opinion CON/2012/105. 
See  also  the  Specifications  on  the  implementation  of  the  ‘two-pack’  and  Guidelines  on  the  format,  content  of  draft 
budgetary  plans,  economic  partnership  programmes  and  debt  issuance  reports  of  1  July  2013  (hereinafter  the 
‘Specifications’). Available on the European Commission website at www.ec.europa.eu. 
Particularly  those  provisions  relating,  inter  alia,  to  circumstances  arising  that  lead  to  the  activation  of  the  correction 
mechanism,  the  budgetary  correction  and  medium-term  objectives  or  adjustment  path  deviations.  It  also  includes 
considerations  provided  for  in  the  escape  clause  according  to  which  the  deviation  from  the  balanced  budget  rule  may 
surpass the anticipated limit in the case of extraordinary circumstances. 

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its  independence.  More  generally,  a  formal  mandate  for  an  NCB  to  assess  forecasts  and  fiscal 

developments  implies  a  function  for  the  NCB  in  the  fiscal  policymaking  process.  As  an  NCB  is 

thus  entrusted  with  a  share  of  the  responsibility  for  fiscal  policy,  the  institutional  separation 

between fiscal and monetary policy becomes blurred.  

5.6  The  ECB  therefore  recommends  that  the  consulting  authority  reconsiders  the  assignment  by  the 

draft  law  of  the  new  tasks  to  the  BCL.  In  this  context,  the  ECB reiterates  that  the  Specifications 

recommend the preparation of an all-encompassing code of practice, gathering all the relevant legal 

provisions  and  procedural  elements  that  are  part  of  the  framework  for  the  production  and/or 
endorsement  of  independent  macro-economic  forecasts18,  including  the  timely  provision  of 

forecasts  to  support  the  relevant  stages  of  the  national  budgetary  process.  In  addition,  the  ECB 

notes  that  the  institution(s)  responsible  for  preparing,  producing,  monitoring  and  analysing  the 

macroeconomic forecasts are to be designated by means of a grand-ducal regulation only after the 
draft law comes into force19. The draft law and the grand-ducal regulation would therefore need to 

separate  the  responsibilities  between  the  government,  which  is  exclusively  competent  for 

compliance with the TSCG and Regulation (EU) No 473/2013, and the central bank, which should 

not go beyond what is necessary for monetary policy purposes as regards fiscal policy monitoring.   

6. 

Financial independence of the BCL and prohibition of monetary financing 

6.1  Without prejudice  to  the observations on  the  new  tasks  entrusted  to  the  BCL  by  the draft  law  as 

concerns the BCL’s discharge of its existing monetary policy tasks, the ECB reiterates that, from 

an operational and financial point of view, any new task allocated to an NCB should not affect that 

NCB’s ability to carry out its ESCB-related tasks. Financial independence, which is an element of 

the principle of 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 or Eurosystem-related tasks but also 

its national tasks, e.g. financing its own administration and 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 resources20. 

6.2  Further, it is important to safeguard compliance with the monetary financing prohibition pursuant 

to Article 123 of the Treaty. The prohibition is essentially designed to prevent central banks from 

providing  overdraft  facilities  or  any  other  type  of  credit  facility  to  the  public  sector.  National 

legislation  should  not  require  an  NCB  to  finance  the  performance  of  tasks  incumbent  on  the 

government, without stipulating that the government will compensate the NCB for the discharge of 

such  tasks.  The  ECB  notes  that  the  draft  law  does  not  provide  for  such  compensation  and  this 

18 

19 
20 

See the Specifications, p. 41: ‘The national procedures should provide an important element, fostering accountability and 
transparency and defining the different tasks allocated to every actor in the forecasting exercise and the milestones to be 
met  within  the  annual  budgetary  cycle.  They  should  also  set  out  practical  steps  leading  to  the  production  and/or 
endorsement of the forecast and principles of cooperation between the relevant institutional stakeholders’. 
See Article 8 of the draft law. 
See the ECB’s Convergence Report 2012, p. 26. 

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aspect  would  need  to  be  addressed  if  the  national  legislature  decides  to  keep  the  draft  law  as 

currently drafted on this particular point.  

7. 

The requirements of independence under Common Principle 7 

7.1  Pursuant  to  Article  3(2)  of  the  TSCG,  which  refers  to  the  independence  of  the  institutions 

responsible at national level for monitoring compliance with the rules set out in Article 3(1) of the 

TSCG,  and  under  Common  Principle  7,  ‘national  legal  provisions  ensuring  a  high  degree  of 

functional  autonomy  shall  underpin  [the  monitoring  institutions],  including:  i)  a  statutory  regime 

grounded  in  law;  ii)  freedom  from  interference,  whereby  the  above  bodies  shall  not  take 

instructions, and shall be in a capacity to communicate publicly in a timely manner; iii) nomination 

procedures based on experience and competence; iv) adequacy of resources and appropriate access 

to information to carry out the given mandate’. 

7.2  Central  banks  and  their  decision-making  bodies  are  independent  in  exercising  tasks  and  duties 
under  the  Treaty  and  the  Statute  of  the  ESCB,  such  as  ESCB-related  tasks21.  The  principle  of 

central bank independence is, however, not automatically protected if a central bank is performing 

functions other than those laid down in the Treaty and the Statute of the ESCB. National law must 

provide for the independence of a central bank when the latter carries out non-ESCB-related tasks, 

if these tasks are required to be carried out by an independent institution. 

Therefore, for functions laid down in the TSCG, a national legislator has to ensure compliance with 

Common Principle 7 and extend the statutory regime of independence to the relevant specific tasks 

if such tasks are allocated to an NCB. 

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

Done at Frankfurt am Main, 18 December 2013. 

[signed] 

The President of the ECB 

Mario DRAGHI 

21 

See Article 130 of the Treaty and Article 7 of the Statute of the ESCB. 

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