Opinion of the European Central Bank of 18 December 2013 on public finances (CON/2013/91)
Date: 2013-12-18
Institutions: European Central Bank
Subjects: Estonia, budgetary equilibrium, central bank, economic forecasting, national budget, national law

EN  

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 18 December 2013 

on public finances 

(CON/2013/91) 

Introduction and legal basis 

On 25 October 2013, the European Central Bank (ECB) received a request from the Estonian Ministry of 
Finance  for  an  opinion  on  a  draft  law  on  the  state  budget1  (hereinafter  the  ‘draft  law’).  The  draft  law 

incorporates an amendment to the Law on Eesti Pank. 

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  Eesti  Pank.  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 adopt the principles on sustainability of public finance as 

legislative provisions. The draft law transposes Council Directive 2011/85/EU of 8 November 2011 
on  requirements  for  budgetary  frameworks  of  the  Member  States3  and  follows  the  legislative 

obligations arising from the Treaty on Stability, Coordination and Governance in the Economic and 
Monetary  Union4  (hereinafter  the  ‘TSCG’)  and  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  area5.  The  draft  law  also  aims  at  consistency  with  Council  Regulation  (EC)  No  1466/97  of 

7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and 
coordination  of  economic  policies6  and  Council  Regulation  (EC)  No  1467/97  of  7  July  1997  on 

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3 
4 

5 
6 

State Budget Law of 1999, State Gazette 1999 I, 55, 584, is being recast. 
OJ L 189, 3.7.1998, p. 42. 
OJ L 306, 23.11.2011, p. 41. 
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. Estonia’s ratification law entered 
into force on 18 November 2012. 
OJ L 140, 27.5.2013, p. 11. 
OJ L 209, 2.8.1997, p. 1. 

 
 
 
 
                                                            
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speeding  up and  clarifying  the  implementation  of  the  excessive  deficit  procedure7,  as  well  as  the 

European  system  of  national  and  regional  accounts  in  the  European  Union.  The  draft  law  is 

scheduled to enter into force on 1 January 2014. 

Article 4(5) of Directive 2011/85/EU obliges Member States to specify institutions responsible for 

producing  macroeconomic  and  budgetary  forecasts  and  Article  4(6)  requires  the  macroeconomic 

and  budgetary  forecasts  for  fiscal  planning  to  be  subject  to  regular,  unbiased  and  comprehensive 

evaluation. The draft law allocates the  obligation  to produce forecasts to the Ministry of Finance 

and the evaluation of macroeconomic and budgetary forecasts to Eesti Pank, which must give its 

evaluation in the form of a non-binding opinion. It must also give its opinion on the objectives of 

the budget strategy and the actual achievement of those objectives. The balanced budget had been 

the main guiding principle established in Estonia’s state budget strategy. In line with the TSCG, it 
will  now  be  established  by  a  constitutional  law8.  The  draft  law  also  includes  an  automatic 

correction  mechanism  as  required  under  Article  3(1)(e)  of  the  TSCG.  With  regard  to  Directive 

2011/85/EU,  the  draft  law  provides  for  the  minimum  requirements  for  the  budgetary  framework. 

Fiscal  aspects  of  the  draft  law  cover  the  principles  for  drawing  up  a  budget  and  strategic 

governance; it also sets the cost margins for the next four years and regulates the means by which 

the state may take credit risks. 

1.2  The  draft  law  also  clarifies  that  the  Special  Drawing  Rights  (SDRs)  allocated  to  the  Republic  of 

Estonia by the International Monetary Fund (IMF) belong to Eesti Pank9. 

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.  In  the  context  of  the 

implementation  of  the  TSCG  and  the  transposition  of  Directive  2011/85/EU,  Eesti  Pank  will  be 

given  a  task  in  relation  to  the  macroeconomic  and  fiscal  forecasts.  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  Estonia  is  not  subject  to  an  excessive  deficit  procedure,  enactment  of  the  draft  law  is 

important in modernising the Estonian legal framework in relation to the budgetary process. 

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8 

9  

OJ L 209, 2.8.1997, p. 6. 
Under Article 104 of the Estonian Constitution, there are a number of laws, which include the National Budget Act and 
the Bank of Estonia Act, that may only be passed and amended by a majority of the members of the Riigikogu. These 
laws are commonly referred to as constitutional laws. 
See also Opinion CON/2011/97. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

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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 

processes’. In accordance with the  Communication from the Commission on Common principles 
on  national  fiscal  correction  mechanisms  (hereinafter  the  ‘Common  Principles’)10  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 deviations11 ‘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 a constitutional legal act, which represents a 

ranking in the Estonian hierarchy of laws in line with the requirements of the TSCG. 

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  The  ECB  welcomes  that  the  draft  law  provides  for  an  automatic  correction  mechanism  to  be 

triggered if there is a deviation from the balanced budgetary position requirement. It requires the 

Minister for Finance to send a report to the government, including the proposal for the correction. 

In the event of a minor deviation, this correction mechanism will be triggered at the government’s 

discretion.  However,  if  there  is  a  deviation  of  more  than  0.5%  of  the  GDP,  the  correction 

mechanism is mandatory.  

4.3  The  draft  law  also  sets  out  an  escape  clause  where  the  correction  mechanism  is  not  necessarily 

triggered if there are extraordinary circumstances, as provided for in the Stability and Growth Pact. 

Common  Principle  6  defines  'exceptional  circumstances'  in  line  with  the  same  definition  in  the 

Stability  and  Growth  Pact.  However,  it  makes  clear  that  any  suspension  of  the  correction 

mechanism due to use of an escape clause shall only be temporary and once the escape clause no 

longer  applies,  the  correction  mechanism  shall  provide  for  a  minimum  of  structural  adjustments, 

with the Stability and Growth Pact‘s requirement being the lower limit. In addition, once the escape 

10 
11 

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

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clause no longer applies, Member States shall adopt a corrective plan over the budgets that must be 

adhered  to  during  the  correction  period.  In  finalising  the  draft  law,  the  requirements  in  Common 

Principle 6 need to be given more attention. 

5. 

Assumption of additional tasks by Eesti Pank 

5.1  The draft law entrusts Eesti Pank with the task of giving its opinion regarding the macroeconomic 

and  budgetary  forecasts.  A  corresponding  article  will  be  introduced  in  the  Law  on  Eesti  Pank, 

which states in more detail that Eesti Pank must give its opinion on national macroeconomic and 

budgetary forecasts within two weeks of their publication. Eesti Pank must also give its opinion on 

how the government aims to achieve its objectives, as reflected in the budget strategy and stability 

programme, taking into account the balanced budget rule established in the draft law. Eesti Pank 

must also give its opinion on how the government has achieved its structural budgetary objective 

after the national annual report has been finalised. The opinion published by Eesti Pank will not be 

legally binding; however, the government must justify any deviations from the opinion. 

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

European System of Central Banks and of the European Central Bank (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 tasks12. 

5.3  Eesti Pank’s role provided for in the draft law pursuant to Article 3.2 of the TSCG would imply, in 

accordance  with  Common  Principle  7,  that  Eesti  Pank,  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, 

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

No 473/2013  would  imply  that  Eesti  Pank,  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  713.  Furthermore,  the  draft  law  gives  a  general 

12 
13 

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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responsibility  to  Eesti  Pank  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 

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.  

Eesti Pank 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  Community14,  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 201315. 

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 mandate16. 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/EU17. 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 policy18, the formal mandate to scrutinise government 

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

14 
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17 

18 

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’s website at www.ec.europa.eu. 
Particularly those provisions relating to, inter alia, circumstances taking place 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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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 

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 notes that since the obligation to produce forecasts would be assigned to the Ministry of 

Finance under the draft law, it is unlikely that Eesti Pank would become subject to guidelines or 

scrutiny by national or European authorities under Article 4(5) of Directive 2011/85/EU. As far as 

other  activities  under  Article  5  of  Regulation  (EU)  No  473/2013  and  Article  4  of  Directive 

2011/85/EU are concerned, the ECB considers that these tasks  complicate the fulfilment of Eesti 

Pank’s primary mandate on the grounds referred to in the previous paragraph. 

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

draft law of the new tasks to Eesti Pank. 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  forecasts19,  including  the  timely  provision  of 

forecasts to support the relevant stages of the national budgetary process. The draft law would 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 NCB, which should not go 

beyond what is necessary for monetary policy purposes as regards fiscal policy monitoring.  

6. 

Financial independence of Eesti Pank and prohibition of monetary financing 

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

concerns Eesti Pank’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 

19 

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’. 

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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 

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

currently drafted on this particular point. 

7. 

Ownership of SDRs 

SDRs are international reserve assets created by the IMF to supplement the existing reserve assets, which 

represent  a  right  to  purchase  freely  usable  currency  in  exchange  for  SDRs.  National  laws  and 

arrangements  concerning  IMF  transactions  need  to  comply  with  Union  law,  in  particular  with  the 
monetary financing prohibition21. Pursuant to Article 7 of Regulation (EC) No 3603/93, the financing by 

NCBs  of  obligations  falling  upon  the  public  sector  with  regard  to  the  IMF  is  not  regarded  as  a  credit 

facility  within  the  meaning  of  Article  123  of  the  Treaty.  If  the  payment  of  a  Member’s  quota  is  made 

from  central  bank  resources  pursuant  to  Article  7  of  Regulation  (EC)  No 3603/93,  the  related  SDRs 

become part of the foreign reserves held and managed by the central bank, and are therefore shown on the 

central bank’s balance sheet. Usually central banks record SDR allocation as a long-term liability.  

8. 

References to the European system of national and regional accounts in the European Union 

The references in the draft law to Council Regulation (EC) No 2223/9622 should be replaced with  

references to Regulation (EU) No 549/2013 of the European Parliament and of the Council23. 

20 
21 

22 

23 

See the ECB’s Convergence Report 2012, p. 26. 
The  monetary  financing  prohibition  is  laid  down  in  Article  123(1)  of  the  Treaty  and  replicated  in  Article  21.1  of  the 
Statute of the ESCB, which prohibits overdrafts or any other type of credit facility with the ECB or the NCBs in favour of 
Union  institutions,  bodies,  offices  or  agencies,  central  governments,  regional,  local  or  other  public  authorities,  other 
bodies governed by public law, or public undertakings of Member States, and the purchase of debt instruments directly 
from  these  public  sector  entities  by  the  ECB  or  NCBs.  The  precise  scope  of  application  of  the  monetary  financing 
prohibition is further clarified by 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 Treaty, (OJ L 332, 31.12.1993, p. 1). 
Council Regulation (EC) No 2223/96 on the European system of national and regional accounts in the Community (OJ L 
310, 30.11.1996, p 1). 
Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of 
national and regional accounts in the European Union (OJ L 174, 26.6.2013, p. 1). 

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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 

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