Opinion of the European Central Bank of 30 April 2014 on public finances (CON/2014/30)
Date: 2014-04-30
Institutions: European Central Bank
Subjects: Lithuania, budget policy, budgetary stabiliser, national law, public expenditure, public finance

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 30 April 2014  

on public finances 

(CON/2014/30) 

Introduction and legal basis 

On 27 March 2014, the European Central Bank (ECB) received a request from the Lithuanian Ministry of 

Finance  for  an  opinion  on  the  draft  constitutional  law  on  the  implementation  of  the  fiscal  treaty 

(hereinafter the ‘draft constitutional 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/EC1, 

as  the  draft  constitutional  law  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 constitutional law 

1.1  The purpose of the draft constitutional law is to ensure the sustainability of the general government 

sector  finances  and  a  stable  development  of  the  economy.  The  draft  constitutional  law  aims  to 

implement  the  Treaty  on Stability,  Coordination and  Governance  in  the  Economic  and  Monetary 
Union  (TSCG)2,  and  takes  into  account  the  earlier  ECB  opinion  on  the  implementation  of  the 
TSCG in Lithuania3. 

1.2  The objectives of the TSCG are to be achieved by managing the structural balance of the general 

government sector in order to ensure that the general government sector finances are in surplus or 

balanced. 

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

of  the  general  government  sector:  (i)  the  medium-term  objective  and  (ii)  the  structural  impetus 

target.  The  medium-term  objective  sets  a  structural  general  government  sector  balance  indicator. 

This must be reached within four successive years, excluding years when an unusual event occurs. 

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2  

3  

Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (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. 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.  
Opinion CON/2012/105. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

 
 
 
 
                                                 
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The  structural  impetus  target  sets  a  targeted  annual  change  (impetus)  in  the  structural  general 

government sector balance indicator towards the medium-term objective, and is measured in GDP 

percentage.  

1.4  The draft constitutional law also lays down rules limiting the increase in the general government 
sector  expenditure4.  More  particularly,  if  the  average  of  the  general  government  sector’s  balance 

indicators  during  the  last  five  years  is  in  deficit,  the  average  increase  in  expenditure  of  any 

individual  general  government  sector  budget  that exceeds  3 %  of  GDP  cannot  exceed  half  of  the 

average multi-annual potential GDP growth.  

1.5  The  draft  constitutional  law  provides  for  several  exemptions.  First,  the  rules  governing  the 

structural balance of the general government sector do not apply in the case of an unusual event as 
defined in Council Regulation (EC) No 1466/975. Second, the draft constitutional law provides for 
five exceptions to the rules on the limits on growth in public expenditure6. Third, the State Social 

Insurance Fund budget and the budgets of government sectors whose planned expenditure does not 
exceed 0.3 % of GDP are not subject to the requirement to have a surplus or balanced budget7. The 

rules  and  requirements  applying  to  them  are  instead  set  out  in  Article  4(2)  and  (3)  of  the  draft 

constitutional law.  

1.6   Article 8 of the draft constitutional law lays down the procedures to be followed in the event of a 

failure  to  implement  the  ‘structural  impetus  target’  defined  in  Article  2.  These  procedures  shall 

start after the submission, no later than 1 May, of the report of the Government or its authorised 

institution to the Parliament for the preceding year on the implementation of the structural impetus 

target and on the indicator of the structural  balance of the general government sector. The Prime 

Minister  is  required  to  provide  to  the  Parliament  and  the  control  institution  information  on  the 

reasons for such failure and ‘guidelines on the measures for implementation’ of the target, and to 

make an oral presentation in the Parliament. Moreover, within 30 working days of receipt of this 

information, the control institution is required to provide the Parliament with a conclusion on the 

validity of the reasons for failure to implement the target and the appropriateness of the guidelines 

on the measures to be taken. Finally, within one month after receipt of the conclusion of the control 

institution,  the  Prime  Minister  is  required  to  provide  the  Parliament  with  the  information  on  the 

final reasons for failure and guidelines on the measures to be taken to meet the target. 

1.7  The  State  Audit  Office  is  designated  as  a  budget  policy  control  institution  (hereinafter  ‘control 

institution’) responsible for monitoring the implementation of the structural impetus target and the 
achievement of the medium-term objective8. 

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5  

6  
7  
8  

Article 3 of the draft constitutional law. 
Article 3(1) and Article 7 of the draft constitutional law and 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  policies 
(OJ L 209, 2.8.1997, p. 1). 
Article 3(3) of the draft constitutional law. 
Article 4(1) of the draft constitutional law. 
Article 2(1) and Article 9 of the draft constitutional law. 

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1.8  Lietuvos bankas is required to submit its macroeconomic projections to the control institution each 

time these projections are updated, and at least twice per calendar year9.  

2. 

General observations 

2.1  The  ECB  welcomes  the  consulting  authority’s  initiative  and  the  objective  of  implementing  the 
TSCG10. Although Lithuania is no longer subject to an excessive deficit procedure, enactment of 

the draft constitutional law is important in modernising the Lithuanian legal framework in relation 
to the budgetary process11.  

2.2  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  TSCG12  at  an  earlier 

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

takes  effect.  Lithuania  has  not  made  such  a  declaration  and  the  ECB  notes  that  the  draft 

constitutional law 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 Lithuania13. 

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’ shall take 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  adopted  in  accordance  with  Article  3(2)  of  the  TSCG 
(hereinafter  the  ‘Common  Principles’)14,  the  legal  status  of  the  correction  mechanisms  to  be 

triggered in case of significant observed deviations ‘should be such that their provisions cannot be 

simply altered by the ordinary budgetary law’. 

3.2  The ECB welcomes that the draft law has been designed as a constitutional law, which represents a 

ranking in the Lithuanian hierarchy of laws in line with the requirements of the TSCG15. 

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 

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10  
11  
12  
13  
14 
15  

Article 9(3) of the draft constitutional law. 
See paragraph 2.1 of Opinion CON/2012/105. 
See paragraph 2.2 of Opinion CON/2013/91. 
Titles III (Fiscal Compact) and IV (Economic Policy Coordination and Convergence). 
See paragraph 2.3 of Opinion CON/2012/105. 
COM (2012) 342 final. 
See paragraph 3.2 of Opinion CON/2013/91. 

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

deviations  over  a  defined  period  of  time.  Common  Principle  4  further  provides  that  the  size  and 

timeline  of  the  correction  shall  be  framed  by  predetermined  rules,  thereby  limiting,  though  not 

entirely  ruling  out,  the  scope  for  discretion  in  devising  a  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 draft constitutional law16 specifies procedural steps in three layers of reporting, as described in 

paragraph 1.6 above. However, it does not stipulate the automatic triggering of the measures to be 

taken, but leaves it to the Government’s and the Parliament’s discretion. This is not in line with the 
above-mentioned  provisions  of  the  TSCG  and  Common  Principle  417.  In  particular,  a  correction 

mechanism  that  implements  consolidation  measures  automatically,  e.g.  unless  the  Parliament 

vetoed them with a qualified majority, would provide a better guarantee of future fiscal stability. 

4.3   Article  3(1)(c)  of  the  TSCG  provides  that  in  exceptional  circumstances  there  may  be  temporary 

deviations from the medium-term objective or the adjustment path towards it. This would include 

an unusual event outside the control of the concerned Member State that has a major impact on the 

government’s financial position, or periods of severe economic downturn as defined in the Stability 

and  Growth  Pact,  including  at  euro  area  level.  Common  Principle  6  makes  it  clear  that  any 

suspension of the correction mechanism due to the use of an escape clause may only be temporary. 

Once the escape clause no longer applies, the correction mechanism may provide for a minimum of 

structural adjustment, with the requirement of the Stability and Growth Pact being the lower limit. 

In  addition,  once  the  escape  clause  no  longer  applies,  the  Member  State  shall  adopt  a  corrective 

plan in respect of the budget that must be adhered to during the correction period.  

4.4  The escape clauses provided for in the draft constitutional law, as described in paragraph 1.5 above, 

go  beyond  the  temporary  deviations  permitted  by  the  TSCG  ‘in  exceptional  circumstances’.  In 

finalising the draft constitutional law, it should be ensured that escape clauses adhere to the concept 

of ‘exceptional circumstances’ laid down in Article 3(3)(b) of the TSCG and to the requirements of 

Common Principle 6. 

5.  Medium-term objective 

The ECB notes that Article 3(1)(b) of the TSCG requires Lithuania to ensure rapid convergence towards 

its  medium-term  objective.  The  timeframe  for  such  convergence  will  be  proposed  by  the  Commission 

taking into consideration sustainability risks specific to Lithuania.  

16  
17  

Article 8 of the draft constitutional law. 
See paragraph 4.2 of Opinion CON/2013/90 and paragraph 3.3 of Opinion CON/2012/105. 

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6. 

Control institution 

6.1  The State Audit Office is designated as a control institution responsible for monitoring compliance 

with the rules laid down in the draft constitutional law. In this regard, the ECB notes that a control 
institution has to comply with criteria laid down in the Common Principles18. 

6.2  The  ECB  understands  that  fulfilment  of  the  criteria  under  the  Common  Principles  will  be 

facilitated, inter alia, by recruiting independent experts both from Lithuania and abroad as provided 
for in the draft constitutional law19. It should be ensured that the State Audit Office complies with 

all criteria laid down under the Common Principles, in order for it to effectively carry out the tasks 

of a control institution. 

7. 

Lietuvos bankas’ role  

7.1  As indicated by the ECB in recent opinions, the role of a national central bank (NCB) should not 

go  beyond  monitoring  activities  that  result  from  or  are  linked  –  directly  or  indirectly  –  to  the 
discharge  of  their  monetary  policy  mandate20.  Ensuring  compliance  with  the  obligations  under 
Article 3(1) of the TSCG is the responsibility of the Lithuanian government21. 

7.2  Lietuvos bankas is already producing macroeconomic projections as provided for in Article 9(3) of 
the  draft  constitutional  law.  These  are  made  publicly  available22.  The  ECB  understands  that  the 

draft constitutional law provides that Lietuvos bankas will merely forward its existing projections 

produced  for  monetary  policy  purposes  to  the  control  institution.  Consequently,  the  draft 

constitutional  law  raises  no  concerns  relating  to  compliance  with  the  prohibition  on  monetary 

financing, to the principle of central bank independence or to interference with monetary policy. 

7.3 

In any event, even outside the scope of the draft constitutional law, Lietuvos bankas should retain 
its existing role regarding the production and quality control of government finance statistics23 in  

18  

19  
20 

21  
22  
23  

Principle 7 (the role and independence of monitoring institutions). These criteria include; (i) a statutory regime grounded 
in law; (ii) freedom from interference, whereby such institutions should not take  instructions, and should 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. 
Article 9(4) of the draft constitutional law. 
See  paragraph  4.3  of  Opinion  CON/2012/105,  paragraph  5.5  of  Opinion  CON/2013/90  and  paragraph  5.5  of  Opinion 
CON/2013/91. 
See paragraph 4.3 of Opinion CON/2012/105. 
Available on Lietuvos bankas’ website at http://www.lb.lt/macroeconomic_forecast 
See paragraph 5.4 of Opinion CON/2013/90. 

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accordance  with  Council  Regulation  (EC)  No  479/200924,  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 201325.  

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

Done at Frankfurt am Main, 30 April 2014. 

[signed] 

The President of the ECB 

Mario DRAGHI 

24 

25 

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 Community (OJ L 145, 10.06.2009, p. 1). 
Available on www.ecb.europa.eu  

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