Frameworks for Monetary Stability

10 The Maastricht Treaty, Independence of the Central Bank, and Implementing Legislation

Carlo Cottarelli, and Tomás Baliño
Published Date:
December 1994
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The Maastricht Treaty and its Protocol on the Statute of the European System of Central Banks and of the European Central Bank have as one of their objectives the establishment of the European System of Central Banks (ESCB). The latter will comprise the European Central Bank (ECB) and the constituent national central banks of the European Union. It is a central principle of the system that the national central banks must be so constituted as to be independent of the political authorities and other influences that would compromise their main objective of maintaining price stability. As a corollary of this principle, it must be clear that neither a national central bank nor any member of its decision-making bodies must seek or take directions from its government or from any other body. Overdraft and other credit facilities in favor of governments and public authorities by the national central banks must be prohibited, as well as the purchase directly from them by these banks of debt instruments.

Four basic tasks are to be entrusted to the ESCB (comprising the ECB and the national central banks): (1) defining and implementing monetary policy; (2) conducting foreign exchange operations; (3) holding and managing the official foreign reserves; and (4) promoting the operation of payment systems. The national central banks are to have independent external auditors and uniform financial years (which will coincide with the calendar year). Finally, safeguards are to govern the independence of the central bank governors in regard to their term of office, their liability to dismissal, and their obligation to maintain professional secrecy.

The independence of the national central banks is one of the primary achievements of a more general political and economic process that has converged over the last forty years. To understand and appreciate this process, one must place the achievement in its historical perspective. Accordingly, this paper first examines this perspective and then proceeds to consider the requirements of the Maastricht Treaty and its Protocol.

History of Economic and Monetary Union

Early Steps Toward Economic and Monetary Union

Following the end of World War II, Western European countries considered steps that might lead toward economic and monetary union. The history of these steps sometimes appears disjointed and fragmentary, often buffeted by events, but in the end there may be discerned a trend which appears to have become almost irresistible. When completed, the history will be a monument to the thought and effort of many individuals in many countries.

One of the earliest initiatives that led to tangible success arose from a proposal of Robert Schuman, the French Foreign Minister. He proposed the creation of the European Coal and Steel Community (ECSC), the treaty of which was signed in 1951. This treaty sought a measure of economic union by providing for a common market in coal and steel. It was, in fact, preceded by the signing one year earlier of an agreement to establish a European Payments Union. The latter sought to provide a basis for multilateral trade and payments and eventual convertibility.1 The roads leading toward economic and monetary union were begun.

The European Payments Union (EPU) was, in effect, a clearing arrangement according to which creditors and debtors in the various countries participating in the arrangement could settle their claims with one another without the use of foreign exchange reserves. A debtor to a foreign creditor was able to pay in his local currency the equivalent of his foreign debt into an account with his national central bank. At the same time, this process would be repeated in the country in which that foreign debt was owed: i.e., a local debtor paying an amount of local currency that was the equivalent of his foreign debt into an account with his own national central bank. The upshot was that the national central banks would then satisfy the debts owed to their respective local creditors, who tendered to them their claims denominated in foreign currencies while receiving in satisfaction the equivalent in local currencies. The two central banks maintained accounts on their books in each other’s favor. In the EPU, any foreign currency that one member country earned in transactions with another member country could be utilized for payments to any other member country. Each central bank had an account with the EPU and debts had to be settled. The United States contributed, through the Marshall Plan, capital funds to facilitate the settlement of member country debts to the EPU in gold and dollars. The Bank for International Settlements operated the EPU as agent for the Organization for European Economic Cooperation (OEEC). By the close of 1958, member currencies had become transferable between each other.2

While the EPU was thus addressing the monetary relations of its members, plans were afoot to establish an economic community. Following proposals of the foreign ministers of the European Coal and Steel Community, meeting under the chairmanship of Belgian Foreign Minister Paul-Henri Spaak, plans were drawn for two projects: (1) a common market and (2) the common development of atomic energy. In 1957, these plans came to fruition in the signing of two treaties establishing, respectively, the European Economic Community (EEC) and the European Atomic Energy Community (Euratom). The EEC Treaty (Treaty of Rome) provided for the creation of a common market (European Economic Community) for those sectors not governed by the European Coal and Steel Treaty and the European Atomic Energy Treaty. It sought to remove all customs duties, quotas, and other trade barriers within the Community and to impose a common external tariff on imports. The objective was the free movement of goods, persons, services, and capital within a community common market.

After the entry into force of the EEC Treaty in 1958, the member states of the Community established a Monetary Committee and, in 1962, a Committee of Central Bank Governors.

The Werner Report, 1970

In 1969, German Chancellor Willy Brandt proposed the creation of a European monetary union. In response, the governments of the member states of the Community appointed a committee under the chairmanship of Pierre Werner, then Luxembourg’s Prime Minister and Finance Minister, to consider the proposal. The report of the committee (Werner Report, 1970)3 was approved by the European Council in 1971. It put forward a plan for economic and monetary union to be accomplished in stages that would be completed by 1980.

The Werner Report began by noting that significant landmarks had been achieved, namely, the completion of the customs union, and the definition of a common agricultural policy.4 It sought further progress. To this end, it proposed a three stage process of conversion to economic and monetary union.5

The first stage, the focus of the report,6 was to occur from 1971 to 1974.7 During this stage, there would be increasing coordination and harmonization of budget and fiscal policies,8 and final obstacles to capital movements would be abolished.9 Also, “broad lines of economic policy at the Community level and quantitative guidelines for the principal elements of the whole of the public budgets” would be drawn up.10 Moreover, the central banks were “to restrict on an experimental basis the fluctuations or rates between Community currencies within narrower bands than those resulting from the application of margins in force in relation to the dollar.”11

The second stage was to continue the process with:

the laying down of global economic guidelines, the coordination of short-term economic policies by monetary and credit measures, and budget and fiscal measures, the adoption of Community policies in the matter of structures, the integration of financial markets and the progressive elimination of exchange rate fluctuations between Community currencies.12

In the third stage, the report proposed the creation of a Community system for the central banks, patterned after the U.S. Federal Reserve System.13 As a forerunner to this system, the establishment of a European Fund for monetary cooperation was proposed.14

While the main proposals of the Werner Report were not realized within the time frame envisaged by that report, important precedents were established. First, its method of achieving monetary and economic union through a process of three stages would find echoes in a subsequent report (the Delors Report)15 and ultimate reflection in the Maastricht Treaty. Secondly, it proposed a narrow margins exchange rate arrangement (which became known as the “snake”) between the currencies of the Community members. This arrangement was given effect when certain of the members agreed in 1972 to limit swings in their bilateral exchange rates to a 2.25 percent band of fluctuation. In accordance with the arrangement, the rate for each currency was expressed in terms of each of the other participating currencies, while liabilities between the members that arose out of their interventions on the markets to defend their currencies were denominated in a European Unit of Account (originally defined in gold) and settled in traditional reserve assets (principally the U.S. dollar).16 Thirdly, the European Council did establish the European Monetary Cooperation Fund (EMCF) that the report had recommended. This Fund was to be responsible for “the concerted action necessary for the proper functioning of the Community exchange system” and “the multilateralization of positions resulting from intervention by Central Banks in Community currencies and the multilateralization of intra-Community settlements.”17

The breakdown of the par value system of exchange rates that governed member nations of the International Monetary Fund (IMF) gave way (after a period of turmoil in which efforts were made to revive the system) to floating exchange rates. On the European scene, the hope that the European Monetary Cooperation Fund would be able to promote concerted action among the members of the Community was thwarted by the volatility of the exchange markets and the aftermath of the oil shock of 1973/74. The “snake,” itself a response to the breakdown of the par value system, began to unravel as members withdrew from the arrangement, preferring to float independently rather than attempting to maintain the discipline of the narrow band implied by the snake arrangement.

The European Monetary System, 1979

By 1977, interest in the process of economic and monetary union had revived. It was in that year that the European Commission’s President, Roy Jenkins, recommended accelerated integration. In the following year, Chancellor Helmut Schmidt of Germany and President Valery Giscard D’ Estaing of France called for the establishment of a European Monetary System. The European Council adopted a resolution providing for the implementation of such a system in stages18 and the European Monetary System (EMS) was agreed among the central banks of the European Economic Community in 1979.19

The objective of the EMS is “the creation of closer monetary cooperation leading to a zone of monetary stability in Europe.”20

The EMS was not intended to amend the Treaty of Rome but rather to apply its provisions to the exchange rate arrangements of member states. The EMS was the successor to the earlier “snake” arrangements. Its precise legal nature has been the subject of some debate.21 The EMS may be understood by considering its two main elements: the European Currency Unit (ECU) and the Exchange Rate Mechanism (ERM).

The central bank of each participant must deposit with the EMCF 20 percent of its gold holdings and U.S. dollars in renewable swaps of three months’ duration. In exchange, the EMCF issues ECUs to the participant. Each participant in the ERM must establish a central rate for its currency in terms of the ECU. The value of the ECU on the basis of these central rates is calculated by adding the fixed amounts of all currencies that comprise the ECU currency basket. In order to arrive at the value of the ECU in any given currency, the amounts of the other currencies are converted into the given currency on the basis of their central rates (or, in the case of a currency of a nonparticipant in the ERM, on the basis of a market rate). The value of the ECU may also be calculated in the terms of market rates of each of its currency components. Thus, the market rate of the ECU is calculated by adding each of the currency components of the ECU on the basis of its market exchange rate (in practice, in terms of the U.S. dollar).

In accordance with the requirements of the ERM, each participant is obligated to maintain the market exchange rate of its currency within a margin of 2.25 percent above and below bilateral central rates that have been established between the participants’ currencies. (The resulting matrix of rates is referred to as the parity grid). Member states that were not participants in the “snake” arrangement on the date that the EMS came into being were allowed to observe wider margins of 6 percent. In order to comply with its obligations, each participant must intervene in the exchange markets so as to keep its currency within stipulated margins. In practice, this necessitates intervention by both participants whose currencies give rise to a particular exchange rate. However, an indicator has been devised to demonstrate when a particular currency may be approaching the maximum divergence from its central rate. This divergence indicator is said to be at its threshold when a currency reaches 75 percent of its maximum divergence from its central rate. The warning from such a situation sets up a presumption that the participant will take corrective measures. Participants have entered into bilateral arrangements with each other so that reciprocal lines of credit in each other’s currency are available for intervention. These arrangements are referred to as the Very Short-Term Facility (VSTF).22

Experience with the ERM has not been without its setbacks. In 1992, the United Kingdom suspended the participation of the pound sterling in the ERM and Italy decided to abstain temporarily from intervention in the foreign exchange markets. The documents on which the ERM is based did not expressly provide for these contingencies and, accordingly, the other participants merely took note of these actions and urged the resumption of the full participation of the pound sterling and the lira as soon as possible.23 At the same time, the bilateral central rates of the Spanish peseta were reduced, giving rise to a realignment within the ERM.

This turbulence was succeeded by another test of the ERM in 1993. When the perceived domestic needs of the various participants in the ERM differed, massive speculation developed against the alignment and, in particular, against the French franc. The consequence was a decision of the ministers of finance and central bank governors of the Community to widen temporarily the margins of intervention from 2.25 percent to 15 percent.24 While some saw this development as signaling the end of the ERM, by March of 1994 it could be noted25 that most of the currencies that were forced out of the narrow bands during August 1993 had quietly resumed their positions within their former parities (although the pound sterling and the lira continued to remain outside the system).

The Single European Act, 1987 and the Delors Report, 1989

Progress accelerated when the member states of the Community signed the Single European Act (SEA) in February 1986. Its Article 20 envisaged the amendment of the Treaty of Rome to further monetary and economic union.

The Single European Act, which came into force on July 1, 1987, amended the ECSC, EEC, and Euratom treaties. It provided for the completion of the internal market by the end of 1992 and for cooperation in the sphere of foreign policy. It also provided that any further institutional development in the field of economic and monetary policy should be made in accordance with the provisions of Article 236 of the EC treaty.

The Delors Report, discussed below, described the SEA as:

the first significant revision of the Treaty of Rome. It introduced four important changes in the Community’s strategy for advancing the integration process. Firstly, it greatly simplified the requirements of harmonizing national law by limiting harmonization to the essential standards and by systematic adoption of mutual recognition of national norms and regulations. Secondly, it established a faster and more efficient decisionmaking process by extending the scope of qualified majority voting. Thirdly, it gave the European Parliament a greater role in the legislative process. Fourthly, it reaffirmed the need to strengthen the Community’s economic and social cohesion, to enhance the Community’s monetary capacity with a view to economic and monetary union, to reinforce the Community’s scientific and technological base, to harmonize working conditions with respect to health and safety standards, to promote the dialogue between management and labor and to initiate action to protect the environment.26

In June 1988, at the Hanover Summit, the EC governments created a committee, led by Jacques Delors, President of the Commission, and consisting of the twelve central bank governors and five other experts.27 The Delors Committee prepared a plan for monetary union, which was presented and adopted as the official blueprint, at the Madrid Summit in June 1989. The report provided that the processes of economic and monetary union should occur simultaneously.28

The Delors Report noted that:

Economic and monetary union in Europe would imply complete freedom of movement for persons, goods, services and capital, as well as irrevocably fixed exchange rates between national currencies and, finally, a single currency. This in turn, would imply a common monetary policy and require a high degree of compatibility of economic policies and consistency in a number of other policy areas, particularly in the fiscal field. These policies should be geared to price stability, balanced growth, converging standards of living, high employment and external equilibrium.29

Need for a Common Monetary Policy. In describing the principal features of monetary union, the Delors Report began by setting out the three necessary conditions for a monetary union:

  • —the assurance of total and irreversible convertibility of currencies;
  • —the complete integration of banking and other financial markets; and
  • —the elimination of margins of fluctuation and the irrevocable locking of exchange rate parities.30

Once the fixed exchange rates were adopted, the report noted that there would be a new need for a common monetary policy.31 There would need to be new operating procedures.32

The rėsponsibility for the single monetary policy would have to be vested in a new institution, in which centralized and collective decisions would be taken on the supply of money and credit as well as on other instruments of monetary policy, including interest rates.

This shift from national monetary policies to a single monetary policy is an inescapable consequence of monetary union and constitutes one of the principal institutional changes.33

The Delors Report continued:

A new monetary institution would be needed because a single monetary policy cannot result from independent decisions and actions by different central banks. Moreover, day-to-day monetary policy operations cannot respond quickly to changing market conditions unless they are decided centrally. Considering the political structure of the Community and the advantages of making existing central banks part of a new system, the domestic and international monetary policy-making of the Community should be organized in a federal form, in what might be called a European System of Central Banks (ESCB). This new System would have to be given the full status of an autonomous Community institution. It would operate in accordance with the provisions of the Treaty, and could consist of a central institution (with its own balance sheet) and the national central banks. At the final stage the ESCB—acting through its council—would be responsible for formulating and implementing monetary policy as well as managing the Community’s exchange rate policy vis-à-vis third currencies. The national central banks would be entrusted with the implementation of policies in conformity with guidelines established by the Council of the ESCB and in accordance with instructions from the central institution.34

Furthermore, the Delors Report provided:

  • —the System would be committed to the objective of price stability;
  • —subject to the foregoing, the System should support the general economic policy set at the Community level by competent bodies;
  • —the System would be responsible for the formulation and implementation of monetary policy, exchange rate and reserve management, and the maintenance of a properly functioning payment system; and
  • —the System would participate in the coordination of banking supervision policies of the supervisory authorities.35

The committee made other recommendations regarding the policy instruments, structure and organization, and status of the ESCB.36 Many of these were to be included in the Maastricht Treaty.

Economic Union. The Delors Report set out four basic elements of economic union:

  • —the single market within which persons, goods, services and capital can move freely;
  • —competition policy and other measures aimed at strengthening market mechanisms;
  • —common policies aimed at structural change and regional development; and
  • —macro-economic policy co-ordination, including binding rules for budgetary policies.37

Furthermore, it provided that the rules and arrangements governing economic union should consider “the market-oriented economic principles that underlie the economic order of its member countries” and find “the appropriate balance between the economic and monetary components.”38

The Delors Report noted that the Treaty of Rome had already established the institutional framework for policymaking in the economic area.39 It included recommendations as to what steps should be taken “to ensure the flexible and effective conduct of policies. . . .”40

The Three Stages. Like the Werner Report (its predecessor), the Delors Report set out three stages toward economic and monetary union.41 In the first stage, in the economic field, steps would be taken toward “the completion of the internal market and the reduction of existing disparities through programs of budgetary consolidation. . . .”42 In the monetary field, “the focus would be on removing all obstacles to financial integration and on intensifying co-operation and the coordination of monetary policies.”43

During the second stage, in the economic field, three steps would be taken: the results of the single market program would be reviewed, “the performance of structural and regional policies would be evaluated,” and the procedures on convergence would be “strengthened and extended on the basis of the new Treaty.”44 In the monetary field, the ESCB would be set up and would absorb “the EMCF, the Committee of Central Bank Governors, the sub-committees for monetary policy analysis, foreign exchange policy and banking supervision, and the permanent secretariat.”45

During the final stage, which “would commence with the move to irrevocably locked exchange rates and the attribution to Community institutions of the full monetary and economic competencies described in Part II of this Report,”46 in the economic field there would be three developments: (1) further strengthening of Community structural and regional policies, (2) rules and procedures in the macroeconomic and budgetary field would be binding, and (3) “the Community would assume its full role in the process of international policy co-operation, and a new form of representation in arrangements for international policy co-ordination and in international monetary negotiations would be adopted.”47

The Maastricht Treaty, 1992

On February 7, 1992, the member states of the EC, at a summit in Maastricht in the Netherlands, adopted amendments to the Treaty of Rome by signing the Treaty of European Union. The new union, called the European Union, was formed from the three existing communities—namely, the European Coal and Steel Community, the European Atomic Energy Community, and the European Community (which was previously called the European Economic Community).

Besides providing a new constitutional order,48 the amendments addressed the creation of a European System of Central Banks (ESCB), a European Central Bank (ECB), and the European Currency Unit (ECU).49

The Three Stages. Steps intended to lead to the European Monetary Union are projected to take place in three stages.

The first stage, which began on July 1, 1990, provides for the liberalization of capital movements, economic and monetary policy coordination by EC members, and participation of all EC currencies in the exchange rate mechanism of the European Monetary System.

The second stage, which began on January 1,1994, provides for steps leading to the establishment of a European System of Central Banks. In order to further the establishment of this system, certain principles must be embodied in the domestic laws of members of the European Community. Bans on monetary financing and excessive deficits are to take effect. A European Monetary Institute, composed of the central banks of the member states, has been established to coordinate the steps and prepare the way for stage three.50 The EC Council is to determine whether a majority of EC countries meet the conditions for progressing to stage three and, if so, whether the starting date for that stage may be advanced before January 1, 1999.

At stage three, which is to begin not later than January 1, 1999, the European Monetary Institute is to be replaced by the European System of Central Banks (ESCB). The latter is to comprise the European Central Bank (ECB) and the national central banks. The European Central Bank will commence operations and assume responsibility for EC monetary policy. The currency rates among the EC members will be fixed irrevocably, allowing for the adoption of a single European currency.

The Requirements. There are two associated documents that set out the actions that members must take before the start of the second stage. These are (1) the amendments to the Treaty Establishing the EEC (set out in Article G of the Maastricht Treaty on European Union) (Maastricht), and (2) the Protocol on the Statute of the European System of Central Banks and of the European Central Bank to be annexed to the Treaty (the Protocol).

Maastricht Article 109e sets out transitional provisions concerning the actions that members must take. According to paragraph 2, before the second stage begins, members must (i) prohibit restrictions on payments and on the movement of capital and (ii) adopt programs to ensure economic and monetary convergence. In addition, that paragraph requires members, before the stage begins, to comply with provisions of Maastricht that prohibit (i) overdraft and other credit facilities with their central banks in favor of their governments (as well as the purchase by their central banks directly from the governments of debt instruments) and (ii) privileged access by the governments to financial institutions. When the second stage began, certain requirements entered into force. According to paragraph 3, these requirements are the prohibition of: (i) government overdraft and other credit facilities with central banks (Article 104), (ii) privileged access by governments to financial institutions (Article 104(a)(i)), and (iii) member state liability for the governmental commitments of other states (Article 104(b)(1)). This paragraph also provides for the monitoring by the EC Commission of the budgetary situation and the stock of government debt of members. Moreover, members must (i) try to avoid excessive government deficits (paragraph 4) and (ii) start the process leading to the independence of their central banks (paragraph 5). The latter process is the subject of a specific provision in Maastricht (Article 108), which states:

Each Member State shall ensure, at the latest at the date of the establishment of the ESCB, that its national legislation, including the statutes of its national central bank, is compatible with this Treaty and the Statute of the ESCB.

The Protocol (containing the Statute of the ESCB and the ECB) has an express provision governing national central banks and various scattered references in other provisions concerning these banks.

The express provision is Article 14, which comprises four paragraphs. Paragraph 1 requires each member to ensure (by the establishment of the ESCB at stage three) that its national legislation, including the statutes of the national central bank, is compatible with the Treaty and the Statute. Paragraph 2 requires that the statutes of national central banks provide that (i) the term of office of a Governor of such a bank be no less than five years and (ii) that a Governor may be relieved from office only if he no longer fulfills the conditions required for the performance of his duties or if he has been guilty of misconduct. Paragraph 3 provides that national banks shall act in accordance with the guidelines and instructions of the ECB. Paragraph 4 permits national central banks to perform functions other than those specified in the Statute unless the Governing Council of the ECB decides otherwise.

Scattered references to the responsibilities of national central banks appear throughout the Protocol. Generally these deal with matters that require joint action by the ECB and these banks within the framework of the ESCB at stage three. The Protocol must be read in conjunction with Maastricht. The latter sets out in Article 109e those provisions that must be given effect from the beginning of stage three. The provisions in this article that concern national central banks deal with tightening the requirements against excessive government deficits (Article 104(c)(1), (9) and (11)), not seeking or taking instructions from governments (Article 107) and, through participation in the ESCB: (i) maintaining price stability, (ii) defining and implementing monetary policy, (iii) conducting foreign exchange operations, (iv) holding and managing the official foreign reserves, and (v) promoting the operation of payment systems (Article 105).

The Principle of Independence of the Central Bank

The justification for the independence of a central bank lies largely in the belief that, insulated from short-term political pressures, it will be in a position to pursue more effectively its long-term economic goals.51 Not all opinion has been unanimous in favor of central bank independence, however. Some observers believe that holding the political authorities responsible for the attainment of economic goals is a surer guarantor of their achievement than investing the central bank with this responsibility. On one side of the Atlantic, Professor Milton Friedman has written:

The only two alternatives that do seem to me feasible over the longer run are either to make the Federal Reserve a bureau in the Treasury under the Secretary of the Treasury, or to put the Federal Reserve under direct congressional control. Either involves terminating the so-called independence of the system. But either would establish a strong incentive for the Fed to produce a stabler monetary environment than we have had. . . .52

He is joined by another distinguished American economist, Lester Thurow, who wrote:

Whatever its historical merit, the time has come to end the independence of the Fed. If the President is competent enough to have his finger on the nuclear button, he is competent enough to control the money supply. Presidents are elected and defeated on their economic performance. They deserve both the controls and the responsibilities that this implies. No President should be able to hide his failures behind an “erratic” money supply beyond his control. And if the charge is true, no President should have to put up with an incompetent Fed.53

One aspect of the issue revolves around the question as to what should be the goal or goals of a central bank. To this end, some central bank statutes have sought to provide guidance by listing purposes or objectives. When these goals are listed, they almost always include some reference to price stability either directly or by reference to the need to preserve the value of the currency. Since other goals may also be set out in the statute, such as maintaining full employment,54 or promoting development, or fostering a safe and sound financial system, the question arises whether one goal should take precedence over the others in the event of conflict between them.

Dr. Holtrop, then President of the Netherlands Bank, has presented the case for viewing the pursuit of stable monetary policy as the preeminent role of a central bank:

I think that monetary policy is a thing on its own, which strives for a purpose which should be the purpose of good government under all circumstances, namely the maintenance of monetary equilibrium, in whatever sense this may be defined, as, for instance, price stability, maintenance of the value of money or the prevention of monetary causes for disequilibrium in the economy. Other purposes of economic policy should be pursued by the use of other instruments than monetary ones.55

The opposite case has been put by Lord O’ Brien of Lothbury, a former Governor of the Bank of England. Rejecting Dr. Holtrop’s view, Lord O’ Brien stated:

I must say that I find this argument hard to accept. Certainly preserving the value of the currency should indeed be “the purpose of good government under all circumstances.” But it cannot be the only purpose and, I suggest, it should not always be the prime purpose. Other economic purposes of government, such as achieving growth and sustaining employment, are too closely related to the value of money to be seen in isolation. Thus, in my view, it is unrealistic to suggest that monetary policy should be reserved to deal with only one of a number of national economic aims. Rather all policy instruments should be used in harmony to achieve a balance of objectives.

…Nevertheless, it would, I suggest, be unreasonable to assert that absolute “monetary equilibrium” is in all circumstances the only correct policy aim to pursue. There is a trade-off between the various objectives and a decision has somehow to be taken on exactly what form of balance between the objectives should be sought.

…The public simply will not allow control of money to be put beyond their control any more than control of laws or taxes . . . . We live in democracies which elect governments to govern. The exercise of monetary policy, conducted technically though it is by and through central banks, is an inherent part of governing. Central bankers are not elected, they have no mandate and no constituency. They are neither omniscient nor infallible, and there is no reason to expect currency commissioners to be so either. They have, I suggest, no valid claim to be an independent part of government.56

While there is some evidence of a correlation between the relative independence of central banks and their record of ensuring monetary value as reflected in comparative rates of inflation, the evidence is not conclusive. (Thus, the records of inflation rates in France and Japan, where the central banks have traditionally enjoyed less independence than in certain other countries, do not appear to have been excessive.)

Despite the difference in expert opinion, noted above, and the inconclusive evidence, the EC members ratified Maastricht and its implications for the monetary union. The treaty provisions unambiguously mandate a system of independent central banks with responsibility for defining and implementing monetary policy to the end of maintaining price stability. In the collective judgment of the EC members, long-term price stability is more likely to be achieved through the constant efforts of independent central banks than through the variable actions of the political bodies of society.

Central Bank Legislation and Compliance with Maastricht Treaty

All of the EC member countries are obligated to ensure that their central bank laws are in compliance with the requirements of the Maastricht Treaty and its Protocol on the Statute of the European System of Central Banks and of the European Central Bank. Belgium, Italy, France, the Netherlands, Spain, and Greece have either amended or are in the process of amending their central bank statutes. The other member countries of the EC have yet to propose amendments to these statutes.

Ten Key Topics of Analysis

The following analysis covers ten key topics that figure in an exercise of compliance with the Maastricht Treaty and its Protocol. These topics are as follows:

  • (1) Statutory Objective(s): Price Stability and/or Others (Maastricht Art.105.1, Protocol Art. 2)
  • (2) Determination and Implementation of Monetary Policy, Foreign Exchange Policy, Holding and Management of the Official Foreign Reserves, Operation of the Payment Systems57 (Maastricht Art. 105.2)
  • (3) Financing of Government Deficits via Central Bank Credit (Maastricht Art. 104, Protocol Art. 21)
  • (4) Term of Office (Protocol Art. 14.2)
  • (5) Appointment and Dismissal Procedure (Protocol Art. 14.2)
  • (6) Liaison with the Government (Ministry of Finance). Conflict of Interest (Maastricht Art. 107, Protocol Art. 7)
  • (7) Accountability58
  • (8) Professional Secrecy (Protocol Art. 38)
  • (9) Auditing (Protocol Art. 27)
  • (10) Financial Year (Protocol Art. 26.1)

Statutory Objective(s): Price Stability and/or Others

Article 105.1 of the Maastricht Treaty (supported by Article 2 of the Protocol) provides:

The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2. The ESCB shall act in accordance with the principle of an open market economy with free competition, favoring an efficient allocation of resources, and in compliance with the principles set out in Article 3a.

Three of the central banking laws explicitly provide that price stability is the primary objective of their central banks.59 Furthermore, three others provide that safeguarding and securing the value of the currency is the primary objective.60 Nevertheless, at least three central bank statutes do not contain an explicit statutory objective.61

Tasks of the ESCB

Article 105.2 of the Maastricht Treaty provides:

The basic tasks to be carried out through the ESCB shall be:

  • —to define and implement the monetary policy of the Community;
  • —to conduct foreign-exchange operations consistent with the provision of Article 109;
  • —to hold and manage the official foreign reserves of the Member States; and
  • —to promote the smooth operation of payment systems.

The Greek draft law provides its central bank with authority in these four areas, though some related statutes may need to be amended to be brought into accord.62 Belgium’s legislation provides that the Minister of Finance and the Government Commissioner may not oppose the Bank’s decisions and actions in these four areas.63

According to France’s law, the Bank of France is to define and implement monetary policy and promote the smooth functioning of the payment systems.64 A new Monetary Policy Council (“conseil de politique monétaire”), comprising the Governor, two Vice-Governors, and other members, will be responsible for the determination of monetary policy.65 While the government is to determine “the exchange rate regime and parity of the franc,” the Bank is to regulate the relation between the franc and foreign currencies and to hold and manage the official foreign exchange and gold reserves.66 Similarly, Spain’s draft law provides that the Bank will formulate and implement monetary policy;67 own, manage, acquire and sell foreign exchange assets; and promote the smooth operation of payment systems,68 but the government will be responsible for the determination of the exchange rate regime and the parity of the peseta, while the Bank will be responsible for the implementation of the exchange rate policy.69

German law provides the Bundesbank with authority in the first three areas,70 but apparently does not expressly address its authority regarding the promotion of the smooth operation of payment systems. It may be noted that monetary policy decisions of the Bundesbank may be deferred for up to two weeks by the government but the final decision is that of the Bundesbank. The government sets central rates in consultation with the Bundesbank while the latter operates in the foreign exchange market at its own initiative.71

According to the Netherlands law, apparently the central bank has power to formulate and implement monetary policy and formulate foreign exchange policy.72 However, the Minister of Finance can give directions to the Governing Board when he thinks that the Bank’s policy is not in accordance with the Government’s monetary and financial policy.73 As regards the operation of payment systems, the Bank “shall facilitate domestic and external money transfers.”74 However, the statute apparently does not refer to the holding and managing of the official foreign reserves.75

As for the United Kingdom, the government is responsible for the determination of monetary policy and the Bank of England for its implementation.76 The Bank of England advises on the formulation of monetary policy.

Financing of Government Deficits via Central Bank Credit

Article 104(1) of the Maastricht Treaty (supported by Article 21.1 of the Protocol) provides:

Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States… in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

The Belgian, Dutch, and French provisions are modeled after Article 104(1). Proposed Spanish legislation and Greek legislation also appear to comply with the provision’s requirements.

On the other hand, Denmark’s legislation permits the purchase and sale of securities.77 Italy’s amended legislation prohibits the Bank of Italy from granting advances to the Treasury.78 According to the United Kingdom’s legislation, the Bank of England may provide to the government “short-term finance.”79

The Bundesbank is authorized to lend to the Federal and Lander Governments subject to limits on amounts and maturities. Treasury bills are counted against the credit ceiling. Bonds issued by public authorities may be purchased in the open market but not directly from the borrower.80

Term of Office

Article 14.2 of the Protocol provides, in part:

The statutes of the national central banks shall, in particular, provide that the term of office of a Governor of a national central bank shall be no less than five years.

The current or proposed central banking legislation of the following countries provides for a term of five years or more: five-year term (Belgium, Denmark, the United Kingdom); six-year term (France, Greece, Spain); seven-year term (the Netherlands); eight-year term (Germany); and, life term (Italy). The German statute provides that “in exceptional case” the term may be less than eight years, “but not for less than two years.”81

Appointment and Dismissal Procedure

The Maastricht Treaty does not prescribe the manner of appointment of the governors of the national central banks. Therefore, the central banking legislation of the member countries provides various methods for the appointment of the central bank governor. The “crown” appoints the governor (or president) of the central bank in Belgium,82 the Netherlands,83 and the United Kingdom.84 Also, Spain’s governor is to be appointed by the King on a proposal by the Prime Minister.85

In Germany, the President (the term used for the Governor) of the Bundesbank, as well as other members of the Directorate, are appointed by the President of the Federal Republic on nomination by the federal government, which in turn consults the Central Bank Council (which consists of the Directorate and the presidents of the Land Central Banks).86 France’s law prescribes that the Governor and other members of the Monetary Policy Council shall be chosen from a list jointly proposed by the president of the Senate, the president of the National Assembly, and the president of the Economic and Social Council.87 The members of the Bank of Italy’s Directorate, including the Governor, General Manager, and two Deputy General Managers, are appointed by the Board of Directors, who in turn are elected at the General Meetings of the Shareholders.88 The Greek Governor and Deputy Governor are appointed by the Cabinet.89

One important way in which the independence of a central bank may be supported is to protect its governor from dismissal by the political authorities in the event of their displeasure with the policies of the bank. Accordingly, the Protocol incorporates an express provision on the subject of dismissal. Article 14.2 of the Protocol provides:

A Governor may be relieved from office only if he no longer fulfills the conditions required for the performance of his duties or if he has been guilty of serious misconduct. A decision to this effect may be referred to the Court of Justice by the Governor concerned or by the Governing Council on grounds of infringement of this Treaty or of any rule of law relating to its application. . . .

Article 10 of France’s statute is modeled after Article 14.2. A provision in Greece’s draft law, which permits dismissal when the individual is permanently incapable of performing his duties or has committed serious fault, also addresses the matter.90

Four of the central bank laws do not specify the grounds for dismissal.91 Two list grounds for dismissal, but include additional grounds.92 In Germany, the matter is not unambiguously regulated in the statute, but apparently would depend on interpretation. The President of the Bundesbank is a member of that bank’s Directorate. Members of the Directorate hold office under public law93 and cannot be removed from office before the end of their term except for reasons which lie in their person and if the initiative comes from themselves or the Central Bank Council94 (which includes the members of the Directorate and the presidents of the Land Central Banks).

Liaison with Government and Conflict of Interest

Article 107 of the Maastricht Treaty (supported by Article 7 of the Protocol) provides:

When exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks.

The importance of this provision for ensuring the independence of the central banks of the European Community cannot be understated. In certain of the central bank statutes, the treasury or minister of finance has the power to issue directions to the central bank and such power will have to be reviewed in the light of Article 107. Thus, in the United Kingdom, the Treasury is expressly authorized to give directions to the Bank of England after consultation with the Governor and the Court of Directors of the Bank is charged to manage the affairs of the Bank accordingly.95 Similarly, in the Netherlands the Minister of Finance may, after consultation with the Bank Council of the Netherlands Bank, give directions to the Governing Board of the Bank when he thinks that the Bank’s policy is not properly coordinated with the government’s monetary and financial policies. The Governing Board may appeal to the Crown, in which case the matter will be decided by the Council of Ministers.96 (In practice, it is understood that these powers have not been used in either country).

It should be noted that the injunction prohibiting a central bank and members of its decision-making bodies from seeking or taking instructions that is contained in Article 107 does not prevent a formal means of communication that some central bank statutes have adopted. This is the right of the minister of finance or another representative of the executive to attend meetings of the decision-making body of the central bank. This right is recognized by analogy in the structure of the proposed European Central Bank (ECB). Thus, Article 109b(1) of the Maastricht Treaty provides:

The President of the Council of the European Communities and a member of the Commission may participate without having the right to vote in meetings of the Governing Council of the ECB. The President of the Council may submit a motion for deliberation to the Governing Council of the ECB.

Examples of analogous provisions may be found in the central bank statute of Germany and the statute of the Bank of France. In Germany, members of the Federal Government are entitled to attend meetings of the Central Bank Council and the Bundesbank President may be invited to attend discussions of the Federal Government on important monetary matters. In France, under the statute of the Bank of France, the Minister for Economic Affairs and Finance or his representative, and the Prime Minister may participate without vote in the Monetary Policy Council and may submit proposals for its consideration.97 In Belgium, the Minister of Finance has the right to control the National Bank’s operations through a Government Commissioner who may attend the meetings of the Boards,98 Councils, and Committees of the Bank99 and oppose decisions of the Bank100 but, as a result of the new amendments to the legislation taken to comply with Maastricht, neither the Minister nor the Government Commissioner can oppose decisions or transactions concerning monetary policy, foreign exchange operations (consistent with exchange arrangements), the holding and management of official foreign reserves, or the operation of payments systems.101 In the draft Spanish law, the General Director for Treasury and Financial Policy (part of the Ministry of Finance) may attend meetings of the Governing Council of the Bank of Spain but will not have the right to vote when it takes decisions on monetary policy and note issuance.102 Moreover, the Minister of Finance or the Secretary of State for the Economy may attend meetings of the Governing Council and may propose issues for its deliberation.103

An example of earlier thinking on the subject that may need reconsideration in the light of Article 107 of the Maastricht Treaty may be found in the central bank legislation of Denmark. In that country, the Minister for Economic Affairs not only presides at meetings of the Board of Directors of the National Bank, but he is charged with supervising that the bank “fulfills its obligations under the present Act.”104 Important decisions of the bank’s Committee of Directors cannot be taken if he is not present (unless he has been informed about them in advance).105

Similarly, under the current law in Italy a representative of the Treasury may attend meetings of the Board of Directors of the Bank of Italy and, provided that the Treasury does not oppose them, the Board’s decisions may take effect.106


The doctrine of the independence of a central bank receives express support from the various provisions of the Maastricht Treaty and its Protocol. Independence need not necessarily remove a central bank from the need to be accountable to another authority. This authority may be executive, legislative or judicial or even some combination of them. The concept of accountability at its minimum must require explanation or justification of actions or policies.

The Maastricht Treaty Protocol requires reports from the ECB on the activities of the ESCB. Quarterly reports are to be published and an annual report is to be addressed to the European Parliament, the Council and the Commission, as well as to the European Council.107 (Moreover, a consolidated financial statement is to be published weekly.)108 It is envisaged that the European Parliament may hold a general debate on the report.109 Moreover, the President of the ECB and other members of its Executive Board may be heard by the committees of the European Parliament.110 In addition, the Protocol and the Maastricht Treaty set out procedures for invoking judicial review through the Court of Justice in relation to the ECB111 (and on some questions in relation to the national central banks),112 and generally in respect of the national central banks in accordance with their respective national laws.113

While the Maastricht Protocol thus addresses matters of accountability in respect of the ECB, neither it nor the Treaty sets out formal requirements concerning the national central banks. Nevertheless, most of the central bank laws require that a report be sent from the central bank to the government. The Netherlands Governing Board publishes weekly a summary balance sheet of the Bank and publishes an annual report on its activities.114 Belgian law requires the Governor to send a statement of the Bank’s position, which is also to be published in the Belgisch Staatsblad-Moniteur Belge, to the Minister of Finance every week.115 Similarly, France’s law requires France’s Governor to present a report on the operations of its bank to the President of France.116 Spain’s draft law also would require an annual report to be presented to the parliament.117 Furthermore, it would provide that the monetary policy objectives be published annually and that the Governor may be called to testify in front of parliamentary committees.118 The Bundesbank publishes an annual report which is presented to Parliament.

Besides requiring the publication of an annual report, Italian legislation allows a representative of the Treasury to attend meetings of the Board and if the Treasury does not oppose the decisions made at the meeting within five days, they can take effect.119 Also, the Governor may be invited to appear before Parliamentary Commissions and testify regarding monetary policy.

In the United Kingdom, the Bank of England prepares an annual report for Parliament presenting the accounts, and another annual report on its conduct of supervision.120 The Bank publishes regular reports on economic and financial developments and quarterly progress reports on the Government’s inflation target.121 The Governor may be called to appear before committees of the Parliament; however, the Chancellor of the Exchequer or a Treasury Minister “answers for the Bank in Parliament.”122

In Denmark, eight members of the Board of Directors are appointed by Parliament from among its own members.123

The statutes of Germany, Spain, and the United Kingdom provide that their central banks may be held accountable before the judicial branch.124 The central bank statute of France notes that the Governor represents the Bank in relation to third parties and further refers to the responsibility of administrative tribunals to solve conflicts between the Bank and its staff. The Netherlands’ Bank Act merely provides that “the Governing Board represents the bank in and out of court.125

Professional Secrecy

Article 38 of the Protocol provides:

Members of the governing bodies and the staff of the ECB and the national central banks shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy.

The two requirements of this provision are that: (1) the secrecy provisions apply to both the governing bodies and the staff of the bank, and (2) the professional secrecy duty continues after employment.

The central banking laws of seven EC countries have professional secrecy provisions. However, in the case of Denmark, Italy, and the Netherlands, the duty may not fully extend to both the governing bodies and the staff of the banks.126 Furthermore, in five statutes, the duty does not explicitly extend beyond employment.127 Both Germany’s and Spain’s provisions meet both requirements.128

The central banking laws of Greece and the United Kingdom do not contain explicit provisions on professional secrecy.


Article 27.1 of the Protocol provides:

The accounts of the ECB and national central banks shall be audited by independent external auditors recommended by the Governing Council and approved by the Council. The auditors shall have full power to examine all books and accounts of the ECB and national central banks and obtain full information about their transactions.

None of the countries surveyed has yet to implement a model provision on external auditing. France is to place a provision on this subject in a future decree of the Monetary Policy Council.129 Germany provides that the accounts are to be audited by an accountant appointed by the Central Bank Council in agreement with the Federal Court of Auditors.130 Greece, in the interim before the creation of the Governing Council, has its auditors selected at the Annual General Meeting.131 In Italy, too, the auditors are selected at the Ordinary General Meeting of the Shareholders.132

The Bank of Spain is subject to the control of the Court of Auditors.133 Whether the procedures of selecting external auditors set out in the laws of these countries meets the requirements will depend on whether, following the establishment of the ECB, the Governing Council and the Council ratify the results of those procedures. The central bank legislation of other countries appears to provide only for internal audits. Thus, in the Netherlands, it is the Supervisory Board of the Bank that has the primary auditing function.134 In Belgium, the Board of Census, an internal body of the National Bank, exercises this function.135 In the United Kingdom, an Audit Department of the Bank of England (which employs an accounting firm) reports to the Governor and is supervised by an Audit Committee.136

Financial Year

Article 26.1 of the Protocol provides, in part:

“The financial year of… national central banks shall begin on the first day of January and end on the last day of December.”

All of the countries surveyed appear to use the calendar year as the financial year. In a number of countries, the central bank legislation expressly provides for this. If the practice differs elsewhere, there appears to be no express provision in the central bank legislation that would require such a different result.137

Selected References

    Center for Economic Policy Research, The Making of Monetary Union (London: Center for Economic Policy Research, 1991).

    Center for Economic Policy Research, and Center for Monetary and Financial Economics, The Road to EMU: Managing the Transition to a Single European Currency (London: Center for Economic Policy Research, 1991).

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    Commission of the European Communities, Report to the Council and the Commission on the Realization by Stages of Economic and Monetary Union in the Community (Werner Report), Supplement to Bulletin 11 of the European Communities (Luxembourg, 1970).

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    Commission of the European Communities, Report on Economic and Monetary Union in the European Community (Delors Report), papers submitted to the Committee for the Study of Economic and Monetary Union (Luxembourg, 1989).

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    Commission of the European Communities, Treaty on European Union, text of treaty signed in Maastricht,February7, 1992 (Luxembourg, 1992).

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    Committee of Governors of the Central Banks of the Member States of the European Economic Community, Annual Report (Luxembourg, 1992).

    Fratianni, Michele, and Jurgenvon Hagen, The European Monetary System and European Monetary Union (Boulder, Colorado: Westview Press, 1992).

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    Goodhart, C.A.E. (ed.), EMU and ESCB After Maastricht (London: Financial Markets Group, London School of Economics and Political Science, 1992).

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    Kenen, PeterB., “EMU After Maastricht,”Chapter 1in EMU and ESCB After Maastricht, Financial Markets Group, London School of Economics (Washington: Group of Thirty, September1992).

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    Lastra, RosaMaria, “The Independence of the European System of Central Banks,”Harvard International Law Journal,Vol. 33 (Spring1992), pp. 475–519.

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    Louis, Jean-Victor, Vers un Systéme Européen de Banques Centrales, Rapport du groupe présidé par J.-V. Louis, l’Institut d’Etudes européennes (Brussels: University of Brussels, 1990).

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Thanks are due to Dr. Rosa Maria Lastra for original research contributions to the part of this paper dealing with the compliance of central bank legislation with the Maastricht Treaty requirements and to Pamela Bickford Sak for research contributions to the part of this paper dealing with the history of the European Union and for generous assistance in its preparation.


After the creation in 1955 of the Organization for European Economic Cooperation (OEEC), as a consequence of the European Monetary Agreement, the European Payments Union operated within the framework of the OEEC.


See Hugo J. Hahn, “From European Monetary Cooperation to European Monetary Integration,” Report by the Committee of International Monetary Law to the 65th Conference of the International Law Association in Cairo, Egypt (April 21, 1992).


Commission of the European Communities, Report to the Council and the Commission on the Realisation by Stages of Economic and Monetary Union in the Community. Supplement to E.C. Bulletin 11 (Luxembourg, 1970); hereinafter referred to as the Werner Report.


Werner Report at 7.


Id. at 14.


Id. at Introduction, p. 7.


Id. at 27.


Id. at 19–20 and 27.


Id. at 20–21.


Id. at 27.


Id. at 28.




Id. at 13, 26, and 29.


Id. at 29.


Commission of the European Communities, Report on Economic and Monetary Union in the European Communnity (Luxembourg, 1989); hereinafter referred to as the Delors Report.


See Joseph Gold, “Exchange Rates in International Law and Organization,” A.B.A. Section of International Law and Practice 1172 (1988).


Regulation (EEC) No. 907/73 of the Council of April 3, 1973 Establishing a European Monetary Cooperation Fund, Preamble, 12 I.L.M. 1154 (1973).


Resolution of the European Council on the Establishment of the European Monetary System (EMS) and related matters, Part A, paragraph 1.1 (December 5, 1978); hereinafter called the Resolution.


Agreement of March 13, 1979, between the central banks of the member states of the European Economic Community, laying down the operating procedures for the European Monetary System.


Resolution, Part A, paragraph 1.1.


See Joseph Gold, “Exchange Rates in International Law and Organization,” A.B.A. Section of International Law and Practice, at pp. 142–43 (1978).


Among other amendments made in the EMS in 1987 was one concerning the liberal use of the VSTF facility. Basle-Nyborg Agreement, Bull. EC 3–1969, point 1.1.4.


Bull. EC 9–1992, point 1.2.2.


Communiqué of the European Community, August 2, 1993 it should be noted that the bilateral relationship between the deutsche mark and the Dutch guilder remained within the previous 2.25 percent band.


Elliott and Milner, “Euro Banks Ease into Unity,” The Guardian, March 9, 1994, p. 16.


Delors Report at 4.


Peter B. Kenen, EMU After Maastricht, p. 8 n.10 (1992).


The Delors Report (at 9) states: “[e]conomic union and monetary union form two integral parts of a single whole and would therefore have to be implemented in parallel.” See also Id. at 24–27.


Id. at 8.


Id. at 10.


Id. at 11.






Id. at 18.


Id. at 19.


Id. at 19–20.




Id. at 12.




Id. at 20.


Id. at 27–38.


Id. at 28.


Id. at 29.


Id. at 32–33.


Id. at 33.


Id. at 35.




Derrick Wyatt and Alan Dashwood, European Community Law, 3rd. ed. (London: Sweet and Maxwell, 1993), p. 15.


The legislation concerning these amendments are: Title VII of the Treaty of Rome, the various Protocols of the Treaty of Rome, including the Statute of the European System of Central Banks and of the European Central Bank and the Statute of the European Monetary Institute.


Maastricht Treaty Article 109f and Protocol on the Statute of the European Monetary Institute. Both the Committee of Governors and the European Monetary Cooperation Fund are dissolved. For further information, see Jean-Victor Louis, The Present State of the Monetary Integration Process in Europe—The European Monetary institute, Report to the Monetary Law Committee of the International Law Association (January 1994).


See generally Rosa Maria Lastra, “The Independence of the European System of Central Banks,” Harvard International Law Journal, Vol. 33 (Spring 1992), pp. 475–519,


Milton Friedman, “Monetary Policy: Theory and Practice,” Journal of Money Credit, and Banking, Vol. 14 (February 1982), p. 118.


Newsweek, Vol. 29 (March 1, 1982), quoted in King Banaian and Leroy O. Laney. “Central Bank Independence: An International Comparison,” Federal Reserve Bank of Dallas Economic Review (March 1983), p. 2. See also Robert D. Auerbach, “Politics and the Federal Reserve,” Contemporary Policy Issues, Vol. 43 (Fatt 1985), p. 57: “A new system is needed to translate the political premiums for long-run price stability and full employment into long-run monetary policy. The Federal Reserve should be part of the Treasury so that political signals can be given efficiently. The U.S. President should take full responsibility for the country’s monetary policy”


See Section 2A of the Federal Reserve Act: “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates…” (12 USC 225a).


Quoted in Lord O’ Brien of Lothbury, “The Independence of Central Banks,” an address before the Société Royale d’ Economie Politique de Belgique (Dec. 14, 1977) at p.18.


Id. at 18–19.


These items comprise the basic tasks to be carried out through the ESCB in accordance with Maastricht Article 105.2. There are other matters referred to in Maastricht and its Protocol which are not characterized as basic tasks. See, for example, Chapter IV of the Protocol.


While this topic does not appear to be a formal requirement of compliance, it is included for reference in consequence of its related interest.


France, Greece (proposed), Spain (proposed). It should be noted that the Draft Bank of Spain Autonomy Law (Dec. 1992) is the version referred to in this paper.


Denmark, Germany, and the Netherlands.


Belgium, Italy, and the United Kingdom.


Articles 1 and 2.1 of Act on the Status of the Banque de France and the Activities and Supervision of Credit Institutions, August 4, 1993. It should be noted that certain provisions of the law were invalidated by a ruling of the Conseil Constitutionnel on August 3, 1993. All the provisions of the Act of August 4, 1993 that were invalidated by the ruling were reintroduced in the law by an Act of December 31, 1993. It is understood that they are to be submitted to Parliament again, now that all EC members have ratified the Maastricht Treaty The current Statutes of the Bank of Greece and Law 1266/1982 may need to be amended in order to avoid conflicts.


Article 30 bis.


Articles 1.1 and 2.


Article 7.


Article 2.


Articles 2.2, 3, and 4.


Articles 2.3(b), 7.2, and 11.


Articles 6 and 7.1.


Articles 3, 6.1 and 7. See The Deutsche Bundesbank, Its Monetary Policy Instruments and Functions, Deutsche Bundesbank Special Series, No. 7, pp. 24–25.


Sections 9 and 26.


This power has never been exercised by the Minister of Finance.


See Payment Systems in Eleven Developed Countries (Basle: Bank for International Settlements, 1989), p. 146. (providing “on the basis of the Bank Act of 1948, the bank claims an active role in the development of the payment system.”)


The authority in this area appears to derive from other laws. It should be noted that by Act of 11 January 1956 it was provided that directions for limiting the aggregate amount of bank notes in circulation, bank drafts, and demand deposits received should state the percentage of reserves in gold and foreign exchange which the Bank is required to maintain against these liabilities. In addition, the legislation according to which the Netherlands became a participant in the Special Drawing Rights of the International Monetary Fund states that special drawing rights allocated to the Netherlands shall be held by the Netherlands Bank.


See Committee of Governors of the Central Banks of the Member States of the European Economic Community Annual Report, 1992 (1993), p. 88 (hereinafter, Annual Report), stating “The Bank’s responsibility is to advise on monetary policy and to carry out the policy that has been agreed by the Bank. Final decisions on monetary policy matters are for the Government. … the Bank has considerable discretion in the conduct of these operations, although the interest rate objective is determined by the Government”)


Article 22.


Draft Law No. 1089, Art. 1.


Annual Report, supra, at 89.


See Bundesbankgesetz, Article 20. See also Deutsche Bundesbank Special Series No. 7, The Deutsche Bundesbank, Its Monetary Policy Instruments and Functions” (1987), p. 21.


Bundesbankgesetz, Articles 7 and 8.


Article 24.


Section 23(1) of the Bank Act. The Netherlands Executive Directors are to be appointed by the Crown, from a list of three nominees proposed by the Governing Board and the Supervisory Board. Id. at 23(2).


Article 2.2 of the 1946 Bank of England Act.


Article 19 of the draft law.


Articles 7 and 8.


Article 8. In the draft bill, this list was also established by the vice-president of the “Conseil d’Etat,” the “premier” president of the “Cour de Cassation” and the “premier” president of the “Cour des Comptes.” This provision was rejected by the National Assembly, which felt that the members of the Monetary Policy Council must be proposed by political authorities and not by courts.


Annual Report, supra, at 82; Article 17.


Article 29 of the Statutes of the Bank of Greece.


However, Article 29 of the current Statutes of the Bank of Greece may need to be amended to reflect this standard.


Belgium, Denmark, Italy, and the Netherlands. (See, however, Section 23, paragraph 5 of the Bank Act 1948 of the Netherlands in the case of “non-compliance” with a direction referred to in Section 26).


Spain (expiration of term, resignation, attainment of age of 70, permanent disability to exercising their functions, serious lack of fulfillment of the obligations, guilty of a crime) and the United Kingdom (lunacy, bankruptcy, conviction for an offense, resignation, continuous absence from meetings of the Court of Directors without consent).


Bundesbankgesetz Art, 7(4).


See The Deutsche Bundesbank, Its Monetary Policy Instruments and Functions, pp. 7–8 (1987), Deutsche Bundesbank Special Series No. 7.


Bank of England Act 1946, Art. 4.


Bank Act, Section 26.


Article 9.


The Government Commissioner does not, in practice, attend meetings of the Board of Directors.


Statutes of the National Bank of Belgium, Art. 78.


Organic Law of the National Bank, Art. 30.


Id. at Art. 30 bis.


Draft Bank of Spain Autonomy Law (Dec. 1992). Art 15.3


Id. at Art. 15.4


National Bank of Denmark Act of 1936. Art. 7.




Annual Report, supra, at 83.


protocol Art, 15.1 and 15.3


Id. at Art. 15.2


Maastricht Treaty, Art. 109b3.




Id. at Art. 173, 175, 176, 177 and 184. See Protocol Art. 35.


Protocol Art. 35.6


Id at Art. 35.3


Annual Report, supra, at 86.


Article 31.


Draft Article 7.


Article 16.1(c).


Articles 5.1 and 5.2.


Annual Report, supra, at 83.


Id. at 89.






Article 4a of the 1936 Act.


Germany (Article 11); the Netherlands (Article 25 of the Bank Act); Spain (Article 13(b) of the draft law) and the United Kingdom (1694 Charter); France (Articles 12 and 13 of the draft law).


Article 25 of the Bank Act 1948.


Denmark (duty explicitly applies only to Directors): Italy (duty applies to “officials,” an undefined term. Art. 62); and the Netherlands (the Chairman “may require” that the Central Bank Council be bound by the duty of professional secrecy (cf. Bank Act 1948, Section 34 and Art. of Assoc., Art, 25e).


Belgium, Denmark, France, Italy, and the Netherlands. It is understood that in practice the duty extends beyond employment in the Netherlands.


Bundesbankgesetz Section 32.


Article 31.


Bundesbankgesetz Article 29.


Statutes of the Bank of Greece, Article 44.


Statute of the Bank of Italy. Articles 7 and 23.


Ley 30/1980 Article 15.5 and Draft Banco de España Autonomy Law Article 1.3.


Bank Act, Section 28. See, however, the code of civil law which is understood to set out an obligation for external audit.


Nationat Bank of Belgium Law, Article 31.


See “The Functions and Organisation of the Bank of England,” reprinted in May 1975 from the Bank of England Quarterly Bulletin.


Statutes with explicit provisions: Belgium. Denmark, France, Germany, Greece, and the Netherlands. Spain’s legislation provides that the Bank will have the same “fiscal regime as the state.” which apparently means that the calendar year is to be used, Italy’s legislation provides that a balance sheet for the first half of the year is to be prepared in July; thus it may be surmised that the calendar year is used for the fiscal year.

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