Monitoring compliance with the prohibition of monetary financing and privileged access

2.5.5 Monitoring compliance with the prohibition of monetary financing and privileged access

Under Article 237(d) of the EC Treaty, the ECB is entrusted with the task of monitoring compliance with the provisions of Articles 101 and 102 of the Treaty

and Council Regulations (EC) Nos 3603/93 22 and 3604/93 23 . Article 101 of the Treaty prohibits the ECB and the NCBs from providing overdraft facilities or any other type of credit facility to governments and Community institutions or bodies, and from purchasing debt instruments directly from them; an exception to this is the UK government’s “ways and means” facility with the Bank of

England 24 . Article 102 prohibits any measure, not based on prudential considerations, that establishes privileged access for governments and Community institutions or bodies to financial institutions.

Within the ECB, the General Council performs the task of monitoring compliance with these provisions since they apply to the central banks of all EU Member States. The European Commission monitors Member States’ compliance.

The ECB also monitors the EU central banks’ secondary market purchases of debt instruments issued by both the domestic public sector and the public sector of other EU Member States. According to Council Regulation (EC) No 3603/93, the acquisition of public sector debt instruments in the secondary market must not be used to circumvent the objective of Article 101 of the Treaty, thereby becoming a way of indirectly financing the public sector.

21 See ECB (2004), Annual Report 2003, Section 4.1. 22 Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 23 Council Regulation (EC) No 3604/93 of 13 December 1993 specifying definitions for the application of the prohibition of privileged access referred to in Article 104a of the Treaty (OJ L 332, 31.12.1993, p. 4). 24 Paragraph 11 of the Protocol on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland.

2 . 5 . 6 Pe r f o r m a n c e o f t a s k s t a ke n ove r f r o m t h e E M I

Since some EU Member States do not participate in Stage Three of EMU (see Section 1.2.2), some tasks of the EMI still need to be performed. Following the liquidation of the EMI, Article 123(2) of the EC Treaty and Article 44 of the Statute of the ESCB entrusted these transitional tasks to the ECB.

The two basic tasks taken over by the ECB from the EMI are: • to foster cooperation between the Eurosystem and the non-euro area NCBs; • to make the preparations required for the integration of new Member States’

NCBs into the ESCB and for the eventual accession of non-euro area NCBs to the Eurosystem.

The accession of ten new Member States to the European Union on 1 May 2004 and the prospect of further EU enlargement give a new dimension to the tasks taken over from the EMI. Although new Member States will only adopt the euro at a later stage, i.e. when they fulfil the necessary conditions, their NCBs have become ex officio members of the ESCB. As regards the recent EU enlargement, the ECB had been preparing the integration into the ESCB of the ten new NCBs for the past few years and, looking ahead, it is now considering the implications of these countries’ eventual integration into the Eurosystem.

Also under Article 123(2) of the EC Treaty and in line with Article 9 of Council Regulation (EC) No 332/2002 25 , the ECB administers the borrowing and lending operations of the European Community under the medium-term financial assistance mechanism 26 . The mechanism is based on Article 119 of the Treaty, which gives, among other things, assistance to non-euro area Member States in case of serious balance of payments difficulties. The proceeds of such operations may only be transferred to the central banks of the beneficiary Member States. Currently, the mechanism is not used.

25 Council Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States’ balances of payments (OJ L 53,

23.2.2002, p. 1). 26 Decision ECB/2003/14 of 7 November 2003 concerning the administration of the borrowing-

and-lending operations concluded by the European Community under the medium-term financial assistance facility (OJ L 297, 15.11.2003, p. 35).

Illuminated euro symbol in front of the Eurotower.

3 E C B P O L I C I E S A N D E U RO S YS T E M A C T I V I T I E S

3 . 1 T H E C O N D U C T O F M O N E TA RY P O L I C Y

A detailed description of the ECB’s monetary policy including theoretical foundations and practical implementation is given in The monetary policy of the ECB, published by the ECB in January 2004. The present publication limits itself to the presentation of basic considerations on this policy function.