Law of the EMU and euro

ECB: "unilateral euroization by Iceland comes with real costs and serious risks"

This week the European Central Bank (ECB) objected to possible euroization by Iceland. In a speech at the Iceland Chamber of Commerce, Mr. Jürgen Stark, member of the ECB’s Executive Board, said that he is “aware that unilateral euroisation is being discussed in Iceland as a possible option.” He continued by saying that the ECB would “neither encourage nor facilitate such a move.” Or in other words “The ECB would thus pursue a policy of non-engagement and non-support towards” unilateral euroization.

 

The ECB did also have a word of warning for Iceland, stating that such euroization’s “benefits are uncertain, whereas the costs are real, and the risks serious.”

 

As to a possible “partial euroisation sponsored by the private sector, as opposed to an official euroisation”, Mr. Jürgen Stark noted that he would “not dwell much on this issue”, stating that “the potential benefits are more limited, whereas some of the costs may be less acute.”

Politically the most interesting comments made by Mr. Jürgen Stark relate to national sovereignty: "After all, a currency is a key attribute of sovereignty. Sharing a common currency implies sharing a common political destiny."

The speech given by Mr. Jürgen Stark (reproduced below) gives also an overview of the procedure leading to the adoption of the euro.

Although this overview gives a good impression of the 'road to Frankfurt', it seems to be less accurate with respect to some issues.

For example, central bank independence is mentioned as a criterion to join the euro area. In fact, this criterion is applied at an earlier stage when candidate countries accede to the EU. Central bank independence is, however, indeed a "cornerstone" of the relevant criteria. While the European Commission restricts the test to statutory requirements such as central bank independence, the ECB includes a broader range of issues in its assessments. In its convergence reports the ECB also addresses legislation in the area of, i.a., banknotes, coins, foreign reserve management and exchange rate policy.

Moreover, stating that "the road to the euro consists of two stages" is an oversimplification of a very complex procedure composed of, as I would like to see it, three stages with six sub stages (which, I'm aware, is a simplification as well). The three stages would be (i) accession to the EU, and consequently accession to the Economic and Monetary Union (EMU) as a member state that has yet to adopt the euro, (ii) participation in ERM II, i.e., the European exchange rate mechanism, and (iii) adopting the euro and accession to the euro area.

 

Commemorating 10 years of Economic and Monetary Union

To celebrate the 10-year anniversary of the launch of Economic and Monetary Union (EMU) and the creation of the euro, all euro-area countries will issue a commemorative 2-euro coin with a common design. It will be available at the beginning of 2009.

A design competition between the mints of the euro area has resulted in the pre-selection by the Mint Directors of 5 designs, presented here. The final winning design will be selected exclusively by your votes via this web page.

 

The selection is open to all EU citizens and residents. Each person may only vote once. A prize of a set of high-value euro collector coins will go to a participant chosen at random from those who voted for the winning design. Voting will be closed on 22 February 2008.

Coin above (left): An expanding spiral of ten stars – or ten Europeans joining hands – symbolises the solidity of the euro after ten years of economic and monetary union, and its continuing growth and development.

Go to the European Commission website to vote.

 

The euro is the latest step in the long history of trade, from pre-historic barter – evoked by the deliberately primitive design – to economic and monetary union.

 

 

 

 

 

 

 

 

Next to the euro symbol, the Roman figure X stands for 10 years of economic and monetary union. It also symbolises Europe as a crossroads where peoples and cultures come together. The spiral suggests growth and development.

 

 

 

Next to the euro symbol, the Roman figure X stands for 10 years of economic and monetary union. It also symbolises Europe as a crossroads where peoples and cultures come together.

 

A series of curved lines pointing toward the euro is reminiscent of the European Parliament's semi-circular debating chamber, where the people's representatives gather from every corner of the EU.

 

Turkish Language Enters Euro Area

When, at the beginning of this year, Cyprus adopted the euro and joined the euro area, the Turkish language joined the European language community.

 

As a consequence of Cyprus’ EU membership al citizens of the Republic of Cyprus are also citizens of the European Union. This applies both to the Greek Community and the Turkish Community of Cyprus.

These two communities are defined in the Cypriote Constitution. The Turkish Community comprises among others all citizens of the Republic of Cyprus who are of Turkish origin and whose mother tongue is Turkish.

 

The Cypriot Constitution provides that Greek and Turkish are the Republic’s official languages. Legislative acts and government documents have to be drawn up and published in both official languages. Greeks and Turks must be addressed by the Cypriot government in the Greek or the Turkish language respectively.

 

Cyprus’ language diversity also manifests itself on, among other things, stamps, and Cypriot banknotes and coins. As of January 1, 2008, on the national side of “Cypriot euro coins” the name “Cyprus” reads both “KΥΠΡΟΣ” in Greek and “KIBRIS” in Turkish.

 

On May 19, 2006, AgoraVox ran an article, authored by myself and titled “Turkey’s European Dream Starts with the Turkish Language”.

Source of pictures: ECB website

ECB Governors Close to Loosing Their Voting Rights

On January 1, this year, Malta and Cyprus joined the euro area. Now there are 15 countries that use the single European currency, the euro. When one more country joins this group of countries, the new voting rules for the ECB’s Governing Council will apply, unless it is decided to postpone the introduction of the so called rotation system until the euro area comprises more than 18 member countries.

 

Under the rotation system the number of Governors with a vote will be fixed at 15. So, at any give time some Governors will be participating in the meetings of the Governing Council without a vote.

 

In a previous log I addressed this issue and referred to a paper by Ansgar Belke (University of Hohenheim) and Barbara Styczynska (University of Fribourg).

 

The rotation system was also the subject of a paper authored by a member of the ESCB’s inner circle, i.e. Dominique Servais who is Head of the European Central Bank Coordination Unit at the Nationale Bank van België/Banque Nationale de Belgique.

 

“The Future Voting Modalities of the ECB Governing Council” in the proceedings of the workshops “The European Integration Process: A Changing Environment for National Central Banks” organized by the Oesterreichische Nationalbank (2005)

 

Recent ECB Legal Working Papers

THe European Central Bank has published two more legal working papers. Both are available in the Reading Room of this blog.

Legal and institutional aspects of the currency changeover following the restoration of the independence of the Baltic States
by Kristine Drevina, Kestutis Laurinavicius and Andres Tupits

Privileges and immunities of the European Central Bank
by Georg Gruber and Martin Benisch

 

Cross-border euro payments: the Latvian case

The European internal market needed a single currency. So, the EU introduced the euro: as of January 1, 2008, the currency of 15 EU Member States. But what about the internal market for euro payments? Or in EU speak: is there a Single Euro Payments Area (SEPA)? Not yet, according to the European Commission. Hence the proposal for a Directive on a New Legal Framework for Payments in the Internal Market.

 

In April of this year, the European Parliament welcomed this proposal and adopted the Directive on Payment Services (PSD). The aim of the PSD is to ensure that payments within the EU become as easy, efficient, and secure as domestic payments within a Member State, by providing the legal foundation to make the SEPA possible. The PSD is send to the ECOFIN Council for final adoption.

 

But what about the current legal framework, that is inter alia, Regulation 2560/2001 on cross-border payments in euro. This Regulation attempts to eliminate the difference of price between cross-border and national payments. It applies to credit transfers, cash withdrawals at cash dispensers and payments by means of debit and credit cards. The basic principle is that the charges have to be the same whether the payment is national or cross-border.

 

The European Commission issued a Consultative Document on the application of Regulation 2560/2001 and invited interested parties to submit comments. Professor John Burke published a paper on the application of this Regulation in Latvia. His assessment focuses in particular on one aspect of the Regulation, that is, cross-border credit transfer of funds. In addition, his article examines from an empirical perspective, the implementation of the Regulation by 23 banks in Latvia.

 

Burke concludes as follows:

 

“The Regulation appears to have partially achieved its objectives in Latvia. As at the date of the study, more than 66 per cent of the banks comply with the requirements of the Regulation.44 However, the data demonstrates that the Regulation had not induced a system of inexpensive fund transfers for cross-border payments in euro. Third, individual consumers that may be victims of overcharging, lack incentives to file complaints against banks due to the limited amount in dispute. Fourth, a Community level revision of the Regulation should address the market reality of the complex pricing patterns including: BEN, OUR and SHARE mode transfers, discounts to associated groups of banks that are not branches of a single institution, and the effect of the CREDEURO and ICP conventions. Any revision should also remove any ambiguity of language stemming from interpretations of the terms ‘‘same institution’’ and ‘‘corresponding payments’’. These arguably ambiguous terms leave a large margin of discretion for banks to implement the Regulation in a non-uniform manner contrary to the objective of establishing a single payment market. Finally, a revised Regulation should address the question of requiring banks to provide audit trails of transfers based on the actual cost of producing the document. At the national level, authorities must address the question of providing a remedy for violations of the Regulation resulting in overcharging. In Latvia, the study has demonstrated that, in certain instances, banks may have charged consumers rates based on price lists in apparent violation of the Regulation.”

 

John J.A. Burke, “Application of Regulation 2560/2001: An Empirical Study of the Latvian Banking System”, [2007] J.I.B.L.R. 17-38

 

About the author: John Burke is rector and professor of international commercial law, Riga Graduate School of Law, Latvia

Public Security Exceptions under Economic and Monetary Union

A short while ago the European Banking and Financial Law Journal published my paper on EU Member State’s power to invoke – or not – Article 297 of the EC Treaty to derogate from EC Treaty provisions regarding European Economic and Monetary Union. The abstract may be found below.

 

Atilla Arda, “Public Security Exceptions under Economic and Monetary Union – A legal analysis of invoking Article 297 EC to derogate from EC Treaty provisions regarding European Economic and Monetary Union”, European Banking and Financial Law Journal (Euredia), p. 221-261, 2006/2

 

Abstract

This contribution explores public security exceptions that may be invoked within the framework of Economic and Monetary Union (EMU). The analysis is centered on Article 297 of the EC Treaty, which principally entails a sweeping derogation capable of authorising the temporary suspension of all of the ordinary rules governing EMU in the event of serious threats to Member States’ internal and external security.

 

The analysis shows that Article 297 has to be seen as a last resort. A too-easy invocation of this provision would diminish the importance of several principles of Community law and impair the binding nature of Community law and its uniform application and judicial review.

 

Based on Article 297, a Security Exceptions Roadmap is constructed and applied to the EC Treaty’s EMU Chapter. It is concluded that although Article 297 is in principle applicable within the context of EMU, it is very hard for Member States to invoke Article 297, especially where the “M” part of EMU is concerned.

 

To stress the Community’s preparedness in the face of security threats, it is submitted that the Community may consider adopting a “Regulation on Economic Emergency Powers”, setting out in advance the substantive and procedural provisions according to which emergencies will be handled.