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Dr Marek Porzycki Chair for Economic Policy

Monetary Law and Monetary Policy 9. Legal background of the euro. Derogation and euro adoption. Dr Marek Porzycki Chair for Economic Policy. Overview. Treaty provisions on the euro Euro regulations Derogation and adoption of the euro Opt-out Convergence criteria

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Dr Marek Porzycki Chair for Economic Policy

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  1. Monetary Law and Monetary Policy9. Legal background of the euro. Derogation and euro adoption. Dr Marek Porzycki Chair for Economic Policy

  2. Overview • Treaty provisions on the euro • Euro regulations • Derogation and adoption of the euro • Opt-out • Convergence criteria • Euro adoption in Poland

  3. Treatyprovisions on the euro • Art. 3(4) of the EU Treaty: The Union shall establish an economic and monetary union whose currency is the euro. • Art. 119(2) of the TFUE: activities of the Members States and the Union within economic policy shall include a single currency, the euro, and single monetary policy • Art. 128 of the TFUE: • exclusive right of the ECB to authorise the issue of euro banknotes, issuance by ECB and NCBs, legal tender status. • coin issuance by Member States subject to ECB approval of the volume of issue • Derogation and euro adoption – Art. 139-140 of the TFUE

  4. Euro regulations • Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro • continuity of legal instruments (a broad term including legal provisions, contracts, judicial and administrative decisions and other instruments with legal effect) • conversion and rounding rules • Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro • direct basis for legal tender status for the euro (Art. 2, 10, 11) • substitution of the euro for legacy currencies • conversion of reference to legacy currencies in legal instruments

  5. Euro regulations 2 • Council Regulation (EC) No 2866/98 of 31 December 1998 on the conversion rates between the euro and the currencies of theMember States adopting the euro • setting of irrevocable conversion rates between legacy currencies and the euro • Council Regulations No 1338/2001 and No 1339/2001 on protection of the euro against counterfeiting

  6. Derogation • Situation of MemberStateswhich do not (yet) fulfil the necessaryconditions for the adoption of the euro • Coreprovisions of the Treatycovering EMU do not apply to MemberStates with derogation • Legalbasis – Art. 139 of the TFUE • Adoption of the euro – Art. 140 of the TFUE • ConvergenceReports by the ECB and Commission • proposal of the Commission • consultation of the EuropeanParliament • discussion in the EuropeanCouncil (heads of statesorgovts) • decision by the Council to abrogate the derogation, afterrecommendation of a qualifiedmajority of eurozoneMemberStates • amendment to regulations no 2866/98 (adding the irrevocable exchange rate of newcurrency) and no 974/98 (setting the euro adoptiondate) usual timing: ConvergenceReports by May, Councildecision in July, euro adoption from 1 January of the followingyear

  7. Derogation 2 • Member States with derogation are legally required to adopt the euro once they fulfil the convergence criteria  the decision is taken not by the Member State concerned but by the EU institutions • However, Member States can delay adoption of the euro for indefinite time by not fulfilling the convergence criteria (e.g. not introducing necessary amendments to the legislation) • Example: Sweden. In a referendum in 2003 Swedish people voted against euro adoption. Since then, although legally required to adopt the euro, Sweden does not fulfil the convergence criteria despite its ability to meet them  a „de facto opt-out” • currently 7 Member States with derogation, including Poland, legally required to adopt the euro

  8. Opt-out – protocols on the UK and Denmark • „opt-outs” – exemptions negotiated at the time of adoption of the Maastricht Treaty (1992/93) • UK: protocol no 15 to the Treaty • UK has no obligation to adopt the euro unless it notifies the Council that it intends to do so. • exclusion of application of Treaty provisions on euro, similar to derogation but not specifically called derogation. • in case of decision to join the euro, UK needs to meet convergence criteria • euro changeover plans prepared, last in 2003 • Denmark: protocol no 16 to the Treaty • Denmark is considered a Member State with derogation. Procedure for abrogation of the exemption may only be inititated at the request of Denmark. • euro adoption rejected in referendum in 2000

  9. Convergencecriteria • Relation between the convergence criteria and the OCA theory • Legal basis: Art. 140(1) of the TFEU, Protocol no 13 • Fiscal criteria: avoiding excessive deficit in the meaning of Art. 126 of the TFEU and Protocol 12 • budget deficit not exceeding 3% of the GDP • government debt not exceeding 60% of the GDP • Price stability criterion – inflation not exceeding by more than 1,5% inflation in 3 „best performing” Member States

  10. Convergencecriteria 2 • Interest rate criterion: nominal long-term interest rates (measured on the basis of govt bonds or comparable securities) not exceeding corresponding rates in 3 „best performing” Member States in terms of price stability by more than 2% • Exchange rate criterion – participation for at least 2 years in ERM II (fluctuation margins of +-15%) without severe tensions, in particular avoiding devaluation • Legal convergence – compatibility of the national legislation with the Treaty and the Statute of the ESCB • Assessment – Convergence Reports

  11. Euro adoption in Poland? • need to amend the Constitution (Art. 227 and Art. 203(1))  sufficient majority needed  problem of political will • practical and legal preparations  Commision recommendations and experience of other Member States; work already done (NBP, Finance Ministry) • fears of the general public (does euro adoption mean rising prices?)  protection mechanisms • economic reasons for and against • general issue: would we use euro adoption to justify introducing necessary reforms or introduce only narrow reforms needed just to meet the convergence criteria • Crisis in the Eurozone  „wait and see” approach of the Polish authorities

  12. Reading • Hanspeter K. Scheller, The European Central Bank. History, Role and Functions, 2nd ed. Frankfurt 2006, pp. 28-40 http://www.ecb.eu/pub/html/index.en.html • Ch. Proctor, Mann on the Legal Aspect of Money, 7th ed. 2012: • Chapter 26, EMU and the Treaty on the EU, pp. 701-724 • Chapter 28, The Single Currency and its Treaty Framework, pp. 745-753 • Chapter 29, The Euro Regulations, pp. 755-775 Reference (facultative): Convergence Reports • by the ECB http://www.ecb.int/pub/convergence/html/index.en.html • by the Commission http://ec.europa.eu/economy_finance/publications/european_economy/convergence_reports_en.htm

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