Because of its membership since 1999 in the European Monetary Union (EMU), Portugal's monetary policy is governed by the European Central Bank's (ECB) Governing Council. Thus, Portugal does not have direct responsibility for the handling of monetary policy, and its compliance with this standard is equivalent to the compliance rating accorded to the Euro-system as a whole. According to the International Monetary Fund (IMF), the Euro-system is highly transparent, is strongly committed to openness, and is highly observant of the Code of Good Practices on Transparency in Monetary Policy. The IMF finds that the ECB is also committed to an active public communications policy. However, one area where transparency is at least partially compromised is in the inconsistency of disclosure practices across the individual national central banks of EMU member states.

General Overview

Since the launch of the European Monetary Union (EMU) on January 1, 1999, the Banco de Portugal (BdP) is no longer directly responsible for monetary policy. Instead, monetary policy is determined by the Governing Council of the European Central Bank (ECB). The implementation of monetary policy decisions rests with the Eurosystem, comprising the ECB and the twelve National Central Banks of member states that have adopted the Euro. According to the International Monetary Fund's (IMF) 2001 Report on the Observance of Standards and Codes (ROSC), the Eurosystem complies with nearly all monetary policy transparency standards and has demonstrated a strong commitment to communicating with the public. The ECB offers a wide range of publications regarding its policies, practices, and procedures, and most are available on its website. The ECB also welcomes visits by the press and the public. The IMF's 2001 ROSC for the Euro Area noted that the Eurosystem implements the ECB's monetary policy decisions. The functioning of the Eurosystem is complicated by "its complex architecture, the varied monetary and legal heritages of participating National Central Banks, and uncertainties about the structural characteristics of the euro area" (p. 7). The fact that the central bank of each member nation has developed its own transparency practices has given rise to difficulties in establishing comparability of policy and data across the Euro Area.

The 2001 ROSC noted that "the Eurosystem observed all 46 principles contained in the Code (two of which were regarded as not applicable), and only eight of these were considered to be only 'broadly' or 'partly' observed" (p. 12). In the ECB’s 2005 Annual Report, the bank announced that it would not publish the minutes of its Governing Council discussions "in order to maintain the confidentiality of its meetings" (p. 143). Instead, it reaffirmed its opinion that other channels of communication permitted greater timeliness, such as the press conferences that it held after such meetings. These, the ECB argued, provided "in real time, a comprehensive account of the reasons underpinning the Governing Council’s decisions, and thus essentially serve the same purpose as minutes" (p. 143), without the delay that would result from the publication of formally adopted minutes.

The ECB's 2005 Annual Report also stressed that the combination of press conferences, the Monthly Bulletin, and the monthly communication on Governing Council decisions taken in addition to interest rate decisions, make the ECB "one of the most transparent central banks in the world" (p. 144). In the same report, the ECB president noted that the disclosure of specific voting behavior could result in undue pressure being brought to bear on individual council members, with the result that they might lose sight of the broader Euro-area perspective that should govern their deliberations. The Treaty of Lisbon was signed by the European Union’s (EU) heads of states on December 13, 2007, and if ratified by all 27 member states will come into force on January 1st 2009. According to ECB president Trichet’s foreword to the 2007 ECB Annual Report, the ECB welcomes that the new Treaty states that "price stability is an objective of the EU, while making Economic and Monetary Union, with the euro as its currency, an EU objective" (p. 10). The independence of the ECB, the European System of Central Banks (ESCB) and of the National Central Banks is confirmed by the new Treaty, as well as the legal status, regulatory powers and financial independence of the ECB.

In its 2005 Article IV Consultations with the Euro-Area countries, the IMF noted that the Eurosystem has helped to foster macroeconomic stability and reform. According to the Consultation, "peer-driven, multilateral surveillance has encouraged the adoption of better policies." In its 2008 Article IV Consultation report on the Euro-Area countries, the IMF noted that, ten years after its launch, "monetary union is a distinct success" (p. 19). The report noted that the representatives of the ECB found its two-pillar approach to policy to be quite useful. The two pillars – monetary analysis on the one hand and economic analysis on the other – enable the ECB to more clearly see the close relationship between persistent inflationary trends and "the medium-term trend growth of money" (p. 13). The report further noted that the ECB was currently attempting even greater refinement and a broadening of its monetary analysis. The IMF staff suggested that the ECB's current monetary analysis tends to overemphasize certain inflationary signals, but welcomed the efforts toward broader analysis, arguing that it could provide "a clearer narrative of the relative role of monetary aggregates in influencing the policy stance.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

FC

Since the launch of the EMU on January 1, 1999, Portugal's monetary policy came under the direction of the Eurosystem and the ECB. The IMF's 2001 ROSC for the Euro Area stated that "in terms of the clarity of roles, responsibilities, and objectives of the Euro-system, there is a high degree of observance of the Code" (p. 8). The goals and responsibilities of the ECB and National Central Banks in the Euro area are clearly set forth in the Maastricht Treaty and the Statute of the European System of Central Banks (1992). The ROSC noted, however, that there remains a lack of clarity as to foreign exchange policy and how it is allocated between the Council of Ministers and the Eurosystem. The 2001 ROSC specifically observed that "operationally, the varied disclosure practices by National Central Banks on the terms and conditions for government deposits and participation in government securities markets could be improved by the National Central Banks adopting a common approach to greater disclosure" (p. 8).

The 2001 ROSC cited the ECB position on the issue of disclosure, which maintains that the Maastricht Treaty and the 1992 Statute provide sufficient clarity, because their "provisions ensure that regular exchanges of information and views take place between the Council of Ministers and the ECB on the exchange rate of the euro" (p. 12). The ESCB and ECB are established by Articles 105 through 108 of the Maastricht Treaty. Article 105, paragraph 1 establishes the primary responsibility of the ESCB as the maintenance of price stability and the support of the European Community's general economic policies. Paragraph 2 of the same article enumerates ESCB responsibilities as follows: (1) it shall define and implement the monetary policy of the euro area, to conduct foreign exchange operations; (2) hold and manage the official foreign reserves of the Member States; and (3) promote the smooth operation of payment systems. Paragraph 5 of the Article requires that the ESCB contribute to the smooth conduct of prudential supervision of credit institutions and the stability of the financial system.

The Maastricht Treaty, in conjunction with the provisions of the 1992 Statute, confers upon the ECB (with the National Central Banks) the task of making and implementing monetary policy decisions. Article 109 of the Maastricht Treaty establishes the rules by which the ECB's Governing Council (as well as the council's Executive Board) is to be constituted, and enumerates its responsibilities in the formulation of monetary policy of the euro area. Article 109a, Paragraph 1 stipulates that the Governing Council of the ECB shall comprise the Executive Board and the Governors of the National Central Banks of the member states. In 2003, the IMF Article IV Consultations with the Euro-Area countries reported that earlier weaknesses in the ECB's monetary framework had been addressed. Previously existing communications problems had been alleviated, and greater clarity was achieved in the terms according to which price stability would be maintained, reducing the threat of area-wide deflation.

The 2001 ROSC lauded the Eurosystem's "high degree of legal and operational independence" (p. 6). The Maastricht Treaty prohibits the ECB and the National Central Banks and members of their decision-making bodies from taking instruction from any external body, and prohibits attempts on the part of member states or other bodies to influence the decisions or activities of the ECB or National Central Banks. The ESCB/ECB Statute of 1992 provides for secure tenure for National Central Bank governors and sets the minimum term of office at five years. Executive Board members serve 8-year, non-renewable terms. The statute stipulates that governors and members of the Executive Board may be removed from office only in the event of incapacity or gross misconduct. The Maastricht Treaty designates the European Court of Justice as the competent authority to adjudicate questions arising from the removal from office of a governor or board member.

Open process for formulating and reporting monetary policy decisions.

FC

In 2001, the IMF's ROSC for the Euro Area noted that both the Eurosystem and the ECB demonstrate high compliance with the Code. According to this report, "the ECB provides extensive information on the framework and procedures underlying the implementation of monetary policy" (p. 8). The ECB publishes its guidelines for Eurosystem monetary policy instruments and procedures in the Official Journal of the European Communities. It also publishes a Monthly Bulletin and regularly issues press releases, transcripts of press conferences, and other public statements in an effort to communicate both its policy stance and the considerations underlying that policy. In addition, the ECB publishes a broad range of information on the framework and procedures employed in monetary policy making and implementation. The 2001 ROSC notes that the ECB's program of data dissemination is extensive and its publications are of high quality.

Portuguese monetary policy is governed by the ECB, for which the Maastricht Treaty sets forth precise reporting requirements. According to the treaty, quarterly reports, weekly financial statements, and an annual report must be published. The ECB exceeds these requirements, publishing a monthly report in place of the quarterly publication mandated by the treaty. As noted in the ECB's 2006 Annual Report "the institutional level, the European Parliament – as the body which derives its legitimacy directly from the citizens of the EU – plays a key role in holding the ECB to account" (p. 166). Article 113 of the Treaty requires the President to present the ECB’s Annual Report to the plenary session of the European Parliament. In addition, the ECB's 2005 Annual Report notes that the President must "report regularly on the ECB’s monetary policy and its other tasks during his quarterly appearances before the Parliamentary Committee on Economic and Monetary Affairs (ECON)" (p. 152).

Other examples of the ECB’s commitment to transparency can be drawn from the 2005 Annual Report, which documented the visit of an ECON delegation to the ECB for a discussion of issues relevant to monetary policy, and discussions held with European Parliament members about EU policies regarding securities. The 2005 Annual Report also documented the ECB's practice of responding to Parliamentary requests for information and the Parliament's participation in the selection of candidates for the Executive Board.

Public availability of information on monetary policy.

FC

Since the launch of the EMU in 1999, Portugal has been a member of the Euro Area and, therefore, its monetary policy is governed by the Eurosystem through the European Central Bank. The IMF's 2001 ROSC for the Euro Area noted that the Eurosystem "maintains a high degree of observance of the Code in the area of public availability of information on monetary policy" (p. 8). The ECB complies with nearly all of the IMF's Special Data Dissemination Standard (SDDS) principles regarding coverage, periodicity, timeliness, and access by the public for central bank, banking sector, and foreign reserves data. Among the ECB's publicly available publications are detailed annual balance sheets and a weekly consolidated financial statement for the Eurosystem. The quality and accessibility of these publications are high and they are available in all European Union languages. The ECB also offers an active public information service, including press releases and addresses made by the bank's executive board. Regulations and other documentation are provided on the ECB website.

The IMF's 2006 Article IV Consultation for the euro area determined that Eurostat (the office for official publications of the European Commission) and ECB statistics maintained appropriate standards of quality, scope, and timeliness, and that previous problems regarding account compilation and publication by institutional sector have been addressed. Nonetheless, there remains a problem of account historicity, with data unavailable for the period prior to 1995. An effort to improve international comparability of accounts and to produce more frequent corporate profitability and financial soundness indicator data would be welcome, as would improvements in the quality of the data reported for nonbank financial intermediaries. Both Eurostat and the ECB are working toward improving the data they report on all three axes of timeliness, consistency, and quality. Due to a lack of resources, the fiscal accounts of EU member states are not yet optimal.

The 2007 ECB Annual Report states that "the ECB’s other statutory publications – the Annual Report, the quarterly issue of the Monthly Bulletin and the Convergence Report – are also made available in the official EU languages" (p. 172). Through the Bank of Portugal (and other EU Central Banks), the ECB also makes available its key publications and issues press releases on changes in monetary policy, macroeconomic projections, and other information or public interest, again, in all EU languages.

Accountability and assurances of integrity by the central bank.

FC

Since the launch of the EMU in 1999, Portugal has been a member of the Euro Area and, therefore, its monetary policy is governed by the Eurosystem through the European Central Bank. The IMF's 2001 ROSC for the Euro Area noted that the Eurosystem "maintains a high degree of observance of the Code in the area of public availability of information on monetary policy" (p. 8). The ECB complies with nearly all of the IMF's Special Data Dissemination Standard (SDDS) principles regarding coverage, periodicity, timeliness, and access by the public for central bank, banking sector, and foreign reserves data. Among the ECB's publicly available publications are detailed annual balance sheets and a weekly consolidated financial statement for the Eurosystem. The quality and accessibility of these publications are high and they are available in all European Union languages. The ECB also offers an active public information service, including press releases and addresses made by the bank's executive board. Regulations and other documentation are provided on the ECB website.

The IMF's 2006 Article IV Consultation for the euro area determined that Eurostat (the office for official publications of the European Commission) and ECB statistics maintained appropriate standards of quality, scope, and timeliness, and that previous problems regarding account compilation and publication by institutional sector have been addressed. Nonetheless, there remains a problem of account historicity, with data unavailable for the period prior to 1995. An effort to improve international comparability of accounts and to produce more frequent corporate profitability and financial soundness indicator data would be welcome, as would improvements in the quality of the data reported for nonbank financial intermediaries. Both Eurostat and the ECB are working toward improving the data they report on all three axes of timeliness, consistency, and quality. Due to a lack of resources, the fiscal accounts of EU member states are not yet optimal.

The 2007 ECB Annual Report states that "the ECB’s other statutory publications – the Annual Report, the quarterly issue of the Monthly Bulletin and the Convergence Report – are also made available in the official EU languages" (p. 172). Through the Bank of Portugal (and other EU Central Banks), the ECB also makes available its key publications and issues press releases on changes in monetary policy, macroeconomic projections, and other information or public interest, again, in all EU languages.