Distribution of national seigniorage profits is a matter for governments – ECB

Distribution of national seigniorage profits is a matter for governments – ECB

New head of Commission’s civil service is seen as key backer of seigniorage proposals European Commission
 https://www.centralbanking.com/central-banks/3433841/distribution-of-national-seigniorage-profits-is-a-matter-for-governments-ecb


The European Commission's headquarters Dan Hardie 29 Mar 2018 Tweet Facebook LinkedIn Save this article Send to Print this page Followi Dan Hardie Europe European Central Bank (ECB)


The European Central Bank has said that individual eurozone countries must decide whether they direct profits from seigniorage to the European Commission, the European Union’s executive arm. An official statement from the ECB noted that any attempt to change how it distributes the profits of seigniorage in the eurozone would require amendments to the law that governs the institution. European commissioners privately discussed proposals to take such a step at their meeting yesterday (March 28). Sources in Brussels say no public comment from the Commission is likely before it publishes its official proposals on the matter, in an announcement expected to be on May 2. 

 The ECB says it retains some of the profits it generates to hold as reserves and distributes the rest to national central banks. In a statement sent to media outlets including Central Banking, the bank said: “The ECB distributes its profits to the ECB shareholders, the national central banks (NCBs). Together with their own profits, the NCBs distribute it, according to national legislation, to their shareholders which are the finance ministries. The respective ministries/governments decide what they do with that money.” The ECB added that “It is important to note that a change in the way ECB profits are distributed would require changing the [European System of Central Banks] statute”. The Commission is considering the proposal as one of several ways of raising revenue that it would directly control, rather than receive from the governments of European states. The likely fall in revenue that will follow the UK’s departure from the European Union is one factor prompting the proposals, according to some observers.

Revenue estimates 

In an official communication issued on February 14, the Commission suggested that a share of the seigniorage paid to national finance ministries “could be made available for the EU budget as a form of national contribution”.

The Commission said that “depending on the percentage applied, estimated revenues from seigniorage could range between €10.5 billion (10%, $13 billion) and €56 billion (50%) over seven years”. But the estimates of possible revenues from seigniorage may be too optimistic. The ECB’s annual report for 2016, published in April 2017, says that the central bank effectively made no profit on seigniorage that year. “The rate on the main refinancing operations decreased, significantly reducing the seigniorage income of the ECB,” the report says. “The average rate for 2016 was 0.01%, compared with 4% for 2008, and, as a result, the interest income on banknotes in circulation fell from €2.2 billion in 2008 to €0.01 billion in 2016.”

Key supporter 

Observers of EU institutions say a key supporter of the proposals is Martin Selmayr, who recently became head of the Commission’s civil service. He was appointed secretary-general on February 21, after being nominated by Commission president Jean-Claude Juncker. His predecessor, Alexander Italianer, unexpectedly stood down after two and a half years in the role, shortly after Juncker had nominated Selmayr for the position of deputy secretary-general. Selmayr’s appointment led to a heated public hearing in a European Parliament committee meeting. Members of the Parliament repeatedly questioned his appointment to the role, raising concerns about his perceived closeness to Juncker and how rapidly he had been given the job. A draft resolution prepared by the Parliament’s budget control committee has described Selmayr’s appointment as a “coup-like action” which threatens “reputational risk” to European institutions. Selmayr was Juncker’s campaign manager when the former Luxembourg prime minister lobbied to become president of the Commission in 2014. When Juncker was confirmed as president, he appointed Selmayr as his chief of staff, a role he held until being appointed secretary-general. Selmayr is a German citizen who worked as a lawyer at the ECB from 1998 to 2000. He and Claudia Zilioli co-authored a book, The law of the European Central Bank, which was published in 2001.