Opinion of the European Central Bank of 4 August 2025 on civil crisis and national defence (CON/2025/18)

OPINION OF THE EUROPEAN CENTRAL BANK of 4 August 2025 on civil crisis and national defence (CON/2025/18) Introduction and legal basis

On 11 June 2025, the European Central Bank (ECB) received a request from the Government Office of the Republic of Estonia for an opinion on a draft law on the Law on civil crisis and national defence (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union (TFEU) and the second, third, fifth and sixth indents of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to means of payment, Eesti Pank, payment and settlement systems, rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets, and the ECB’s tasks concerning the prudential supervision of credit institutions pursuant to Article 127(6) TFEU. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

1.1 The draft law establishes a comprehensive legal framework for crisis management in the Republic of Estonia. In particular, the draft law: (1) consolidates various crisis-response mechanisms previously addressed in separate legal acts into a unified structure; (2) establishes procedures for coordinated crisis management across the civil and military sectors; and (3) identifies essential services and sets continuity requirements for crisis situations. 1.2 According to the explanatory memorandum accompanying the draft law, the nature and scope of potential crises cannot be fully predicted, and multiple crises in different sectors or of varying severity may occur simultaneously or consecutively. Crisis situations can escalate rapidly and necessitate proportionate responses through available legal instruments. The draft law aims to establish the shortest possible chain of command and promotes comprehensive risk assessments to facilitate coordinated efforts among multiple stakeholders, with a central objective of ensuring the stability and resilience of the financial sector during crisis situations. Through the unification of crisis response

1 Tsiviilkriisi ja riigikaitse seadus, eelnõu.

2 Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42, ELI: http://data.europa.eu/eli/dec/1998/415/oj). mechanisms, the draft law seeks to improve institutional readiness and ensure effective crisis management across all levels of governance . 1.3 The draft law defines crisis situations broadly to encompass various types of emergencies that may require a coordinated government response. A crisis situation is deemed to exist when all of the following conditions are met: (1) pursuant to the principle of subsidiarity, the competent authority or person cannot, or cannot in a timely manner, resolve the crisis or avert the threat or prepare for it, and it is necessary at the level of the Government of the Republic to ensure unified and coordinated actions by several authorities or persons; (2) the situation cannot be resolved without applying the management arrangements prescribed in the draft law or without applying measures that restrict a person’s fundamental rights and freedoms; and (3) more than the usual capabilities are needed, including personnel, resources, and reserves, and either a civil crisis needs to be resolved, or there is a threat to national security or the constitutional order or it is necessary to participate in a collective self-defence operation. 1.4 Under the draft law, Eesti Pank assumes a dual role as both national central bank (NCB) and essential service continuity organiser for payment services and cash circulation. The draft law also amends the Law on Eesti Pank to set out the permanent tasks that must be maintained during crises (hereinafter ‘Eesti Pank’s permanent crisis tasks’), many of which overlap with the tasks which Eesti Pank must already perform, as follows : (1) to help define the monetary policy of the Union and to implement the monetary policy set by the ECB’s Governing Council; (2) to hold and manage official reserves of foreign currency; (3) to regulate the circulation of money, to facilitate the issuance of euro banknotes and to issue euro coins ; (4) to ensure the functioning of payment systems managed by Eesti Pank ; (5) to contribute to the stability of the financial system, including by participating in financial crisis resolution ; and (6) to perform the functions of a business continuity manager for a critical service . The draft law clarifies that Eesti Pank would be subject to orders by the government

3 See pp. 11–12 of the explanatory memorandum accompanying the draft law.

4 A civil crisis is a natural disaster, catastrophe or outbreak of a communicable disease, or other situation that may cause serious and widespread disruption to the functioning of society, or pose an immediate threat to the life and health of a large number of people, or cause major material, economic or environmental damage. See Section 2(1) of the draft law.

5 A collective self-defence operation conducted to fulfil an obligation under an international agreement based on the right recognised in Article 51 of the Charter of the United Nations, or another lawfully incurred obligation. See Section 136 p. 1 and Section 3 of the draft law.

6 Law on Eesti Pank (Eesti Panga seadus, RT I 1993, 28, 498, RT I, 01.03.2023, 45).

7 See Section 186 p. 1 of the draft law.

8 The tasks listed in clauses (1) to (3) herein are tasks which Eesti Pank must already perform in all circumstances under Section 2(2) points 1, 2 and 5 of the Law on Eesti Pank.

9 The tasks listed under clause (4) herein seem to relate to the general task of Eesti Pank currently set out in Section 2(2) point 4 of the Law on Eesti Pank (‘to promote the efficient operation of payment systems, to exercise oversight of payment systems and to participate in the development of the clearing environment’).

10 The task listed under clause (5) herein seems to relate to the general task of Eesti Pank currently set out in Section 2(2) point 3 of the Law on Eesti Pank (‘to promote the stability of the financial system and to exercise macro-prudential supervision (hereinafter “macroprudential supervision”) over the financial system’).

11 According to the draft law, Eesti Pank will perform the functions of a business continuity manager for payment services, technical support services for payment services, and cash circulation. The task listed under (6) seems to relate to the general task of Eesti Pank currently set out in Section 36(3) of the Law on emergency (Hädaolukorra seadus, RT I, 2017, 1, RT I, 22.05.2025, 4), whereby Eesti Pank organises the continuity of payment services and cash circulation. authority responsible for dealing with the crisis situation within the scope of the Eesti Pank’s permanent crisis tasks when strictly necessary . 1.5 Beyond Eesti Pank’s permanent crisis tasks as outlined above, the draft law assigns several additional crisis-related duties to Eesti Pank. First, Eesti Pank would participate in the preparation of the national risk analysis in cooperation with the Estonian Financial Supervision and Resolution Authority (Finantsinspektsioon) . According to the explanatory memorandum accompanying the draft law, this involves analysing country-wide threats that could lead to crisis situations and assessing their likelihood and consequences. Eesti Pank is expected to contribute expertise on financial sector risks, systemic vulnerabilities, and interdependencies, ensuring that payment and settlement systems are considered in national crisis scenarios. Second, Eesti Pank would prepare and maintain crisis plans, either jointly with the Ministry of Finance or Finantsinspektsioon, and submit them for review . As stated in the explanatory memorandum accompanying the draft law, crisis plans outline necessary actions, capabilities, governance arrangements, and coordination measures for crisis response. These plans must address the continuity of central banking functions, payment systems, and cash circulation, and must be regularly updated. Third, Eesti Pank would act as the organiser of essential services related to payment services and cash circulation , which entails coordinating continuity measures, advising service providers, setting continuity requirements, supervising compliance, approving risk analyses and crisis plans, and leading the resolution of major interruptions . Fourth, Eesti Pank would reserve mandatory crisis task positions for its President and the Chairman of its Supervisory Board, and would be able to classify such further positions as necessary . Key leadership positions are designated as crisis roles with work obligations to ensure institutional continuity during emergencies. The draft law requires these positions to retain critical decisionmaking authority, while allowing flexibility to designate additional staff as necessary for comprehensive crisis management. Fifth, Eesti Pank would assess and designate which credit institutions, payment institutions, and emoney institutions qualify as essential service providers, and would set detailed requirements and procedures for such assessments, including the obligation to enable offline card-based payments under certain crisis conditions . In this respect, Eesti Pank would establish objective criteria for essential service designation and determine which financial institutions provide vital services based

14 See pp. 48–49 of the explanatory memorandum accompanying the draft law.

16 See p. 66 of the explanatory memorandum accompanying the draft law.

17 Under the Law on Eesti Pank already has the task of organising the continuity of vital services such as payment services and cash circulation. See Section 36(3) points 1 and 2 of the Law on emergency.

20 See Sections 186, 213 and 222 of the draft law. on their impact on payment operations, and may require capabilities such as offline payment processing to ensure financial system resilience during network disruptions. Sixth, Eesti Pank would participate in the management of the State's cash flow and stabilisation reserve during crisis situations, upon request by the Ministry of Finance . The Ministry of Finance may involve Eesti Pank in managing State financial resources and reserves during crisis situations. Eesti Pank would provide expertise and operational support for managing State liquidity and the stabilisation reserve, especially when rapid and coordinated action is required during emergencies to enhance financial resilience and ensure availability of critical funds. 1.6 The draft law sets out special measures for the financial sector during emergency situations and national defence crises. It empowers the Government, in coordination with the Finantsinspektsioon, to impose extraordinary rules on financial institutions when normal legal instruments are insufficient to avert serious threats to financial stability, public order, or national security . The draft law grants the Government broad discretionary powers over financial sector entities. Provided that the stability and soundness of the financial sector, or the continuity of critical functions, are not unduly impaired, the Government may decide on measures applicable to the entities under financial supervision where a state of emergency or martial law affects the financial sector. 1.7 The most significant measures the Government may adopt include the following. First, the Government may establish prudential or similar standards. The Government may impose prudential requirements or other comparable norms, especially in relation to credit institutions and certain other financial sector entities. It may also deviate from standard prudential thresholds if necessary. Second, the Government may impose conditions on making of investments, including requiring the purchase of debt securities issued by the sovereign. This power is subject to the following important limitations: it cannot be used to compel investments that are already required for compliance with prudential standards, the minimum requirement for eligible liabilities, or other similar regulatory obligations that apply to entities under financial supervision. These requirements are comprehensively governed by Union regulations, including those implemented through the Estonian Law on financial crisis prevention and resolution . Third, the Government may prohibit disbursements of profits or impose other conditions on the holders of qualifying holdings in entities subject to financial supervision. The Government may prohibit or limit profit distributions or impose other conditions on significant shareholders to ensure sustainable management of the institution’s cash flows . Fourth, the Government may prohibit or restrict certain transactions or operations, including their volume. The Government may further determine by order: repayment terms, lending conditions, insurance payouts, securities trading, payment execution, and other measures needed to address

21 See Section 241 of the draft law.

22 See Section 36 of the draft law.

23 See pp. 120–121 of the explanatory memorandum accompanying the draft law. Estonian Law on financial crisis prevention and resolution (Finantskriisi ennetamise ja lahendamise seadus, RT I, 19.03.2015, 3, RT I, 11.10.2024, 5).

24 The explanatory memorandum accompanying the draft law states that similar restrictions were encouraged by the ECB and European Systemic Risk Board during the COVID-19 crisis. See p. 121 of the explanatory memorandum accompanying the draft law. the crisis. These measures aim to ensure optimal cash flow and resource management within supervised entities and are applied only when necessary to resolve a crisis and ensure societal functioning. Restrictions may include limits on transaction hours or suspension of specific services such as investment or foreign exchange services. Fifth, the Government may suspend regular contributions within the meaning of the Guarantee Fund Act to the sub-funds of the Guarantee Fund. Sixth, the Government may implement a complete or partial moratorium on credit institution operations or establish a special regulatory regime for insurance companies. Such measures enable the temporary suspension or restriction of a bank's or insurance company's activities in accordance with specified procedures and conditions . 1.8 Declaring a state of emergency alone does not, in itself, authorise the Government to adopt the above measures. For example, if a state of emergency has been declared, but it does not affect financial sector stability in any way, then it is neither necessary nor legally possible to apply the measures set out in the draft law to the financial sector. However, if a state of emergency or extraordinary situation significantly affects the provision of an essential service such as electricity supply and this significantly affects, for example, the work of credit institutions, then in such circumstances it may be necessary under the draft law to introduce certain measures to maintain sector stability . 1.9 A decision by the Government to impose an extraordinary rule may be adopted for a period of up to three months, following consultation with the Finantsinspektsioon and Eesti Pank . The Government may extend the validity of such a decision for up to three months at a time, depending on the specific circumstances and the continued relevance and necessity of the measure . 1.10 The draft law provides that if the Government intends to impose an extraordinary rule on matters within the competence of the ECB or the Single Resolution Board (SRB), the Government may do so only if the ECB or the SRB does not actually exercise its tasks or is unable to do so in Estonia . As noted in the explanatory memorandum accompanying the draft law, where Council Regulation (EU) No 1024/2013 and Regulation (EU) No 806/2014 of the European Parliament and of the Council grant exclusive competence to the ECB or the SRB, a special procedure applies if the Government intends to act in their place. The Government may act only in two distinct and independent situations: (i) where the ECB or the SRB is not actually functioning, or (ii) where these institutions are unable to perform their tasks or exercise their powers in Estonia due to crisis or other reasons. This includes inaction, failure to issue necessary decisions, or the absence of active

26 See p. 117 of the explanatory memorandum accompanying the draft law.

28 See p. 122 of the explanatory memorandum accompanying the draft law.

30 Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63, ELI: http://data.europa.eu/eli/reg/2013/1024/oj).

31 Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 225, 30.7.2014, p. 1, ELI: http://data.europa.eu/eli/reg/2014/806/oj). supervisory engagement, as well as technical or operational barriers such as IT failures or communication breakdowns . In addition, where an opinion has been requested from the ECB or the SRB on a planned decision and no response has been received within the timeframe set by the Estonian Government, the Government is entitled to proceed with the decision . 1.11 The explanatory memorandum accompanying the draft law state that under Estonian law the Finantsinspektsioon is responsible for increasing financial sector stability and resolving financial crises . However, its powers under the law are limited to a certain extent, particularly regarding banking, where direct supervision of significant credit institutions and the supervision of less significant credit institutions are conferred on the ECB under Regulation (EU) No 1024/2013 . 1.12 The explanatory memorandum accompanying the draft law indicate that the proposed regulatory framework draws, in part, upon the crisis management framework established in Finland. In this context, the explanatory memorandum accompanying the draft law specifically reference the ECB’s previous opinions concerning Finland’s emergency legislation and identify Article 347 of the TFEU as providing the legal basis for national derogations from ordinary TFEU obligations under exceptional circumstances .

2. Observations

Overlap with tasks of the ECB and the ESCB

2.1 Many of Eesti Pank’s permanent crisis tasks under the draft law overlap with the tasks which Eesti Pank must already perform under the TFEU and the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), including the basic tasks to be carried out through the European System of Central Banks (ESCB) under Article 127(2), first, third and fourth indents, of the TFEU, namely: to define and implement monetary policy; to hold and manage foreign reserves; and to promote the smooth operation of payment systems. 2.3 The ECB has noted in its past opinions that under the TFEU several competences are conferred irrevocably on the Union. This includes the exclusive competence for monetary policy for Member States whose currency is the euro . A Member State whose currency is the euro transfers to the Union its powers in the area of monetary policy and the tasks of the ESCB listed in the TFEU and the Statute of the ESCB. These powers and tasks include setting interest rates, injecting or withdrawing liquidity in the market, ensuring efficient and sound clearing and payment systems, managing foreign reserves, issuing banknotes, and contributing to the stability of the financial system. In these areas, certain policy-making and legislative powers belong exclusively to the ECB ,

32 See p. 122 of the explanatory memorandum accompanying the draft law.

34 See p. 116 of the explanatory memorandum accompanying the draft law, which refers to such duties of Finantsinspektsioon under Sections 3 and 4 of the Law on the financial supervision authority (Finantsinspektsiooni seadus, RT I 2001, 48, 267, RT I, 31.12.2024, 43).

35 See pp. 116–117 of the explanatory memorandum accompanying the draft law.

36 See ECB Opinions CON/2002/27, CON/2006/6 and CON/2018/46. All ECB opinions are published on EUR-Lex.

37 See p. 123 of the explanatory memorandum accompanying the draft law.

39 See Articles 8 and 12 of the Statute of the ESCB. including contingency planning with respect to the continued performance of these powers and tasks . 2.4 Moreover, under Article 127(6) of the TFEU and Regulation (EU) No 1024/2013, specific tasks concerning the prudential supervision of credit institutions have been conferred upon the ECB. These include the granting and withdrawal of authorisations to take up the business of a credit institution, the assessment of acquisitions of qualifying holdings in credit institutions, the imposition of prudential requirements, reporting and disclosure obligations, and ensuring compliance with the relevant Union law as specified in Article 4 of Regulation (EU) No 1024/2013. 2.5 This implies that Member States should refrain from taking any measures which could jeopardise the ECB's or the ESCB's objectives, and exceptions under Article 347 of the TFEU should be narrowly interpreted by Member States as further discussed in the paragraphs below. 2.6 More specifically, the ECB notes that while the draft law provides that the Estonian Government may act only if the ECB does not actually operate or exercise its competence in Estonia due to a crisis situation or other reasons, the criteria for determining such inability remain insufficiently defined. Such situations may include information technology or communication failures, as well as instances where a decision or opinion from the ECB is not received within timelines set by the Estonian Government . The ECB emphasises that its competences under the TFEU and Regulation (EU) No 1024/2013 apply in all circumstances, including during emergency conditions, and cannot be unilaterally set aside by national authorities based on unilateral determinations of the ECB's ability to act. The determination that the ECB is unable to perform its tasks cannot be based on situations where the ECB is functioning but may not respond within nationally imposed deadlines or where technical difficulties do not fundamentally impair the ECB's decision-making capacity. Any national measures that would effectively replace ECB competences must comply strictly with the conditions laid down in Article 347 of the TFEU. 2.7 More broadly, as previously noted by the ECB, pursuant to the principle of sincere cooperation under Article 4(3) of the Treaty on European Union, Member States must assist the ECB in these fields, carrying out tasks which flow from the Treaties . Emergency derogations under Article 347 of the TFEU 2.8 Article 347 of the TFEU envisages that a Member State may be called upon to take action in the event of serious internal disturbances affecting the maintenance of law and order, war, serious international tension constituting a threat of war, or in order to carry out obligations it has accepted for the purpose of maintaining peace and international security . Accordingly, in the event of emergency conditions under Article 347 of the TFEU, which may include situations that would be

40 See paragraph 2.1 of Opinion CON/2014/24, paragraph 2.1 of Opinion CON/2020/2, and paragraphs 2.1 and 2.2 of Opinion CON/2021/35.

41 See pp. 122–123 of the explanatory memorandum accompanying the draft law.

42 See paragraph 2.1 of Opinion CON/2021/3, paragraph 2.1 of Opinion CON/2020/2, paragraph 2.1 of Opinion CON/2020/15, and paragraph 2.1 of Opinion CON/2018/46.

43 See paragraph 2.2 of Opinion CON/2020/2, paragraph 2.2 of Opinion CON/2021/35, and paragraph 2.2 of Opinion CON/2014/24. classified as such under the draft law, national authorities may be justified in exercising, on a temporary basis, powers that fall within the exclusive competence of the ESCB. 2.9 Any reliance on Article 347 of the TFEU must take place strictly under conditions laid down in the TFEU itself, as interpreted by the Court of Justice of the European Union (CJEU). Article 347 of the TFEU deals with exceptional cases which are clearly defined and are to be interpreted in a restrictive manner, and it can, therefore, be understood only as a ‘hedging clause’ and not as an expression of any residual Member State competence . Moreover, the CJEU has held that when acting due to urgency in areas of exclusive Union competence, Member States may act only as ‘trustees of the common interest’ and may not bring into force any interim measures except as part of a process of collaboration with the Union . 2.10 Due to the exceptional nature of Article 347 of the TFEU, Member States should refrain from adopting preventive legislation in the absence of the conditions laid down in Article 347 of the TFEU. Even in situations involving serious internal disturbances affecting law and order, war, or serious international tension constituting a threat of war, or for the purpose of fulfilling obligations aimed at maintaining peace and international security, national authorities may be justified in exercising, on a temporary and exceptional basis, powers that fall within the exclusive competence of the ESCB, acting essentially as trustees of the common interest . While Member States may establish preparatory frameworks, organisational structures and planning mechanisms for crisis response, concrete measures that would conflict with TFEU obligations may only be implemented when Article 347 conditions are actually met and after proper consultation with EU institutions . If the national legislature wishes to rely on Article 347 of the TFEU, it is for the Member State to ensure that the conditions for applying it are specifically fulfilled at the time of adopting the measure that conflicts with that Member State’s TFEU obligations. The draft law should not lead to a breach of TFEU obligations applicable to a Member State. Independence of the ESCB NCBs and SSM 2.11 The ECB notes that, pursuant to Article 130 of the TFEU, when exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB, an NCB shall not seek or take instructions from any government of a Member State or any other body, and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the NCBs in the performance of their tasks. 2.12 Furthermore, the ECB notes that the draft law also aims to replace, under certain conditions, the competences of the ECB with respect to the prudential supervision of credit institutions under Article 127(6) of the TFEU and Regulation (EU) No 1024/2013 . In this regard, Article 19 of Regulation (EU) No 1024/2013 stipulates that, when carrying out the tasks conferred on it by this Regulation,

44 See paragraph 2.2 of Opinion CON/2020/2 and paragraph 2.2 of Opinion CON/2014/24.

45 See paragraph 2.3 of Opinion CON/2020/2 and paragraph 2.2 of Opinion CON/2021/35.

46 See paragraph 10 of Opinion CON/2002/27, paragraph 2.2 of Opinion CON/2021/35, and paragraph 2.3 of Opinion CON/2020/2.

47 See paragraph 2.2 of Opinion CON/2014/24 and paragraph 10.2.2 of Opinion CON/2020/13.

48 See C. Zilioli, ‘National Emergency Powers and Exclusive Community Competences – A Crack in the Dam?’, Legal Aspects of the European System of Central Banks, European Central Bank, Frankfurt am Main, 2005, pp. 115-133, at pp. 131-132.

49 See Article 1 and recital 15 of Regulation (EU) No 1024/2013. the ECB and the national competent authorities acting within the Single Supervisory Mechanism (SSM) must act independently, also requiring that the governments of the Member States must respect that independence. 2.13 Under the draft law, Eesti Pank would be subject to orders by the government authority responsible for dealing with the crisis situation within the scope of Eesti Pank’s permanent crisis tasks when strictly necessary. However, the ECB understands that the draft law does not allow for any interference with the performance of the tasks conferred on Eesti Pank as part of the ESCB by the TFEU or Regulation (EU) No 1024/2013 as a constitutional institution under Estonian law. However, to avoid doubts, this should be explicitly clarified in the draft law. This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 4 August 2025. [signed] The President of the ECB Christine LAGARDE