Opinion of the European Monetary Institute at the request of the German Ministry of Justice, under Article 109f (6) of the Treaty establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the European Monetary Institute (EMI), on a draft Act (the “draft law”) for the introduction of the euro (CON/97/24)
Date: 1997-12-16
Institutions: European Monetary Institute
Subjects: Euribor, Germany, euro, interest, monetary integration, money, national law

OPINION OF THE EUROPEAN MONETARY INSTITUTE

CON/97/24

at the request of the German Ministry of Justice, under Article 109f (6) of the Treaty establishing the

European Community (the “Treaty”) and Article 5.3 of the Statute of the European Monetary Institute

(EMI), on a draft Act (the “draft law”) for the introduction of the euro

1.

On 2 October 1997 the EMI received a request for an opinion on the draft law from the German

Ministry of Justice. An Explanatory Memorandum was also submitted to the EMI. The present

opinion is based on an unofficial English translation of parts of the official draft law in German,

which was submitted to the EMI by the consulting authority.

2.

The EMI’s competence to deliver an opinion is based on Article 1.1, first and second indents, of

the Council Decision (93/717/EC) of 22 November 1993 on the consultation of the EMI by the

authorities of the Member States on draft legislative provisions, as the draft law deals, inter alia,

with currency legislation and the status and powers of the Deutsche Bundesbank.

3.

The draft law aims to make the necessary adaptations to German legislation, in particular with a

view to the national implementation of the regulatory framework for the introduction of the euro.

Parts  of  the  legislation  are  concerned  with  the  adaptation  of  Deutsche  Mark  references  to  the

euro as well as with the adaptation of the respective limits. As regards the wide range of legal

areas  addressed,  it  is  principally  securities  law,  currency  law,  the  provisions  with  regard  to  the

balance sheet and the replacement of the discount rate which are relevant to the EMI.

4.

The EMI welcomes the initiative of the German Government to start early with preparations for

the introduction of the euro, so as to ensure the timely implementation of the measures necessary

for the changeover. As regards the date for the start of the third stage, the German legal system

will already be equipped with the necessary legislative tools by 1 January 1999.

5.

The EMI would like to comment on certain provisions as follows:

5.1  Article  1,  paragraphs  1  and  3,  define  the  automatic  replacement  of  German  reference  rates  in

relation to the introduction of the euro:

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The  discount  rate  (“Diskontsatz”)  will  be  replaced  by  a  base  interest  rate  (“Basiszinssatz”)  as

defined in §1(1). §1(2) states that the reference rate mentioned in §1(1) will be the instrument

[interest  rate]  used  by  the  ECB  which  will  be  most  similar  to  the  discount  rate  in  its  purpose,

frequency  of  change,  and  effect  as  a  reference  rate.  The  clause  which  states  that  the  base

interest rate can only change three times a year stems from the concern that direct reference to

changes to the ECB’s interest rate may create operational problems for likely users of this rate.

§3  lays  down  details  of  the  replacement  of  three  other  reference  rates:  §3(1)  specifies  that  in

any law which makes reference to the interest rate that was paid by the central government on

cash  advances  from  the  Deutsche  Bundesbank  (“Zinssatz  für  Kassenkredite  des  Bundes”,

which  is  no  longer  relevant  since  such  cash  advances  have  been  abolished),  this  rate  will  be

replaced  by  the  base  interest  rate  plus  1.5  percentage  points.  §3(2),  No.  1,  empowers  the

German Government, by means of a Regulation, to replace the lombard rate as a reference rate

by  the  instrument  used  by  the  ECB  which  has  functions  most  similar  to  those  of  the  lombard

rate. §3(2), No. 2, empowers the German Government to replace the FIBOR as the reference

rate by the interest rate which has functions most similar to those of the FIBOR.

In all cases, the German Government will ultimately be empowered to specify which interest rate

will correspond most closely to the reference rates used in the pre-euro period.

In this respect, the EMI wishes to draw attention to two issues.

 (i) The EMI notes that the period during which the base interest rate will be published, which will

end on 31 December 2001, was chosen, as explained in the Explanatory Memorandum, in order

to allow sufficient time in which to gain experience of the function and operation of an automatic

link  and  that  this  period  is  not  linked  to  the  first  three  years  following  the  start  of  Monetary

Union.

(ii) For the financial markets, the most important among the rates affected by the draft law might

be  the  FIBOR.  The  only  rate  which  is  likely  to  perform  the  function  of  the  FIBOR  in  Stage

Three  will  be  the  EURIBOR,  which  is  currently  being  prepared  by  the  European  Banking

Federation and the International Foreign Exchange Dealers’ Association.

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While  decisions  on  the  methodology  to  be  used  to  compute  and  compose  the  panel  of  banks

contributing data to the EURIBOR do not fall within the competence of the monetary authorities,

existing information, although still incomplete, on the technical features of the EURIBOR gives

rise to the following observations.

The  only  difference  between  the  current  FIBOR  as  it  is  now  and  the  proposed  EURIBOR

(apart from the currency to which the rates refer) concerns the panel of banks contributing data
for the calculation of the rate. In the case of the FIBOR, all such, banks are located in Frankfurt,

whereas  in  the  case  of  the  EURIBOR,  they  are  located  across  the  euro  area.  It  seems  clear

that, in terms of economic value, the planned EURIBOR and the current FIBOR both represent

the main reference rate of a single currency area, whereas the other reference rates may only

reflect  a  subset  of  the  operations  carried  out  in  that  currency  area.  In  the  third  stage,  any

Frankfurt-based FIBOR would lose this characteristic entirely and would not be able to fulfil the

FIBOR’s  current  function:  the  currency  area  for  the  currency  of  Germany  will  be  the  whole

euro area, and any such euro-FIBOR would merely become a local subset, no longer indicative

of or fulfilling the same function in relation to a single currency area.

The  uncertainty  surrounding  the  identity  of  the  obvious  successor  to  the  FIBOR  prevented  the

legislator from being able to specify which rate would replace FIBOR. The EMI welcomes the

fact  that  provision  is  made  in  the  Explanatory  Memorandum  for  reference  to  the  EURIBOR.

The EMI has always favoured a rate representing the whole euro area as it is of the opinion that

only this could have a corresponding function in the third stage to that performed at the moment

by the FIBOR in relation to the Deutsche Mark.

5.2  The  EMI  considers  the  adaptations  to  legislation  in  the  field  of  company  law  and  to  the

Introduction  Act  to  the  Commercial  Code  to  be  helpful  with  a  view  to  the  smooth  transition  to

the euro. They do not give rise to specific comments.

5.3  Article  3,  §2,  No.  3,  lit.  (b),  sub-paragraph  4,  concerns  rounding  aspects  with  regard  to  the

presentation  of  the  par  value  of  shares.  The  provision  does  not  contradict  Article  5  of  Council
Regulation  (EC)  No  1103/97  of  17  June  1997,1  whereas  the  latter  provides  for  obligatory
rounding  to  the  nearest  euro  cent,  it  is  applicable  only  for  “monetary  amounts  to  be  paid  or

accounted for”, which is not the case for the par values of shares in this context.

1  OJ No. L 162, 19.6.1997, p. 1.

                                                
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5.4  Article 4, §2, concerning Article 43, should take account of the fact that conversion from ECUs

into euro, in accordance with Article 2 of Council Regulation (EC) No 1103/97 of 17 June 1997,

will be a direct exchange of one euro for one ECU.

5.5  Article  5  concerns  the  amendment  of  provisions  relating  to  the  law  on  stock  exchange

transactions;  it  warrants  that  the  German  stock  exchanges  may  become  entitled  to  deal  with

questions  of  a  legal  and  organisational  nature  on  the  stock  exchange  price  of  securities,

especially in the light of the changed needs of the financial markets.

5.6  Article  6  introduces  provisions  on  the  redenomination  of  bonds  into  euro  in  accordance  with

Article  8(4),  as  laid  down  in  the  draft  Council  Regulation  on  the  introduction  of  the  euro.  It

provides for the obligatory redenomination of federal government debt and allows, in conformity

with Article 8(4), first indent, for the redenomination of other debt instruments and bonds by the

debtor. This is in line with the relevant rounding rules with regard to increasing or decreasing the

nominal value of the claim of the creditor and the continuity of the debt instruments (Article 6,

§7). The costs of redenomination are to be borne by the debtor (Article 6, §9). In addition, there

is  provision  for  legal  measures  to  change  the  tradable  nominal  amounts  of  bonds  (so-called  re-

nominalisation)  and  to  modify  the  formulae  for  the  computation  of  interest  rates  of  maturities

below one year and determination of business days (so-called re-conventioning of day counts);

these measures are subject to national law pursuant to Article 1, last indent, of the above draft

Council Regulation.  The  EMI  welcomes  that  it  is  confirmed  in  the  Explanatory  Memorandum,

that Article 6, §3, applies only to bonds subject to German law.

Challenges to the redenomination can be based on only four specific reasons (cf. Article 6, §8)

and  must  be  brought  to  court  within  one  year  of  the  redenomination  date.  This  should  be

appropriate to limit the period of uncertainty.

5.7  With  regard  to  the  amendments  to  the  German  provisions  on  coins,  Article  8  extends  the

protection  available  to  DEM-denominated  coins  to  euro  coins,  in  particular  before  their  first

issuance following the preparation period. This provision will help to avoid any confusion of the

new  euro  coins  with  medals  and  marks  and,  by  so  doing,  will  help  to  ensure  the  smooth

introduction of the euro banknotes and coins.

5.8  The EMI takes note of the fact that, according to Article 9, §1, a provision of the Currency Act

shall be deleted which lays down a requirement for the prior authorisation of index clauses by the

competent  authority.  In  the  third  stage,  as  soon  as  the  currencies  of  the  participating  Member

States  lose  their  status  as  currencies  in  their  own  right,  they  will  represent  only  national

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subdivisions  of  the  euro.  The  monetary  law  of  the  Community  currently  under  consideration2
does not contemplate any prohibition or Community control of index clauses. Therefore, the EMI

agrees  with  the  conclusion  of  the  Explanatory  Memorandum  that,  with  regard  to  the  monetary

policy function, national provisions on index clauses are no longer necessary. However, Member

States may, for other policy requirements, establish or maintain indexation provisions relating to

the  competence  of  the  national  legislator,  e.g.  in  the  field  of  contractual  law,  such  as  the

provision laid down in Article 10 for residential rent contracts.

The EMI has no objection to this opinion being made public.

16 December 1997

2  Resolution of the European Council of 7 July 1997 on the legal framework for the introduction of the euro (OJ

C236/7 of 2 August 1997)