Opinion of the European Central Bank of 3 June 2004 at the request of the French Ministry of Economic Affairs, Finance and Industry on a draft legislative provision authorising inflation-indexed loans from credit institutions (CON/2004/20)
Date: 2004-06-03
Institutions: European Central Bank
Subjects: France, credit institution, financial stability, inflation, loan, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 3 June 2004 

at the request of the French Ministry of Economic Affairs, Finance and Industry 

on a draft legislative provision authorising inflation-indexed loans from credit institutions  

(CON/2004/20) 

1. 

On 1 April 2004 the European Central Bank (ECB) received a request from the French Ministry of 

Economic Affairs, Finance and Industry for an opinion on a draft legislative provision authorising 

inflation-indexed loans from credit institutions (hereinafter the ‘draft provision’).  

2. 

The ECB’s competence to deliver an opinion is based on the first and sixth indents of Article 2(1) 

of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank 
by  national  authorities  regarding  draft  legislative  provisions1,  as  the  draft  provision  relates  to 

currency matters and rules applicable to financial institutions insofar as they materially influence 

the  stability  of  financial  institutions  and  markets.  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. 

3. 

Under  current  French  law,  statutory  or  contractual  provisions  are  prohibited  from  containing 
clauses  providing  for  indexations  based,  inter  alia,  on  the  general  level  of  prices  or  of  salaries2. 

However, by way of exception from this general provision, debt instruments and financial futures 
may be indexed to the general level of prices3. The ECB notes that the French authorities wish to 

extend  this  exception  to  loans  granted  by  credit  institutions  or  by  the  Caisse  des  dépôts  et 

consignations  (CDC)  by  amending  Article  L.  112-3  of  the  Code.  The  ECB  understands  that  the 

draft  provision  affects  consumer  loans  (including  home  loans),  corporate  loans  and  inter-bank 

loans. 

4. 

The European Monetary Institute (EMI) has previously examined the issue of indexation clauses in 
its  Opinion  CON/97/244.  The  EMI  noted  that  ‘according  to  Article  9,  §1,  a  provision  of  the 

[German] Currency Act shall be deleted which lays down a requirement for the prior authorisation 

of index clauses by the competent authority. (…) The  monetary law of the Community currently 

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OJ L 189, 3.7.1998, p. 42. 
Article L. 112-2 of the Monetary and Financial Code (hereinafter the ‘Code’). 
Article L. 112-3 of the Code. 
EMI Opinion CON/97/24 of 16 December 1997 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. 

 
 
 
                                                      
under consideration 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 (…) for residential rent contracts’. The EMI’s statement is still valid today 

and  the  ECB  therefore  considers  that  Member  States  may,  in  principle,  authorise  indexation 

clauses, as long as they comply with Community law.  

5. 

According to the French authorities, the draft provision is necessary to ensure coherence with the 

regime for inflation-indexed securities. The ECB takes note of the objective pursued by the French 

Government  of  extending  the  freedom  of  contract,  in  order  to  allow  economic  agents  to  hedge 

against  the  inflation  risk,  and  to  enlarge  the  range  of  available  financial  products.  However,  the 

ECB  would  stress  that  a  widespread  use  of  indexation  clauses  would  give  rise  to  considerable 

concern.  In  particular,  widespread  indexation  in  wage  and  price  setting  may  generate  excessive 

rigidity in the relative price system and would risk fuelling inflation spirals. Although the demand 

for  indexation  clauses,  in  the  current  environment  of  low  inflation,  appears  relatively  limited,  it 

cannot be fully excluded that households when faced with an increased debt-service burden, as a 

result of inflation rising faster than wages, would request that their wages be more closely indexed 

to  prices.  Similarly,  certain  firms  might  be  tempted  to  pass  any  nominal  increase  in  their  debt-

burden  on  to  the  prices  they  charge  to  consumers.  If  the  economy  were  hit  by  a  persistent 

inflationary shock, in case of widespread indexation, it would be very difficult to reduce the use of 

indexation clauses once inflation rates have passed a certain threshold.  

6. 

The implementation in France of the 2003 reform introducing the automatic indexing of regulated 

savings rates to inflation will require banks to marginally adjust the management of their assets and 

liabilities in order to minimise inflation risk. The ECB understands that the proposed change would 

be particularly important for the CDC which channels deposits on regulated savings accounts and 

uses these funds, inter alia, to finance public housing and to grant loans to public housing bodies. 

However, since these specific loans are themselves indexed to regulated savings rates, the option of 

directly  indexing  them  to  inflation  is  likely  to  be  of  limited  use.  The  French  authorities  consider 

that authorising the indexation of bank loans to inflation poses no specific risks to the stability of 

the  financial  system,  in  particular  because  its  impact  would  remain  limited.  The  ECB  has  no 

comments on this aspect. 

7. 

A  decree  of  24  October  20015,  which  will  also  apply  to  the  draft  provision,  further  specifies  the 

terms  and  conditions  for  the  indexation  of  certain  financial  instruments  to  the  general  level  of 

prices.  The  Decree  provides  that  the  harmonised  index  of  consumer  prices  (HICP),  excluding 

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Décret no 2001-966 du 24 octobre 2001 portant modalités d’indexation de certains instruments financiers sur le niveau 
général  des  prix,  Journal  Officiel  de  la  République  Française,  no  248,  25  octobre  2001  (Decree  No  2001-966  of 
24 October  2001  setting  out  the  terms  and  conditions  for  the  indexation  of  certain  financial  instruments  to  the  general 
level of prices, Official Journal of the French Republic, No 248, 25 October 2001). 

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tobacco,  for  the  euro  area  as  published  monthly  by  Eurostat  may  be  used  to  implement  the 

indexation. However, as is the case for French inflation-indexed Government bonds, other general 

price  indices,  such  as  the  French  consumer  price  index,  may  in principle  also  be  used.  The  ECB 

considers  that  indexation  to  a  national  price  level  or  rate  of  inflation,  rather  than  to  a  euro  area 

index,  may  risk  increasing  the  heterogeneity  of  financial  systems  across  the  euro  area  and  in 

general  of  the  different  euro  area  economies.  Indexation  to  a  euro  area  index  would  therefore  be 

clearly  preferable  from  a  monetary  policy  viewpoint.  The  ECB  also  supports,  for  reasons  of 

transparency and comparability, the use of the HICP for the euro area.  

8. 

The  ECB  confirms  that  it  has  no  objection  to  the  competent  national  authorities  making  this 

opinion publicly available at their discretion. This opinion will be published on the ECB’s website 

six months after the date of its adoption. 

Done at Frankfurt am Main, 3 June 2004. 

[ signed ] 

The President of the ECB 

Jean-Claude TRICHET 

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