As i have appointed several times, the investors and critics will note the real probability of a future central bank crisis. Please consider the folllowing by Floyd Norris; German Law, Not European, if a Central Bank DefaultsBy FLOYD NORRIS; link
My column today looks at Target 2, the interbank loan system through which some central banks have fallen deeply in debt to the European Central Bank, and others — most importantly the German Bundesbank — have lent huge sums to the E.C.B.
Peter R. Griffin, an international lawyer who is the managing director of Slaney Advisors, a consulting firm based in London, points out an interesting fact showing just how much Germany can call the tune if trouble arises. Within the maze of documents explaining the Target 2 system, there is the following:1. The bilateral relationship between the E.C.B. and participants in TARGET2-E.C.B. shall be governed by the law of the Federal Republic of Germany.
2. Any dispute arising from a matter relating to the relationship referred to in paragraph 1 falls under the exclusive competence of the courts of Frankfurt am Main, without prejudice to the competence of the Court of Justice of the European Communities.Not being an international lawyer, I have no idea what it means to give one court “exclusive competence” — another way of saying exclusive jurisdiction — but then to add that that statement is “without prejudice” to the competence of another court.Still, it sounds as if it is Germans who will judge any disputes if a central bank does default on loans, or if the Bundesbank tries to put a halt to the gigantic loans it is being forced to make.“One might have expected the ‘cornerstone’ of monetary integration to be subject to European law and the European Court of Justice,” says Mr. Griffin. “It raises the spectre of the various European central banks fighting each other and the E.C.B. in a German courtroom, under German law.”
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