Opinion Trade

Regulation as an Opportunity

An opinion piece by Carsten Schneider

Timothy Krause

Some politicians’ economic policy ideas are a breeding ground for the next crisis. As chair of the G20, Germany must take a stand against this.

Markets need regulations. Even a weekly food market requires authorisation: traders need licences as consumers rely on the food being decent, vegetables being fresh and meat and fish being chilled. These regulations are never called into question for a weekly food market, yet regulations for financial markets are constantly challenged. Germany currently holds the Presidency of the G20. The G20 has a central role to play in recovering from the effects of the financial crisis and improving worldwide regulations, particularly at a time when even countries such as the USA and the UK are returning to individual national solutions. Global economic growth and free trade are important in increasing prosperity for all. However, there must also be safe, fair and well-supervised financial markets. This can only be achieved with clear regulations.

Federal Finance Minister Schäuble must ensure that three points are tackled at the meeting of the G20 Financial Ministers on Thursday. Firstly, the banks in Europe must be “cleaned up”. There are still too many rotten vegetables in the balance sheets, and too much equity continues to be wasted. Institutions without a good business model will not survive and have to leave the market.

Secondly, G20 initiatives which have already been started must be successfully completed. This includes the better positioning of banks for the future. The Basel Committee on Banking Supervision needs to revise its banking regulations (“Basel IV”). The banking lobby wants to take control and calculate its own risk level, but is coming to very different conclusions. What is the value of these models, however, when risks can be calculated nicely and equity tightening is coming to nothing?

Thirdly, new G20 initiatives must be pushed forward. At the G20 summit in 2016, heads of state committed to the swift implementation of measures against tax evasion and against the transfer of profits. As a result of the “Panama Papers”, they decided to strengthen tax transparency and consolidate the identification of those who are entitled to financially benefit from businesses. Their goal is to create a blacklist of non-cooperative states and to decide on potential sanctions by 2017. This must be done now, together with tackling shadow banks, combatting financial betting on raw materials and food, and stopping the draining of financial channels for money laundering and terrorism.

Neither more freedom for Wall Street, as President Trump thinks, nor tax dumping, as Prime Minister May supports, are the solution. They deprive states of their financial base and nourish the next crisis. Once again, normal people end up paying the price. We need better international regulations.

Carsten Schneider has been a Member of the German Parliament since 1998. He is also the Deputy Chairman of the SPD Parliamentary Group, where he is responsible for the budget, financial matters and the euro.

This article was first published in Handelsblatt and has been translated from German by Claire Caruth.