The Chancellor aims to establish a market economy with a human face

Wed, 15.10.2008

In the German Bundestag, Chancellor Angela Merkel has spoken out in favour of the new Law to Stabilise the Financial Markets. "With this piece of legislation we will be taking extensive, far-reaching and drastic measures in order to put in place the structures needed to ensure a 21st century market economy with a human face," she announced.
Over the last few weeks the global economy has been put to the test in a way unparalleled since the 1920s, declared the Chancellor in her government declaration. To prevent any repetition of this situation, the international community and the German government have taken swift and decisive action. This was also underscored by Federal Finance Minister Peer Steinbrück.

"It was our duty to put together a package on an unprecedented scale within an extremely short space of time,” the Chancellor underlined.

It subsequently proved that, "The state was and is the only body that can restore confidence between banks – to protect our citizens, not to protect the interests of the banks.”

The first building brick – stabilising the national financial market

With its new bill to stabilise the financial market, the German government has laid the foundation stone for a new financial market charter. "We aim to generate new confidence: confidence between banks, confidence in the economy, and confidence among our citizens,” explained Angela Merkel.

To this end the financial institutes will be provided with guarantees up to a ceiling of 400 billion euros, for a fee. This is intended to stabilise financing cycles and thus also lending to businesses. "In this way we want to ensure that things start moving again, and that refinancing is possible,” explained the Chancellor.

The guarantees will not of course necessarily result in government spending at that level. To be on the safe side, the government has, however, provided for 20 billion euros, or five percent of the total sum, in the national budget.

No state assistance without ties

The second focus of the new bill relates to the provision of capital for financial institutes. For a limited period the institutes are to be able to draw on state capital assistance. Angela Merkel made it quite clear however that, "This assistance will only be provided if banks stand by their responsibilities and comply with certain regulations.”

In concrete terms this means:

* Ceilings on the salaries of top executives and on bonus payments
* Requirements regarding the business-policy direction of the institute
* Requirements regarding lending, in particular to small and medium enterprises
* The state sharing in the earnings of the institute.



"To put it in a nutshell, there will be no assistance without strings attached,” said the Chancellor unequivocally.

The state will also buy risky assets from the financial institutes if this proves necessary. The revenue generated from the subsequent sale of these assets will then benefit tax-payers. "This is an instrument we aim to use as little as possible though,” declared Angela Merkel.

A maximum of 80 billion euros are to be made available for state capital assistance and the purchase of risky assets. Along with the 20 billion euros budgeted for within the framework of the state guarantee, a total of 100 billion euros has thus been earmarked for the rescue package in the national budget.

The second building brick – new regulations for the international financial market

Alongside these emergency measures a second building brick is needed for a new financial market charter. According to the Chancellor the regulations governing the international financial market too must be changed, "in order to avoid uncontrolled developments of this sort in future”.

The German government will be working hard at international level to achieve this. The Chancellor believes that, among other things, the role of the International Monetary Fund (IMF) ought to be strengthened as a watchdog authority for financial institutions. It is also important though to make high-risk financial products safer and to ensure greater transparency of the products traded.

More will be said about this at the next international conferences. Angela Merkel announced a meeting of the G8 nations and the emerging economies to be held before the end of the year. The German government will be setting up a group of experts to make the necessary preparations.

No long-term economic slump

But this does not yet mean that the financial markets are stable and out of danger. "We must lay the foundations for the situation on the market to calm down, by ratifying this legislation as swiftly as possible,” declared the Chancellor, and added that this was crucially important for growth and employment.

Growth could well slow somewhat in Germany, said Angela Merkel. The economy will not, however, sustain any long-term slump.

Germany has taken the right steps. It has consolidated the state’s finances, reformed company tax, raised the pension age to 67. "These measures have improved the medium-term growth prospects of our country,” the Chancellor pointed out. All these things illustrate the fact that, "Germany is strong.”


* German government agrees to set up financial market stabilisation fund

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