Foto: Steve Mann

EU Finances

The financial market crisis unleashed a worldwide economic and debt crisis, the effects of which will continue to be felt for years. However, the threats of the current environment offer an opportunity to review and improve the structure of the European Union and the regulation of financial markets. This opportunity must not be wasted. The goal of policy must henceforth be the implementation of a transparent regulatory structure within which the market and competition can flourish. Risk and liability must once again correspond with one another, and European solidarity must be merged with financial soundness. Only in this way may the advantages of the single European currency be preserved, and only in this way can Europe protect itself from future financial crises and survive in a competitive and international environment.

The Stiftung Marktwirtschaft and the Kronberger Kreis support:

  • The introduction of a bankruptcy procedure for EU member states,

  • the further development of a debt limit for federal and state governments,

  • the reform of financial market regulations so as to raise capital requirements,

  • the abandonment of sovereign bond purchases by the European Central Bank (ECB),

  • the ECB’s dedication to its mission to secure and maintain the value of the currency.

Financial Market Regulation

In the wake of the financial crisis, discussion of the lack of financial regulation has gained considerable momentum. Little, however, has happened to correct the situation.

Financial Transaction Tax Position Paper.

It is in this context that the Kronberger Kreis presents a 2011 study including a market-oriented blueprint for financial market regulation. The study demonstrates how long-term systemic stability in international financial markets can be achieved. The various proposals include the backing of government bonds with the equity capital of banks and a more demanding system of capital requirements that exceeds Basel III. The Kronberger Kreis, however, rejects the introduction of a financial transaction tax.

Kronberger Kreis Study No. 53, “Systemic Stability for Financial Markets."

Monetary Policy

Prof. Dr. Manfred J.M. Neumann warns of the dangers of the ECB’s lax monetary policy. The long-time member of the Kronberger Scientific Council sees a dangerous medium term risk of inflation, effected by the ECB’s program of purchasing state debt and the issuance of jumbo loans. “European monetary policy cannot be misused to finance national budgets,” writes Neumann. In his analysis, Neumann suggests those corrections that the ECB must undertake.

Executive Summary of Argument No. 116 (in English)

Arguments for the Market Economy, No. 116: “The European Central Bank Gone Astray” (2012)

Press Release from 14/03/2012, “End Sovereign Debt Purchases and Jumbo Loan Lending”

EU Debt Crisis

The public debate surrounding the European sovereign debt crisis has included discussion of various solutions, including the dissolution of the European currency union, the constant augmentation of bailout packages, and the creation of a transfer union with a strong central government and euro bonds. The director of the Stiftung Marktwirtschaft, Dr. Michael Eilfort, and the speaker of the Kronberger Scientific Council, Dr. Lars P. Feld, argue for a “middle way.”

Our position on the EU debt crisis: Position paper by Prof. Dr. Lars P. Feld and Prof. Dr. Michael Eilfort

Read our conference report about the cooperative conference with the delegation of the European Commission in Germany on 27/10/2011: “The European Debt Crisis: Ways forth to a Solution.” The Vice President of the European Commission and Commissioner for Economic and Monetary Affairs and the Euro, Olli Rehn, ECB Board of Governors member and former State Secretary in the German Finance Ministry, Jörg Asmussen, and Oxford University Professor Clemens Fuest, among others, joined the conversation about the debt crisis.

A high level of state indebtedness necessitates high interest payments that eat away at the general budget, leaving less room for spending in other policy areas and threatens the long-term solvency of the state. A sustainable reorganization of budgets on the European Union, national, and state levels must be undertaken to reduce structural deficits. Only successful fiscal consolidation can create an environment conducive to long-term economic growth. The scientific advisory council of the Stiftung Marktwirtschaft – the Kronberger Kreis – released a study in 2010 examining institutional regulations governing indebtedness on the EU, national, and state levels. The study details its recommendation for a thorough and successful long-term reorganization of the public budget:

Kronberger Kreis Study No. 52, “Public Finance Reorganization in Germany and Europe.”