16 July 2013

Deutsche Bank: EU and national financial regulation - Not a major election issue in Germany (so far)

There are three explanations for this:

• One, there hardly is any material issue left which parties could have put forward.
• Two, voters no longer appear excited by the issues.
• Three, on the key challenges in the European context – connected to the design of Banking Union – parties prefer to keep their flexibility given ongoing negotiations.

Comparing party manifestos, it is noticeable that the CDU/CSU have little to say on the financial markets. Only the FDP makes an effort to mention the importance of the financial industry and to support, in principle, globally integrated financial markets. The SPD, too, emphasises harmonised international rule-setting. As in other policy areas, the SPD and the Greens are − with a mixture of mainstream and interventionist policies − noticeably more detailed in their proposals than the ruling coalition parties.

It was expected that financial regulation would feature prominently as an issue in this year’s election campaign. Indeed, financial regulatory matters undoubtedly take more room in the election manifestos than in previous campaigns, yet they are far from being a dominant theme. There are a few possible reasons for this:

1. Given the extensive regulatory activity in the past legislature, there are few material issues left.
2. Remaining issues are often of a rather technical nature and therefore do not lend themselves to campaigning.
3. While many voters would like to see stricter rules imposed on financial markets, few have hard preferences on specific instruments. Generally, voters no longer seem excited about the topic: a recent poll showed that financial regulation only ranked 8th in the list of topics of concern to voters.
4. As regards outstanding regulatory initiatives at the EU level, especially in connection with Banking Union, parties need to preserve their flexibility for future European negotiations.

Undoubtedly, foreign observers will be most interested in the stance the parties take on EU Banking Union. Unsurprisingly, though, the manifestos are largely generic on this – reflecting that parties are chasing a moving target here and that all parties need to preserve room for manoeuvre in forthcoming EU-level negotiations. Nonetheless, some key positions can be gleaned from the election platforms.

Statements by the CDU/CSU on Banking Union are as vague as the rest of their programme: the CDU and CSU make clear (as does the FDP) that they oppose a pan-European deposit guarantee scheme (DGS), but are silent on all other outstanding features of Banking Union.

The Liberals call for a strict separation of supervision and monetary policy, welcoming the establishment of EU banking supervision “at the seat of the ECB in Frankfurt” – raising the question of why they voted for the SSM a few weeks ago. ESM support for banking recapitalisation is advocated by the Liberals in principle, but under the condition of co-funding by the member state concerned. Somewhat oddly, the FDP also calls for an eventual end to the ESM.

The SPD, in turn, in its programmatic statements on the future of European integration, clearly speaks in favour, in principle, of joint liability arrangements; by extension, it favours a pan-European restructuring fund (but is silent on joint DGS). It supports, for want of better alternatives at this stage, supervision of large banks by the ECB, but prefers the establishment of a separate European banking supervisor over time.

The Greens endorse the idea of a strong Banking Union, with a pan-European resolution mechanism and a “common framework” for DGS. To be sure, though: given popular opposition and constitutional concerns, the opposition parties, once in power, would move as cautiously as the incumbents in committing to a truly pan-European decision and financing mechanism for bank resolution.

Full article

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