A group of German associations strongly opposes legislation, especially in the form of a directive to harmonise mortgage credit. Product regulation would reduce diversity and put the German fixed interest rate culture at risk, the ZKA, the German Insurance Association and German Association of Private Building Societies argue. Instead, self-regulation should be systematically expanded, i.e. the Code of Conduct on Home Loans and ESIS should be revised and infrastructure measures should be promoted through a Commission recommendation addressed to market participants and member states.
The conclusions of London Economics do not stand up to critical analysis, the associations argue. The study’s assumptions are essentially based on British market mechanisms, which cannot be applied to other EU member states. The leverage effect on the economy as a whole presupposes that property prices will rise continuously thus generating a permanent increase in value for home owners which can then flow into private consumption. This mechanism was supported by a substantial sub-prime market opened up by British mortgage lenders along the lines of their US counterparts.
In light of the current sub-prime crisis it is no longer tenable, in our view, to base the case for action on the arguments of London Economics for improving the internal market.
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© Graham Bishop
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