Stable financial markets, a sustainable pension system and European competitiveness require decisive action from the new German government. Two recent SAFE Policy Letters and a blog post highlight key challenges and provide recommendations for the new government.
Financial market integration: Germany’s responsibility
The European banking and capital markets union remains unfinished. National interests and political resistance prevent the implementation of a common market for banks and financial services, thus weakening Europe’s economic sovereignty, especially in the light of growing geopolitical tensions. “If the next German government is serious about strengthening European sovereignty and stimulating growth, it must finally push ahead with integration in the financial sector. This requires the courage to set aside national interests,“ says Florian Heider, Scientific Director of the Leibniz Institute for Financial Research SAFE. Together with Vincent Lindner, Loriana Pelizzon and Tobias Tröger, he is the author of SAFE Policy Letter No. 108.
Pension policy: the capital market and education are key
Demographic developments continue to put pressure on statutory pension insurance. Reform plans for a funded supplementary component and greater private provision exist but have not been implemented. Andreas Hackethal, Vincent Lindner, and Raimond Maurer outline reform options in SAFE Policy Letter No. 107 and call for rapid implementation. A national strategy for financial education is also lacking. According to the authors, this is “a key factor for strengthening individual retirement planning skills.”
New debt: Safe bonds are important for the stability of European financial markets
With the announcement of a special fund and the partial suspension of the debt brake, the capital market interest rate for German government bonds has risen, triggering a renewed debate on debt sustainability. However, this debate often ignores the role of German government bonds as safe assets. Limiting government debt too strictly leads to an artificial shortage of these essential financial market instruments and weakens Germany’s position as an economic anchor for Europe. A recent blog post analyzes how the scarcity of German government bonds negatively affects financial markets, and which economic risks arise from this, especially in times of crisis. In the absence of these safe assets, the European financial market turns to US government bonds - thus importing US government debt risks, while the security premium benefits the American rather than the German taxpayer. Florian Heider and Jonas Schlegel therefore argue for a reform of debt policy that enables the targeted issuance of safe bonds.
