After September’s federal election, there has been gradual progress towards forming a new government. Whether the current negotiations lead to the formation of an administration or not, however, what is certain is that Germany’s next governing coalition will have to address the megatrends of climate change and digitalization. What implications do these trends have for the financial sector?
Here, the SAFE Policy Letter No. 91 highlights seven priorities for the incoming federal government:
- developing a regulatory package to safeguard global commons such as the climate;
- an initiative to build the necessary data sets and standards for targeted sustainability design in financial markets;
- a regulatory roadmap to record, enable, and structure digitalization in the financial system, completing the banking union by creating a single supervisory regime;
- breaking the “doom loop” between sovereigns and banks in Europe by limiting the extent to which banks may hold bonds issued by their own national governments;
- a serious attempt to create a single European capital market with integrity in U.S.-style supervision based on the SEC model;
- and finally, a banking and a capital markets union as essential building blocks for a fundamental reform of pensions, with higher participation among all demographics in the performance of the German economy.
Researchers at SAFE emphasize that, taken together, green finance and financial stability are the two absolute must-haves for the next German government in order to counter climate change and meet the requirements of transforming the financial system in a European context. This includes regulatory and financial market policy measures fostering legislation and supervision with a view to tackling future crises better.