Speeches, Interviews and Articles
Speech by the Federal Minister of Finance, Dr Wolfgang Schäuble, at the inter­
national financial market conference in Berlin on 20 May 2010
Date 2010.05.20 08:10 AM
Location Berlin
Ladies and gentlemen,
I would like to welcome you all most warmly to our international financial market conference here at the Federal
Ministry of Finance. My special thanks goes to our foreign delegates, some of whom have travelled a long way to get to
Berlin. I am especially pleased that the Federal Chancellor, Dr Merkel, has done us the honour of joining us already for
the start of this conference – she will speak to us in a few moments. Welcome, chancellor!
I said at our dinner yesterday evening that it would be worth coming at ten o’clock sharp. You’re in no danger of having
to sit through a long speech by the Federal Minister of Finance. Instead, you have the opportunity to hear the Chancellor
speak at ten. With this in mind, I shall restrict myself to a few introductory remarks. We have had to make some slight
changes to the planned conference schedule because of what is going on in the Bundestag in these very days and hours.
We are in the process of legislating to implement the stabilisation package for the euro. We agreed the package at the
E C O F I N council eight days ago on Sunday, and fleshed it more of the details on Monday and Tuesday. For this reason,
this opening session will start with the Chancellor’s speech. The panels will be postponed slightly, and between the two
panels will come the speech by Michel Barnier, the speech by Mr Chin and a video message from Christine Lagarde,
who is unable to join us. She very much wanted to attend, but a meeting of the French cabinet was called to discuss
budgetary matters – the sort of meeting a finance minister is well-advised to attend in person.
Ladies and gentlemen, I would like to make just a few comments by way of introduction. Around the world, the
experiences and lessons emerging from the global financial-market crisis have created an awareness among leaders –
and indeed academics – that crisis prevention requires several things. We need to engage in a fundamental reform of the
regulatory framework for financial markets, we need a change in the behaviour of financial market participants and we
need to undertake a critical review of some financial instruments. And that is why the three G-20 summits since the
outbreak of the financial crisis have launched an unprecedented international initiative to reform financial-market
regulation, with the aim of ensuring we have a financial system that is stable, productive and sustainable. A financial
system that, as we occasionally need to point out, efficiently fulfils its function of providing for the real economy, and
does not lose sight of that task. Shortly, in the first panel chaired by Canada’s G-20 Deputy Tiff Macklem, we will have
a more in-depth discussion about the successes since Pittsburgh and the unresolved issues for financial-market
regulation. We have deliberately timed and planned this conference to allow it to contribute to preparing the decisions
that will be taken at the next G-20 summit in Canada in June. The second panel led by EBRD President Thomas Mirow
will look at the question of how we can ensure sustainable global banking activities while keeping competition fair.
However, to fully analyse our reform efforts, we also have to recognise, as I said yesterday evening, that the perceived
pressure for reforms, meaning the momentum to push them through, is declining as the world economy recovers. On top
of this, some financial institutions have again started to generate billions in profits, thanks not least to the massive
government defences deployed to rescue them during the financial-market crisis. And so it is hardly surprising that their
lobbyists are once again increasingly questioning the need for financial market reforms in the areas of supervision and
regulation. However, ladies and gentlemen, we must not lose momentum. The crisis in Greece and its reverberations
across the entire euro zone have made it clear that we cannot relax in our efforts to bring about reform and that we must
resolutely oppose any attempts to slow things down in this field. Indeed, the international community must accelerate its
reform efforts.
So the timing of our seminar couldn’t be better – although when we invited you here, we in Berlin did not know
precisely what dramatic developments at European level the past days and weeks would bring. I do not intend to go into
detail now. The one thing I will say, however, is that we need lasting trust in the stability of the euro. And all of us
involved in the Eurogroup and E C O F I N agree that we will only achieve this if the measures we take target the fiscal
and budgetary policy of the euro area Member States. These measures are necessary, and there is no getting around that
fact. But they must be complemented by improvements in the regulation and surveillance of the financial markets. That
is the issue we will be dealing with here today. The pressure to take action is great. This is not because politicians wish
to make scapegoats of those branded as speculators, but because the crisis has shown that the financial markets no
longer unreservedly fulfil the function of increasing economic welfare – which was of course their original purpose. I
am not only talking about the classical allocative functions of the financial markets. For me, the main problem lies in
the fact that modern financial markets, with their innovative financial products, and the sometimes enormous leverage
that instruments such as credit default swaps or short selling offer, are now in a position to amplify cyclical fluctuations
to a massive extent. Economics textbooks used to say that, as a rule, speculation worked against market excesses. That
is to say, it had a stabilising function. But given our experience of crisis situations over recent years and weeks, we have
to further assume that modern financial markets – and pronounced herd behaviour – intensify and exacerbate economic
fluctuations. It is also possible that the situation is compounded by a micro-economic incentive problem. Put simply,
participants in modern financial markets don’t earn their money when the markets are calm and stable, but largely when
they are volatile. And this inherent tendency towards volatility means that modern financial markets might easily
impede the efforts policymakers make through their active short-term economic policy to smooth fluctuations in the
economic cycle and thus stabilise growth, employment and inflation.
Ladies and gentlemen, if we wish to learn from the crisis, one thing is clear: we again need a regulatory framework that
contributes to more responsible behaviour on the part of all financial-market participants – behaviour supporting
sustainable growth in the real economy. That means smarter incentive systems, that is to say rules for remuneration and
liability, more robust capital and liquidity requirements, supervision with a more powerful punch and better protection
for taxpayers and savers. Much of this is new territory, particularly the ‘too big to fail’ issue, a moral hazard problem
which raises the question of how we should deal with systemically relevant institutions. We must work together to
ensure that large, closely interconnected banks include the negative external effects of systemic risks when calculating
their costs. The excessive assumption of risk on the part of these institutions not only jeopardises the stability of the
markets, it distorts capital allocation and competition between the institutes as well. The G-20 must work to develop
more detailed proposals to solve this problem than those we have formulated to date. We are far from responding to all
of the issues. We are only just starting to answer the big, difficult questions. What are the characteristics of modern,
internationally coordinated financial-market regulation? What else can we do to reduce the threat and fallout of future
crises besides the measures already taken? How can the costs of a crisis be distributed fairly? How can we reduce the
volatility of the markets and their tendency to overshoot the mark? And how can we succeed in doing all of this without
hampering the functioning of financial markets and financial institutions, which in principle serves to enhance welfare?
We have invited you to this conference to discuss all of these questions, to find ideas and to generate impetus. So allow
me to welcome you here one more time. I hope we come to some useful conclusions and create movement in the right
direction in many areas. This will help the meeting of G-20 Heads of State and Government in June under the Canada’s
presidency to produce positive results – results that we, in our closely interconnected world, all need. And now I would
like to ask the Federal Chancellor of the Federal Republic of Germany to take the floor.
Thank you very much.
© Federal Ministry of Finance