The financial regulatory monopoly of the old-fashioned nation state is over, declared the German Federal Finance Minister in recent remarks, and a new model for global governance must be forged. Dr. Wolfgang said that regional cooperation can and must make a contribution to this new form of global governance. We will have to find our way there through a process of trial and error, he noted, because there is not one specified model.
However, make no mistake, globally coordinated and harmonized financial regulation is an imperative to prevent regulatory arbitrage. National financial markets in particular are so tightly interlinked globally that without global solutions there will always be the risk of regulatory arbitrage and thus the massive imbalances that follow from it. There is no turning back, he warned.
Germany does not see regulation as an end in itself, said the Minister. One of the key lessons from the past financial crises is that high cyclical, credit- and profit-fueled growth driven by financial markets does more harm than good. Instead, regulators need to create the conditions for sustained and sustainable growth on the basis of solid structural frameworks. By sustainable growth, the Minister means steady growth that is compatible with environmental and social priorities, without massive distortions and erratic volatility in the financial sector.