Everyone agrees that most European states are in need of reform. These reforms, however, can only work effectively and without overburdening the people or damaging the economy if they are supported by fiscal stimuli. Such fiscal measures should not necessarily be considered equivalent to government spending. Initially, it will be enough to discontinue the austerity packages and maintain the present situation. The new measures, taxes, provisions and changes in law are the biggest problem of Europe’s economy at the moment.
This absolute legal and planning security is the biggest advantage of Switzerland. Even Germany does not always offer this level of planning security. Energy producers are currently experiencing this. First, the operation periods for nuclear power plants are extended, then the phasing out of nuclear energy follows shortly thereafter. For the companies involved, this is tantamount to catastrophe in terms of planning security. Similar conditions currently apply to the expansion of renewable energies. One of the main obstacles in this regard is an unpredictable political agenda that takes on new directions again and again. A company will not invest if it is not able to reliably prepare itself for a scenario, and this slows down the economic development of a society.
We are in dire need of a European master plan that clearly defines which reforms will be on the schedule for each state over the next five years, how these will look like and in which intervals they will be implemented. Companies need to be sure that no further significant changes will be made beyond that. This would be the minimum level of planning security that a company needs, regardless of its size.
Part of this includes a clear definition by the European states of how they view the European structure in the future. We have politicians that are afraid of drafting up a clear perspective for Europe in light of upcoming elections. No matter how this perspective will look like, people and the economy can prepare for anything. However, we need politicians that are brave enough to work out and clearly define a joint vision with their colleagues from the other European states and prepare the general population for this shared journey. We need a narrative.
Legal, fiscal and political planning security forms the first foundation for economic growth. What we need beyond that, due to the extreme economic turmoil, are more economic accelerators.
The most effective measure to initiate an economic recovery on a broad scale are investments in infrastructure. The USA experienced two large economic booms that played a crucial part in the rise of the USA. The investments in railway infrastructure brought about the first real wave of prosperity across all of America in the 19th century. This phenomenon repeated itself in the 1940s and 1950s on account of the construction of the long interstate highways.
Nothing can boost the national economy better than investments in new infrastructure, and nothing increases the value of a national economy like this new infrastructure. You see there is a difference in whether a state spends money on social benefits, which dissolve among the population without creating any long-term added value and which require the same payments in the next year, or whether a state spends money, thus creating infrastructure and attracting new investments, as well as boosting the national wealth (capital stock) in the long run. Europe urgently needs investments in modern infrastructure. From a modern energy supply to fibre optic lines all the way to independent server farms. While the states lack flexibility due to their debts, private households are sitting on monetary assets, including life insurance, in the trillions. So what could be more logical than activating these funds for infrastructure in form of equity? Insurance companies would very much like to invest in such projects even today. However, they are only allowed to do so on a limited basis due to the requirements from Solvency and Basel. In this context, infrastructure funds could present a way out. Specifically, funds established through private banks that correspond to clear specifications for sensible infrastructure projects and have been certified by auditing companies. The payments into these funds – not the profits – must have a government guarantee to meet the regulatory capital requirements and security needs of private investors for their retirement plans. This guarantee would not pose a risk for the state as property coverage would be provided through infrastructure. The market-oriented regulation would be maintained since the private banks would set up funding and the investors/insurers would only invest in the most promising projects which stand in competition to receive these funds. This way, monetary assets would be transformed into tangible assets. An economic boom that would last for decades would become a reality, during which the states would be able to reduce their debts through tax revenues and implement the necessary structural reforms at the same time. We have to change our approach and establish our investments on the basis of equity as opposed to borrowed capital. This is the only way to break the cycle of new debts and the problems that arise as a result.
The “face of the stock exchange” started working at the Frankfurt Stock Exchange after his training as a banker in 1992. His books on the global financial crisis “Crashkurs” (2009) and “Cashkurs – ein umfassender Finanzratgeber für Einsteiger und Fortgeschrittene” (2011) were bestsellers. Dirk Müller’s most recent work is titled “Showdown – Der Kampf um Europa und unser Geld”(2013).
