Sozialalmanach - Caritas Luxembourg

maintaining general financial stability. However, in order to achieve financial stability, the
ECB must be allowed to deploy new instruments, such as counter-cyclical adjustment of
capital ratios for banks and minimum reserve requirements, which should be used to limit
excessive credit creation by banks. However, if the ECB is to play a significant financial
stability role, it cannot retain the degree of operational independence it was granted in the
Treaty over monetary policy in the pursuit of price stability. Changing this will be difficult,
because the ECB is based on the European Treaty, which is extraordinarily tough to amend
(all twenty-seven member countries must agree to any changes). As the crisis lengthens
and deepens, the absence of close cooperation between the European fiscal authorities on
the one hand, and the ECB bankers on the other, will make both groups progressively less
effective. This comes in addition to the problems the ECB encounters as a result of the
absence of even a minimal ‘fiscal Europe’.
The ultimate litmus test of effective macroeconomic regime change lies in the establishment
of a new systemic risk regulator. Banking should be subject to a capital regime entailing
more and higher capital requirements, more capital against trading book risk-taking, and
a counter-cyclical framework with capital buffers built up in periods of strong economic
growth that would be available in downturns. Ultimately, Europe must establish a powerful
EU-level authority to which national supervisors report and whose instructions they carry
out, in a manner analogous to the relations between the ECB and national euro area
central banks 49 . Nonetheless, at the Pittsburgh summit of the G20 on September 25, some
agreement was reached on timetable for regulatory reform, serving to reign in executive
compensation, to raise capital requirements and leverage ratios for financial institutions, and
to reduce the imbalances between consuming countries like the US and export-dependent
China, Germany and Japan. Moreover, the G20 came together on new IMF voting rules
with more power and authority of the developing economies.
In many advanced economies, welfare policies are being re-assessed and re-calibrated.
In Europe, the crisis has been, in many ways, a stress test for the welfare state. Although
the crisis may put a strain on many redistributive institutions, this can also have positive
consequences, as Tony Atkinson 50 acknowledges. For one, social policy has resurfaced
at the centre of the political debate. The crisis has reminded many Europeans of the
importance of social programs to support the unemployed, the disabled, and the others most
negatively affected by the crisis. In this respect, the economic crisis may reinforce, rather
than undermine, the legitimacy of the welfare state. In China, the government has recently
realised that internal consumption could be a new driver of growth, but they have yet to
49 Buiter (2008).
50 Atkinson et al. (2002).
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