An experiment with an uncertain outcome

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EU finance ministers will contribute to stricter rules for hedge funds. The introduction of a financial transaction tax also is possibly. Prof. Kaserer of TUM is the transaction tax is an inappropriate instrument.One problem in our financial markets is that institutional investors herd behaviour may be individually rational. This, which has actually been found is that to be unsuitable the transaction tax. The aim of the tax is to curb speculation and thus ensure more stable financial markets. Besides the fact that not the speculators weaken the euro, but only the lack of fiscal discipline in the euro countries would not help a transaction tax to stabilize the markets.

It is true that the tax tends to be the so-called “noise traders” and it would displace from the markets, which would ultimately reduce the volatility. Nevertheless, it means that damage is quite the opposite. Because a transaction tax has a negative impact on information processing in the markets.

Short-term investment strategies are burdened disproportionately. Business models are designed to exploit short-term rating errors are. Therefore, they are removed from the market. This reduces the liquidity of the market and leads to inefficient processing of information.Rather than bring out old instruments, one should rather focus on the development of effective regulations. For the portion of the assets managed by mutual funds, it has doubled in the last 20 years in Germany. The concentration of capital in the hands of institutional investors leads to systematic risks. Counteract this would be a first step towards better regulation.

Euro crisis is government failure

Europe looks for a way to stabilize the euro in the financial markets. At the weekend, EU finance ministers have put together an unprecedented rescue package. Some 750 billion euros will keep strapped member states facing bankruptcy and stabilize the euro. Thomas Exner, commentator of the world sees it as a threat to the market economy. In a recent commentary in today’s edition he writes: “Whoever suggests a running between politics and markets battle line, is a cornerstone of European integration, the market economy.”

The pressure on the euro come less on the part of speculators, but is rather signal a loss of confidence that stems not from a market failure but of many years of policy failure.

Fatal attack on the independence

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The European Community and the IMF has a total of 750 billion euros, provided to stabilize the euro. Germany’s share is the largest with 122.8 billion. 750 billion euros! Featuring an unprecedented rescue package to European politics has returned to the leadership over the financial markets. How sustainable is the package to calm the markets remains to be seen in the coming days. Is this gigantic bailout was necessary?

This question is difficult to answer. With the bailout, the EU countries have one of the largest stop signs set against speculators. This amount seems to calm the markets to end the speculation against the euro. Nevertheless, salvation clip states dangerous, because budgetary sins are not punished. Rather, the following applies: in need help the partner of the EU. Properly and it was therefore important that the IMF to get on board. Because only he can impose tough conditions against the debt restructuring States. Hope to make the first austerity measures of the Spanish.After all, the lender should have contributed to the cost of the bailout.

Very worrying is the fact that the ECB is buying government bonds in the deficit countries. The credibility of the central bank is so shaken and why not. It is without consequence for the stability of the euro. In the same time, not only financial markets are wondering if the euro remains stable in the face of high debt, but also the citizens of the member countries. A glance at the history books shows that governments have in the past often are used the inflation as an emergency exit. Insofar as any attack on the independence of the ECB is fatal.

EU at a crossroads

The EU clamped on a single in the history Rettungsschrim. For a 750-strapped member states billionaire bailout fund has been established. Join 440 billion coming in the form of loans and guarantees from the Member States, 60 billion, the European Commission prepared and 250 billion come from the pot of the IMF. Moreover, the ECB started buying government bonds and thus de facto government deficits financed by printing money.

The austerity package the government

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80 billion the federal government wants to save up to 2014. It comes to the constitutional guarantees and debt limit, which can be met. The austerity package the government is on the table. 80 billion will be saved over the next four years. In terms of volume, indeed, in some areas, reversals have been made, such as with the military reform. Overall, the austerity package is not very innovative.

Instead of creating a fuel tax, an auction of the lifetime extension of nuclear power plants would have to contribute about 50 billion euros, which would not need to be cut elsewhere. Apparently has not even thought about it, from what areas of the economy could withdraw the state. The transport division of Deutsche Bahn Schenker Logistics such as might have been sold to private investors. The revenue side has remained largely structurally intact. Abolish the reduced VAT rate would have simplified the tax system.

As compensation could leave untouched the social budget or relieve the lower income in return. Still cannot predict whether the austerity package creates enough room to manoeuvre. Of course, remains to be seen whether all the proposals are implemented. The coalition agreement also provides for many things that have not been implemented yet.

The consolidation of public finances

Financial markets must be brought under control. That is what the planned introduction of a financial market tax and a national point adopted ban on short selling. What problem is solved exactly by these measures, it remains in the dark. The market signalling that the government itself does not believe the 750 billion euro rescue package would stabilize the market. This creates additional uncertainty.

In addition, what can be achieved by banning naked short selling? Short sales, which show increasing studies, market liquidity and dampen price swings. Apparently, the policy aims to distract from the real problem this activism – the horrendous national debt. In order to calm the markets and stabilize the euro helps one thing and it is a credible consolidation strategy.