Speech: The Law − An Important Location Factor

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Ladies and Gentlemen,

I wanted to come back at the close of this conference first of all to thank you all for your active participation and your contributions to the conference.

I would like to thank all the speakers and moderators who have taken the floor as representatives of German business and industry and of the professions of lawyers, notaries and judges. I would also like to thank our many foreign partners who have participated in this conference. I am certain that this conference has brought important ideas for both sides which will contribute to further intensification of our cooperation in legal matters. The German Foundation for International Legal Cooperation – also known as the IRZ Foundation – is a very important partner in this regard and I hope it has been possible for new contacts to be established over the course of yesterday and today that may serve as a basis for future joint projects.

However, this conference has shown once again that there is no panacea for the various manifestations and problems of the financial market crisis. Instruments that are simple and unrefined in nature are not an option in this highly sensitive field of economic activity. We need precision tools, not sledgehammers. Governments that threaten to impose criminal law measures or administrative bans will fail and cause damage to their country’s reputation as a location to do business. What we need are tailored solutions; panic is not a useful ingredient for creating the necessary legislation.

Instead, we need to think about long-term and sustainable solutions. We have to recognise the signs of the times. Just look at the German and European finance and insurance markets today! Without doubt we have to assume that they will not be recognisable in ten years’ time. Many players that we are currently supporting by way of state intervention may not exist anymore; others may have become international banking giants. If companies want to survive, it is their business models and their provision for risk that they have to work on. Those in the political arena and the legislature can level out and improve the framework conditions; however, they cannot relieve the banks and insurance companies of the necessary adjustment and learning processes.

I would like to make this clearer by way of an example: In the mid 1990s, as Federal Minister of Justice I worked on Internet legislation with the objective of promoting electronic commerce. The Act on Information and Communication Services (Informations- und Kommunikationsdienstegesetz) we drew up at the time was the first modern Internet law in Europe and functioned as a model within the European Union, too. The German trade sector was hence given optimum conditions for doing business online. But what happened then? Well, German mail-order businesses have not really used this opportunity, but left the field to their competition. Everybody now talks about Amazon and eBay, yet nobody mentions Quelle, Neckermann or the others anymore. This example makes it clear that, if German and European banks do not want to suffer the same fate in ten years, they must be more adaptive and flexible than German mail-order companies have been.

The chances that forward-thinking lawmaking can offer today will only pay off if the finance sector also takes action itself.

Albert Einstein once said that we cannot solve problems by using the same kind of thinking we used when we created them. This is why it is so important to overcome the gambling and risk-taking mentalities and focus on sustainability and a greater responsibility. It would be mistaken to believe that moral appeals will be sufficient. The nature of human beings does not change, greed will resurface. This is why the legal framework conditions have to ensure that the market players are gently but firmly guided in the right direction.

Those in the political arena and the legislature can lend their support to the necessary change of mentality in the economy; in concrete terms, this has to be done in three different ways:
Firstly, liability has to be put in more precise terms. We need a uniform European liability law for speculative transactions, so that both investors and banks have legal certainty.
Last Tuesday, the German Federal Court of Justice rendered a noteworthy judgment in this regard, in which it clearly stated that a broking house is liable if its brokers did not sufficiently inform investors about the risks associated with their investment.
Manager liability is another aspect of this topic. Here, we will extend limitation periods in order to bring responsibility and liability more into line with each other.
The second aspect concerns the restriction of CDS – credit default swaps, that is an insurance against default, which has, unfortunately, also been used in speculative transactions that resemble gambling. I am not an advocate of bans and punishments. Regulations fail to achieve their objective if they stifle innovative business models. CDS can have a beneficial economic function, too. This is why regulations have to be elaborated that prevent misuse of this instrument but allow for what is economically reasonable.
The third aspect concerns insolvency law. This must to a greater extent be geared to the restructuring of businesses. Dismantling businesses often causes damage to the national economy. Where banks that have systemic relevance are concerned, the state has to be protected from being held to ransom. Here, too, we can and we must employ precision tools that allow for a preservation of economic potential whilst, at the same time, enabling us to cut out those parts that are rotten so that the healthy parts can grow and thrive.

Ladies and Gentlemen, this conference has shown that law is an important location factor. The national parliament sometimes has to help out in an emergency. But we all know that it will not be possible for the state to keep pumping money into rotten markets. We cannot afford another crisis of this scale in the future. For long-term sustainable legal framework conditions, we therefore need models that go beyond the individual state. I hope that you will be able to take home some useful ideas in this respect and I would like to thank you very much for allowing us to be your hosts here at the Federal Ministry of Justice yesterday and today. Thank you very much!