Andreas Dombret of Deutsche Bundesbank spoke at the London School of Economics and Political Science in London. He discussed the global economic integration and the future of international cooperation. He stated that he will apply an approach of less comprehensive globalization and greater national diversity to the three current policy challenges: the regulation of global trade, the regulation of global finance, and the future relationship between the UK and the EU.
Dr. Dombret stated that globalization is both good and bad. Global economic integration has contributed to greater prosperity in many countries. However, the development of Brexit is a reminder that globalization has a darker side and that global economic integration of the last 40 years has contributed to two significant problems. First, importing and exporting lead to sectoral change and redistribution, which produces both winners and losers in a society. The second problem of globalization is that the global regulatory harmonization weakens the ability of states to sustain welfare standards and regulations that are above global minimum standards. He discussed that the limitations of globalization must be accepted and a stronger set of rules must be devised to limit the negative repercussions of free markets. To this end, he emphasized on three policy elements:
- First, countries must decide the level of compensation they want to provide to those who lose out from globalization.
- Second, each society must reconsider the cases in which certain limits to global markets would make sense.
- Third, policy element of the future globalization framework is continued—but less, and focused—harmonization; harmonization efforts should be focused on certain meaningful and legitimate minimum standards.
He explained focused harmonization by applying the principles in three crucial policy areas—trade, finance, and Brexit. With regard to global finance and regulatory harmonization, he mentioned, "...Basel III standard is for internationally active banks. As such, jurisdictions are free to apply a different set of rules to smaller, only nationally active banks that pose no threat to international financial stability. Most nations already have less restrictive rules on smaller banks in order to reduce the operational burden for them. I am a strong proponent of extending this proportionality further, because the highly complex regulatory reforms after the financial crisis were sought for global banks, and they overburden smaller, regional banks. In sum, then, we ought to focus on truly global aspects, like regulating globally active banks, while leaving it to nation states to carry out those tasks that they are better placed to take care of, such as the regulation of locally active banks." With regard to Brexit, he explained that in the event of no free trade agreement if service providers have to apply for full licenses in both jurisdictions and have all the necessary elements of a fully functioning bank ready in both places, transaction costs can increase for some. However, it may also bring the benefit of enabling the EU and the UK to set their own rules in an important area of economic policy. He concluded that finding a middle way that harnesses the benefits of globalization and limits its negative repercussions is necessary.
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