The transformation of the German economy requires significant investment and thus extensive financing. Against this background, the report “Capital Markets, Economic Growth and Transformation Financing” by Prof. Christoph Kaserer, TU Munich, and Prof. Marc-Steffen Rapp, Philipps-Universität Marburg, analyses the development of German financial and capital markets in an international comparison, highlights corporate financing and concludes with specific recommendations for action.
Status quo of the financial and capital markets
The German financial market – consisting of credit, bond and stock markets – is worth around 180% of the GDP, with credit being the dominant source of financing. Compared to the US or Japan, Germany has a shallower capital market, which is mainly due to the underdeveloped bond and stock markets. While financial markets worldwide have grown in recent decades, this development has stagnated in Germany and the eurozone after the financial crisis. Only the stock market has developed positively, but it remains at a low level.
One of the main reasons for the limited capital market depth lies in the German pension system, which relies heavily on pay-as-you-go schemes. Countries with funded pension systems usually have larger capital markets.
Securitisation markets as a link
Securitisations play an essential role in connecting banking and capital markets. However, they have hardly grown in the EU over the past ten years, which is mainly due to regulatory hurdles. These have further weakened the market and limited its potential.
Options for action
Capital markets are a crucial factor for financing transformative investments and scaling new business models. The stagnation of the financial markets represents a significant obstacle in this regard. To strengthen capital markets, the report proposes various measures, including:
- a reform of private pension provision,
- a strengthening of European securitisation markets,
- a further development of the capital markets union,
- tax incentives to promote equity financing.
Securitisation is only one part of the measures required, but it is an important one – particularly for Germany, with its strong SME sector and high levels of debt financing from the banking sector. This package of measures is essential to equip Germany for the economic challenges ahead and to ensure its long-term competitiveness.
To the report “Capital markets, economic growth and transformation financing”