or mezzanine capital, and thus also financing for structural change projects. In China, the state undertakes this task extensively and provides companies with the necessary funds in a variety of ways. But what might work effectively there cannot also be a viable path for Europe from a regulatory perspective due to the negative experience of strong state intervention.
Nevertheless, Germany and its European neighbours reveal a number of weaknesses in the financing of substantial transformations. It is true that state institutions provided capital quickly and abundantly during the Covid-19 crisis. However, this has mainly been in the form of senior secured bank loans, with often conservative guidelines on the use and repayment of funds. While this solves liquidity problems, it primarily maintains the status quo. Genuine venture capital, which could be used to invest on a large scale in research and development or the strategic repositioning of a company, is also necessary.
Broader support One of the most urgent tasks for European financial institutions is therefore to develop a much broader and more innovative set of debt and equity options and make them available to companies. A fully integrated capital and banking union in Europe is needed to strengthen the clout
Increasing digitalisation is creating entirely new ways of doing business
of European financial players. However, the final establishment of such a union will still take some time due to the large number of issues involved. In the meantime, a collaboration of private and public capital can make a much-needed start and improve the supply of debt and equity options. One approach here is cooperation via support programmes that enable targeted transformation investment, while at the same time using market mechanisms wherever possible.
Additional requirements and opportunities for banks also arise from the phenomenon of glocalisation. In this changed environment, multinational companies can only exploit economies of scale if they also meet local framework conditions. In doing so, they must comply with a multitude of regional specifics, which often also affect specific types of finance, such as supply chain and trade finance. Banks have the task of serving as a global ‘Hausbank’ for companies by combining local knowledge with a global understanding of customer needs through their presence in many countries.
Rules and structures A particular challenge for the European economy is the issue of payment infrastructure. For simplicity, this is understood broadly here to include both technical infrastructure and the ‘provision’ of a currency to enable payment flows
in the first place. While the former, in our perception, is mainly offered by private companies, payment flows in its own currency allow the state to exert influence. Since much of international trade finance, commodity trading and a high proportion of capital market issues is denominated in US dollars, these payments fall within the territory of US regulators. The US can therefore pick and choose who uses its currency and in recent years has increasingly exercised this power of intervention.
The area of technical infrastructure, defined here in simplified terms as the range of payment options, is also dominated by American companies. In most cases where European consumers make digital payments, they use US-controlled payment systems, either one of the popular credit cards or, increasingly in recent years, PayPal or Apple Pay. China has not accepted such US dominance and has long since established its own payment options, such as WeChat Pay and Alipay. Europe, on the other hand, has no payment system of its own for private individuals that can be used Europe-wide, apart from individual national offerings such as the German Girocard.
Theoretically, this could work, at least in a world where everyone abides by the rules and fair play is the highest priority. In reality, however, the current payment infrastructure set-up has long since proved to be a weighty disadvantage to the bloc. As in poker, Europe is becoming more vulnerable to bluffs and all-ins. After all, whoever controls the payment infrastructure also has, in effect, sole authority to interpret critical issues such as money laundering. It would be better to have a close international exchange to establish a common understanding and a coordinated approach.
Europe’s weakness became apparent during the US sanctions against Iran. While the European Commission (EC) encouraged companies to do business with the country, the Americans prohibited this and threatened sanctions for anyone that did so. The result was clear: Europe’s economy complied with the American instructions and not with the recommendations of the EC.
The power to set the rules for international payments has become a potent geopolitical tool. China is placing great emphasis on a digital central bank currency in order to be able to offer an alternative to the US dollar,
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