 good afternoon everybody housekeeping issues first I've just turned off my mobile phone so I would invite everybody else do the same or put it on silent the exits exit is the door you came in through so in the event of any emergency please leave by the same door let me see professor Hertz the dress will be on the record and when we go to a question-and-answer session afterwards that will be off the record and is to remain within the room my apologies here for being a little late starting we had a very interesting informal discussion over lunch and I was not firm enough and bringing it to a conclusion properly but I have to be firm in bringing this session to a conclusion at two o'clock so my apologies for taking up so much time our guest today is a person with considerable influence in the discussion of financial structures in the eurozone professor Hertz is a member of the Bundestag in Germany a member of the CDU he's definitely chair of the Committee on legal affairs and consumer protection he's a member of the Committee on European Union Affairs anti-chairs that committee subcommittee on European legal affairs in addition to that he's a professor of law at the University of Hamburg where he focuses on commercial law and especially on insolvency law and he holds law degrees from the University of Cologne with the University of Vienna and from the University of California at Berkeley he is also extremely well connected with both analytical and decision-making circles both in Germany and in the European Union and is therefore in an extremely good position to talk to us about the future of the European Monetary Fund essentials expectations and beyond some of us probably have greater expectations than he would think are justified so with that I give the floor to your professor Hertz yes good afternoon to everybody thank you for the nice words I don't know the person you are talking about so and but I hope I come close to it at the end of my lecture you asked me to give some insight views about the monetary union and some other topics related to it and I think it's a very good point to talk on this because last week in Germany we had a change in the leadership of our parliamentary group of the Christian Democratic and Christian Social Union's parliamentary group from Volker Kauder to Ralph Brinkhaus both are members as I am of the business law circle of our parliamentary group but Ralph Brinkhaus is a much more exposed politician to financial issues and in particular what helped him to become the leader of the parliamentary of our parliamentary group was a paper which he presented I think it was in March on questions of the reform of the European Union the paper was probably circulated around the world I'm pretty sure of this and he made a couple of points and I contributed to this paper in some points because as I'm working at the committee of the judiciary on questions of insolvency law which are related to questions of the monetary union and on questions of banking law which are also related to the monetary reunion some of my comments are integrated in this paper and it was discussed in our parliamentary group and it got a formal more or less formal approval it's mostly sounding no formal votes which is easier and it failed the consent of the social Democrats but what was clear was prior to the Mesa-Berg meeting with the French Prime Minister was that this is the guidance which our parliamentary group is giving the government and I think relatively clear that it helped our chancellor to follow the line which her own parliamentary group had defined and now that Ralf Grinkals is the leader of this parliamentary group I'm pretty sure that the basis of this paper will much more formally be integrated in the future discussion what are the key points of this paper and of our discussion with regards to the European Union let's say that the first and most important point and this is what we discussed very intensively in parliament is the question whether the reform of the European monetary system can be on the basis of article 352 of the TT TF EU or whether it requires a modification of the treaty we made very early clear that in our view regardless of all let's say legal reasoning we think it does only work on the basis of a change of the EU treaty so that requires the consent of the National Parliaments and for the time being this consent is not impossible but it's probably depending on a couple of different matters which are all related to each other and I will mention a couple of them what could work and the proposal which was drafted by the European Union would not exclude this is a model like we see it with the EIB and the ECB so an independent institution but mainly not directly dependent on the European Commission the trust the distrust for historical reasons understandable is that the European Commission with different and with the Brexit changing majorities might have a direct impact on German budget this is what we see as the major concern and some of us say that it's evenly at might be unconstitutional you never know and you can never anticipate constitutional court's decisions but there is a certain risk that if we were about to agree to such a change the German constitutional court might might tell us that it but we in conflict with the German constitution because we don't have or wouldn't have any more the consent and the possibility to influence the German budget directly so what we need is the direct control of the national parliament the ultimate control under constitutional law what we secondly need is a conditionality so if money is going out of the fund we need a conditionality that money goes out only on the price at the condition of reforms economically speaking because there is no external control like in the normal credit relationship as since this is not present we did a substitute for the external control and that's the conditionality we had this with Greece Ireland and so on and it worked differently and our let's say position the group in our parliamentary group is there are some objectors against all these programs but the large majority even within my parliamentary group said and says the experience has shown us that the programs were successful Greece was because I have been in parliament since 2013 was the most problematic case and since I have good friends in Greece and I know the discussion even within Greece I know some of the reasons for this because it has to had to go the longest way and that the very beginning and this is one point which one has to repeat the anymore over and over again and at the very beginning it was problematic to have accepted Greece to the European Union but there were external foreign policy political reasons for doing so the third point is crisis prevention and that's probably the most problematic because in a crisis you relatively easily get a consensus on what you have to do because you have to do the crisis away we have to fight it but all these other measures are less visible and the effects are less foreseeable so what we need is a supervision of the program states and in after money has been land out and the question is who's going to do this instead of the Troika which is which has done this so far so that you need some reliable supervision in case we are going in this direction the the point is that at least for me personally because I know persons doing this supervision process the reliability of the control mechanisms was not as reliable the reliability was not as good as it should have been you got to make it very to illustrate it if you have been to Greece as a tourist you saw that the reports which you got on Greece two three years ago via the European Commission were completely different and that the tax system did not work because you experienced the tax system as a tourist in every restaurant you know and you saw that it did not work to the same extent as we were told as politicians so there is a gap which has to be closed and that would be helpful and necessary to increase the trust on the reform which in general we as we as parliamentary group and we as German parliament gave our consent to the fourth point is maybe the most controversial one because we say that the that the reform of the or the introduction of a real European monetary fund has to be connected to reform of the sovereign debt restructuring system and you already mentioned that I'm used to be a scholar for commercial law and in salvency law and that I worked on questions of sovereign debt restructuring for many many years and what we did is we said one of the let's say external control factors considered conditionality is one point but the very end the backstop in a way needs to be a restructuring a complete restructuring and this is what we lack there were proposals by the World Bank on this and some of them had been readjusted and presented as as measures which could be integrated in the EMF system by Christoph Paul is a colleague of mine in Berlin into the European Central Bank sovereign debt restructuring is a key question because it would end the it would limit to some extent the risk of financing by state money so I come to some points of this in a minute later and the fifth important point is that my parliamentary group would not accept the monetary fund as a backstop for the single resolution fund and that goes to the second broad point which I want to make the question of relationship to other questions with this the banking union because banking and state financing are closely related to each other so let me turn to the question of the banking union and all questions of the deposit insurance scheme the question for me as a scholar and as a politician and as what we said because we already as a German parliament and Bundestag and German government already agreed upon this is not a guess or no there are arguments for a social security not sorry for a deposit insurance scheme and there are good economic arguments for this but the question is when and how and the key question is sorry that for the time being it's too early to discuss this and to end to initiate this because the reduction of risk has to be first and sharing of risk is the second point and the reduction of risk is one of the points in which I have been working extensively because as responsible person for his salvency law and the German parliament we have been discussed this for years and I was closely involved in the discussion of the restructuring directive which is now about to come on the European level under the auspices of insolvency law so what we need prior to a deposit insurance scheme is a harmonization of insolvency law in Europe which includes a harmonization a reduction for many countries of the amount of non-performing loads and the question of a more quicker use of collateral in order to reduce the number of non-performing the amount of non-performing loans in Europe we have a discussion sometimes whether it has to be the three to five percent which we have in Germany or whether there are some other figures or which you could use as a let's say standard figure to be approached first from what I see there is no agreement yet that it has to be a specific figure so that there is some discretion on how far the reduction should work and we know and I know that the figure is dependent on other issues as well and what we discussed previously or what we discussed prior to the my talk here on lunch doing lunch is we are certainly aware of the fact that the question of how far you perform loans or whether how far you enforce the performing of loans is dependent on the social security systems in the different states so there is a relationship between both and the more the one system works the less you need the private financing but you have to take this into account a point which I made in this context is and I made this to the Commission is if we are discussing the question of the insolvency system you have to take into account the different system the different approaches of crown privileges around Europe the crown privilege means that in a private insolvency the state has priority over others when collecting his credit and that means that harmonizing private insolvencies which we need to harmonize in order to reduce the risks of banks in order to in the second step reduce the risk of states that this point may trigger a huge difference among the states so I say in order to get this harmonization which we need we need a equal rule for the states insolvency for the crown privilege for the position of the state in private insolvencies as well my prediction is that there will be no such rule because the last bargaining process is gonna is during these days my prediction is that there will be no rule on this in the insolvency in the restructuring directive which will certainly increase the or reduce the chance of coming more quickly to a deposit insurance scheme and once again more intensively here we are discussing the question of sovereign debt restructuring which is necessary in order to have banks risks shared among other banks and shared with the states and if you don't know this I was first when I told this or when I when I offered this idea there was a very let's say high refusal particularly among some state representatives and among the European Central Bank and what I was surprised of is that at some point I got an invitation by the European Central Bank to discuss this in an internal meeting and we had a conference of one day in the ECB and the British and the Irish Bank of Ireland was present as well because it was a meeting by the by the Central Bank system to discuss all the options and the outcome is published in a book which you can find on the ECB's homepage with all the proposals and one of the proposal was as I mentioned to integrate to reform the European money for the to reform the monetary to integrate it in a European monetary fund and as a second step or as the ultimate step and so a solution of this point is in our view at least in most of my colleagues use a necessity in order to move forward with the deposit insurance scheme what you see in the Miserbach declaration that was the German French that was the German French meeting in June is that even the French now agreed on some steps toward such a insolvency proceeding for states and one step is the single limp aggregation which would allow would permit much more easily than before the the restructuring of sovereign debt and related to this is risk adjustment risk adjustment of sovereign debt and the class the avoidance of cluster risks in the banks in the banks balance sheets so if you don't come to real proceeding what you have to do you have to get more transparency of the type of of the type of credit which you have in your books so these are the points which in my commentary groups you have to be resolved prior to come to a deposit insurance scheme so you look at your watch if I see this correctly not yet because then I could add one other point before I leave it up to the discussion banking union and insolvency is a relationship which I wanted to make and the third which I wanted to meet which is strongly related to the question of the of the monetary union the third point which I wanted to make is the unemployment scheme question unemployment is in Germany one of the most let's say controversial questions because the proposal of the European Union to introduce a European unemployment scheme triggers a lot of dissent triggers a lot of controversy saying that it's not the task of German employers employees to subsidize the unemployed around Europe that's the short version and we know that crisis hits states differently and we know that there has to be money available in these cases and that there has to be a certain let's say common responsibility in these extreme cases the question however is whether this can be done in the classical way and that whether we could introduce easily a system a European wide unemployment system and our position is for sure that this is not the correct or not the it's not the the answer so that we could not introduce a collective system of employees responsible for the unemployment all over Europe mr. Schultz the finance minister mentioned that there is a alternative possibility which is a sort of a backup solution as we have it in some US states which is not a direct responsibility but it's only a backup responsibility a backup financing of the national uninsured unemployment insurance systems I cannot say for sure yet whether this would help solve the problems and whether this is an acceptable solution for my parliamentary group what I can say is that the question of unemployment particular by among younger people in southern Europe is a real problem for the acceptance of Europe that on the other end this is a solution of this problem would help increasing the acceptance of the idea of the European Union so a political solution would definitely be helpful in order to keep Europe united my personal answer was that I looked at the German insolvency system where in the case of insolvency of a business there is a possibility of the state to give a sort of a credit for the employees for the first three months after insolvency which helps overcome the main risk which is the direct risk the immediate risk of an insolvency immediately after an insolvency this is called the so-called insolvency for financial and I said why not thinking about getting this system which only helps struggling the immediate hit of an insolvency of your employer thinking of export not exporting but taking this as an example rather as financing or coping this the problem of long-term unemployment so that could be an idea where we could go where we could come together because unemployment short-term unemployment short-term risks are one of the risks one of the key risks for the monetary union and are another point which should be focused at in order to avoid the risk where a European monetary fund would have or could have could be obliged to pay so I gave you I hope a range of problems related to each other all of them are difficult all of them are controversial and I'm pretty sure that you will have a couple of comments asks corrections or suggestions which I would like to take home thank you for your attention and I'm looking forward to the discussion