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Press, Journal Article


3 The principle of liability as a guide

But it is not just vocabulary that detracts from the essentials. Nowadays, economists'

reasoning is highly mathematical and model-oriented, which often makes it difficult for non-

economists to comprehend. However, institutional rules and regulations have also become so

complex nowadays that often only a few experts are able to fully understand them.

Consider the federal financial equalisation system, for example. Addressing this subject, Peer

Steinbrück once said, "There are only three people that really understood this concept. The

first is dead. The second is in a mental asylum. The third is me - and I've forgotten


Another example is the Stability and Growth Pact. With respect to the annual budget deficit

ceiling, the old saying was, "3% is 3%." In the meantime, however, there are now federal

states that have been flouting the deficit rule for seven years - and have been able to call upon

the exceptional circumstances approved by the European Commission.

These days, even the experts are hard-pressed to judge whether fiscal rules are being observed

or broken. The general public has long since bowed out of this discussion ...

But what members of the public certainly do understand are the basic principles of the market

economy as taught to them by their own life experience.

Take the principle of individual responsibility, for instance. As Walter Eucken once put it,

"Those who reap the benefits must also bear the costs." Conversely, however, the principle of

liability also means that those who are liable for losses must also be those who, based on their

decisions, are responsible for said losses.

To illustrate what this means, I always like to draw the following comparison for my

audience. Imagine that your neighbour were able to go shopping using your credit card and

you had no control over what he or she was spending. You would quite rightly say that such a

situation is unacceptable - "I can't be liable for something that I have no control over."

However, the two propositions "Those who reap the benefits must also bear the costs" and "I

can't be liable for something that I have no control over" go beyond the personal level and

apply in an institutional context as well.

The principle of liability ensures that decisions are made more responsibly. This is also, and

especially, true for the institutional architecture of monetary union.

When I gave my speech at the Volkswirte Alumni-Club three years ago, I quoted today's

keynote speaker Harold James, who wrote in his book "Making the European Monetary

Union" that, without a common fiscal regime and without a stable financial system, the

monetary union had a very high centre of gravity that made for vulnerability and instability.

To stay with his allegory, the aim of an institutional reform in the monetary union must

therefore be to lower its centre of gravity so that it cannot be blown off course so easily. But

this will only work if the principle of liability is once again paid greater attention and a

balance is struck between action and liability.