While the evidence for a reduction in market liquidity is far from clear, let us for the moment accept this possibility and consider the potential effects on financial stability. Regulatory changes, even those that may have reduced market liquidity, likely have enhanced financial stability on balance. Recent evidence indeed points in favor of enhanced financial stability.
It is worth recalling that these efforts were the outcome of a painful learning process resulting from years of stubbornly high unemployment and competitiveness problems for major German industrial sectors. Now that these efforts are starting to bear fruit, it is essential that all parties concerned do not abandon them for short-time vested interests and thereby jeopardise the sustainability of economic growth.