Regulatory policy in the digital age Acceptance speech on being awarded the Walter Eucken Medal

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1 Introduction and thanks

Ladies and gentlemen,
Professor Feld,

Thank you for your incredibly kind words about me and my work. My thanks also go to the Walter Eucken Institute and the Aktionskreis Freiburger Schule. I’m delighted to have been awarded the Walter Eucken Medal.

That said, you could be forgiven for thinking that I’ve also been single-mindedly angling for it. After all, there’s probably no other economist whom I’ve quoted as often as Walter Eucken: “Whoever reaps the benefits must also bear the liability.”[1]

I’ve cited this short sentence from Eucken’s “Principles of Economic Policy” in public speeches more than two dozen times already. But then, it perfectly encapsulates the liability principle. Of course, my esteem for the Freiburger Schule goes far beyond this.

2 The regulatory compass

The principles expounded by Eucken and his colleagues act as a helpful and valuable compass in economic policy debates: they offer guidance and point us in the right direction, but they can’t give us a precise roadmap.

The liability principle I just mentioned is the compass I use when it comes to the future of monetary union: if action and liability go hand in hand, we are on the right path. If they come apart, however, we are treading the wrong path. This is when false incentives emerge, and they make the euro area vulnerable to crises.

That is why I advocate reform proposals that unite action and liability, and warn against proposals which do not satisfy this condition. But that certainly does not mean that joint liability is off the table. Quite the contrary. A true fiscal union is one option for safeguarding the stability of the euro area once and for all.

If liability is seated at the European level, however, it follows that the scope to take action also has to be transferred to the European level. But the Member States are often unwilling to renounce their sovereignty, or restrict their national discretion, in this way. We are already seeing signs of this when it comes to compliance with the European fiscal rules. These are designed to create sound public finances and thus help to safeguard the integration we’ve achieved. Unfortunately, though, they lack bite.

In monetary policy, too, the regulatory compass shows us the general direction we should be taking. Eucken spoke of the “primacy of monetary policy” – which is to say, the priority that must be given to a policy of stable currency. In this connection, he quoted the famous line spoken by Lenin: “The best way to destroy the capitalist system is to debauch the currency”.

Walter Eucken himself lived through the major catastrophes of German monetary history: hyperinflation, the Great Depression and the “repressed inflation” of the war years. Thus, he knew only too well that a functioning competitive system requires a stable currency.[2] Only then can price signals efficiently steer an economy.

At the same time, Eucken was aware of the danger of politicians co-opting central banks. He voiced this warning in his Principles: “Governments themselves, for instance, often have a considerable interest in pushing down the interest rate to keep interest on sovereign debt low, even when an interest rate rise would be needed to avoid inflation”.[3]

I dare say Walter Eucken would share my concerns about the extensive purchases of government bonds by the Eurosystem. To me, they perfectly illustrate the risk of monetary policy falling into line behind fiscal policy.

In my view, the primacy of monetary policy means that stable currency should be the primary objective of monetary policy. That’s also how the European Treaties – our mandate – see things.

Generally speaking, whoever heaps tasks and responsibility upon central banks runs the risk of overloading them. They also run the risk of concentrating power in the hands of technocrats. It may seem tempting for some to entrust tasks to independent central banks, thus bypassing the lengthy parliamentary process of finding and reaching compromises.

But this just goes to show that the independence of a public institution is in fact a foreign concept in our democracy. This independence – a lesson learned from the experiences of inflation in the 1970s – was deliberately granted to central banks as an exception so that they could safeguard price stability.

A broad interpretation of our monetary policy mandate would ultimately call into question this independence, and rightly so in my opinion. Independence and narrow interpretation of the mandate go together like birds of a feather.

In light of this, I’m sceptical about calls for monetary policy to be put into the service of active climate policy, say. What we can do, though, is support and oversee the transition to a more sustainable financial system within the bounds of our mandate.

As banking supervisors, for example, we will have to make sure that banks are taking adequate account of financial risks stemming from climate change and the transition to a greener economy in their risk management systems. And if we are pushing for greater awareness of this issue among financial market participants, we also need to practice what we preach. After all, financial risk related to climate change could equally affect our own securities portfolios.

What is more, we have to incorporate the economic impact of climate change and climate policy into our monetary policy analyses. And, in managing funds on behalf of government, we will support it if it wishes to focus its investments more on sustainability.

Ladies and gentlemen,

One reason for the higher expectations placed upon central banks is likely to have been their effective crisis management. The financial crisis and the sovereign debt crisis in the euro area pushed politicians and central banks into uncharted territory. A good time to have a compass with you.

Unfortunately, though, it’s not uncommon for regulatory principles to be perceived as excess weight and jettisoned in crisis periods especially. “Needs must”, as the saying goes.

3 Competition and the digital economy

I’ve spoken about the crisis measures and the regulatory framework of monetary policy in Freiburg many times before this. So I’d like to use the remainder of this speech to talk about another issue where the regulatory compass can also give us guidance. I’m referring to the economic policy challenges posed by digitalisation.

The five most valuable companies listed on exchanges in the western world are all digital firms from the United States. Together, they weigh in at roughly €4½ trillion. Today the press reported that the biggest of them alone is worth as much as all 30 companies in Germany’s DAX index.

The concentration of power that this entails would no doubt have concerned Walter Eucken. In one of his last speeches, in London shortly before his premature death, he addressed the “problem of economic power”.[4] In it, he gave an impressive account of Germany’s rough experiences with cartels, monopolies and syndicates.

Walter Eucken sought a humane and functional economic order and found the competitive system to be the best solution. It manages to secure both material prosperity and individual freedom – and that’s because it prevents too much power from being held in individual hands.

But Eucken and his colleagues also knew that competition won’t take care of itself. Rather, the state has to set the ground rules of competition and make sure that they are also upheld. The state should only intervene in the ongoing economic process in exceptional cases, however.

There’s no doubt that technological progress, brought about by digitalisation, say, can spur competition. And that would also be in the spirit of Walter Eucken, as you noted in a study on the regulatory challenges of digitalisation, Mr Feld.[5] And it is indeed the case that the new possibilities presented by the internet have fostered greater market transparency. Consumers nowadays are just a few clicks away from an overview of the entire market.

At the same time, though, we are seeing that digitalisation can stifle competition. “Platform markets”, in particular, tend towards concentration.

A platform digitally links up various users or user groups. They include social networks, but also online marketplaces that bring together parties offering and seeking goods and services. These days, there are platforms for anything and everything: from real estate to hotel rooms, second-hand toys to relationships.

What could explain the tendency for concentration on platform markets? For one thing, their sheer size creates cost benefits. Operating such a platform comes with high fixed costs, but the marginal costs of added users are very low. Network effects are another key factor. The more participants a platform has, the greater its appeal. If many or even all of your friends use one particular messaging service, that’s a huge incentive for you to sign up to that service as well.

Such network effects occur even in cases where the platform’s users are not in direct contact with one another, which is why the economist Jean Tirole compares digital platforms with large cities. Most inhabitants of the city don’t know each other, but all of them reap the benefits of large numbers of companies setting up there and a rich cultural life being on offer.[6]

Network effects and economies of scale thus tend to strengthen the “top dogs”. Once a company gains dominance in its market, however, it could exploit that position. A player with that kind of status could hinder market access for its potential rivals and thus throttle competition – to the detriment of consumers.

The emergence and misuse of market power are not a new phenomenon. What is new, though, is the special role played by data. Some like to call data the “21st century’s most valuable commodity”. On the one hand, this hits the nail on the head in terms of their importance as a basic ingredient for many new business ideas and services. But on the other hand, it’s not entirely accurate. After all, commodities are used to make the product and then have to be freshly procured. By contrast, data can be used over and over again – even for vastly different purposes. Their usefulness even increases as more data are aggregated and linked. This is because large volumes of data allow us to identify patterns and correlations: Big Data is what I’m talking about here.

The flip side is that we as members of the public are becoming increasingly transparent. Once you reach 300 “likes”, Facebook knows you better than your friends and family do, as researchers from Stanford University discovered several years ago.[7] The ability to link up personal data is an open invitation for misuse, as many found out when the Cambridge Analytica scandal came to light.

The winners who will take it all in the digital economy are the platforms that are skilled at harvesting rich volumes of data and analysing them for profit. Data give them the leverage they need to eke out a competitive edge in different markets altogether. And indeed, the major platform operators are turning into conglomerates. Bigtech firms, for instance, are making themselves more and more at home in the financial services sector. It’s up to policymakers and anti-trust authorities to preserve competition in the digital age.

The Federal Government wants to create a regulatory framework for the digital economy. Last week saw the Federal Ministry for Economic Affairs and Energy unveil a draft bill to upgrade the Act against Restraints on Competition (Gesetz gegen Wettbewerbsbeschränkungen). One key improvement will give Germany’s Federal Cartel Office more power to monitor abusive practices. Stricter rules are to be enforced in future – especially for platforms with “paramount cross-market importance”. For instance, competition authorities will be able to intervene if major platforms hinder data portability. This could help improve opportunities for new competitors, besides lowering the barriers to market entry or keeping them low.

The ability of enterprises to access data is often considered crucial for competition. But there's no doubt in my mind that the market is there to serve people – not the other way round. That's why a regulatory policy for the digital age needs to help people use their personal data as they see fit and ultimately strengthen consumer sovereignty.

People need to be able to decide for themselves to whom they give which of their data, for what purposes, and for how long.

Strict data protection laws alone are unlikely to achieve this, however. Thanks to the EU's General Data Protection Regulation, we are normally asked as consumers whether we agree to the collection, storage and processing of our personal data. But in reality, I expect many of us will probably give our consent or agree to user terms and conditions without bothering to find out more.

A survey by the Allensbach Institute found that reading the terms and conditions of use takes too much effort for 73% of German internet service users. How paradoxical: we value our privacy and data protection, but go to little effort ourselves to uphold them. It is often the complexity of these terms and conditions that makes it difficult for us to exercise our rights as data subjects. And as consumers, we are not usually able to negotiate alternative data use conditions with internet companies, either. 

That is why Germany's “Commission of Experts on Competition Law 4.0” is recommending a review of ways to promote the establishment of “data trustees”.[8] Consumers could choose these new types of data intermediaries and authorise them to provide their data to enterprises according to their wishes. This would arguably be a better way of asserting consumers’ data protection preferences.

These data trustees would also be in a stronger position to negotiate with internet firms, thus reducing the power imbalance between large platform providers and their users. This could be a way to put the strong consumer rights enshrined in data protection law into practice more robustly than hitherto.

I find the idea of giving people greater ownership of their data very attractive.

Data trustees would not only be able to reinforce consumer interests; they could also be a channel giving smaller, innovative enterprises access to larger volumes of data. This might shake up competition with the dominant providers.

One aspect we should not forget when discussing the opportunities for European enterprises in particular is that, from a regulatory perspective, it is a matter of effective competition, not industrial policy. And also that we need to keep our feet on the ground. Arguably, we are unlikely to see any fundamental change in the dominant role played by large, US digital firms in the near future.

Achim Wambach, competition economist and President of the Centre for European Economic Research, warns that, “You don't need a crystal ball to predict that the 'big five' will still be the major players in the next few years. This leaves the anti-trust authorities as the only player with any power to invigorate competition.[9] All the more reason, then, to make sure these authorities have effective tools to hand.

4 Central bank digital currency

But some people are calling for action not just from politicians and anti-trust authorities, but from central banks, too. One topic rising up the public agenda concerns the question of whether central banks should make digital currency available to the general public.

In the middle of last year, a consortium of organisations headed by Facebook sent shockwaves through the financial industry with its plans to launch Libra, its own digital currency. Boasting more than two billion users worldwide, the social network would almost certainly have the reach needed to catapult itself into the upper echelons of the payments sector. This perfectly illustrates how a tech firm can use its standing in one market to gain a foothold in another.

Many people see Libra as a wake-up call. The general public wants fast, convenient, secure and cheap payment methods – including for payments abroad. But dreams don't always come true, leaving a gap that new providers might fill. But whom is this wake-up call directed at? What is the regulatory compass telling us?

It is the task of public sector authorities to maintain a level playing field and to ensure that laws and regulations are upheld. Similar risks must be regulated in similar ways. Business models cannot be based on the premise that regulations can simply be bypassed. For global means of payment, this principle holds true beyond the national framework. That’s why this topic has been added to the G7 and G20 agenda – and rightly so. A lack of international cooperation on this topic could see regulatory gaps emerge.

But if meeting customers’ needs is the name of the game, that's generally a matter for businesses in a market economy. Private sector providers can speed up the settlement of cross-border payments and drive down costs by upgrading existing systems. This will gradually see instant payments becoming the norm in Europe. Other new, convenient applications for consumers might emerge.

Beyond that, digitalisation will leave more and more processes fully automated. Incorporating a programmable payment medium would be practical. But that’s another thing that private sector providers can do; developing their own digital tokens for this purpose. So the onus is on commercial banks to offer the relevant services – if the market for them exists.

Central bank digital currency for the general public would only come into play if it was possible for the general public to hold a digital claim on the central bank.

But as I have been warning for quite some time now, that kind of step warrants a great deal of consideration. It would involve comparing the rich variety of possible designs and assessing the potential downstream risks and repercussions. Depending on how a central bank digital currency is designed, there is a risk that customers will switch large volumes of bank deposits into central bank digital currency, which would have a transformational impact on the financial system in the longer term. And in a banking crisis, the risk of a bank run could be higher if customers were able to move their money out of harm’s way at the click of a mouse.

Many issues surrounding central bank digital currency are yet to be resolved. The Bundesbank is hard at work examining the strengths, weaknesses, opportunities and threats in even greater detail. The insights we gain will allow us to explore what purpose central bank digital currency can serve and whether the risks can be contained. 

5 Conclusion

Ladies and gentlemen,

I would not want to conclude my speech without paying tribute to Walter Eucken and his colleagues once more time. They were firmly convinced of the beneficial effects of competition. That is because they understood that economic power needs to be kept in check.

At his speech commemorating the 60th anniversary of the foundation of the Walter Eucken Institute, former Federal President Joachim Gauck said, “That very fact is the reason why Walter Eucken’s basic insight packs such a punch: only when power is checked by free, fair competition will the many be able to participate. That is why it is so important to ensure that competition does not benefit a few powerful individuals but provides opportunities to as many people as possible.[10]

So it’s rather unsettling that, according to a current study, only one in eight Germans now believe that they can benefit from a growing economy.

In their book, which I quoted earlier, Professor Wambach and the journalist Hans Christian Müller investigate the question of whether prosperity for all is possible in the digital age. They think it is, but note: “It’s crucial to establish the right guidelines today so that the markets can head in the right direction tomorrow”.[11]

We need a regulatory policy for the digital age.

Eucken’s principles for the competitive system – including the primacy of monetary policy, open markets, and liability – have lost none of their relevance. Upholding principles has nothing to do with harping on about them. Nor is it about sticking to rules for their own sake. It’s about having a functioning and humane economic system.

Thank you once again for awarding me the Walter Eucken Medal – I feel truly honoured.


  1. W. Eucken (1952, 2004), Grundsätze der Wirtschaftspolitik, 7th edition, Tübingen, p. 279.
  2. Eucken, W. (1950, 2001), Die Währungspolitik und ihre Konsequenzen, reprinted in W. Eucken, Wirtschaftsmacht und Wirtschaftsordnung, Londoner Vorträge zur Wirtschaftspolitik und zwei Beiträge zur Antimonopolpolitik, Münster, pp. 51-63.
  3. Eucken, W. (1952, 2004), op cit., pp. 259 f.
  4. Eucken, W. (1950, 2001), Das Problem der wirtschaftlichen Macht, reprinted in W. Eucken, Wirtschaftsmacht und Wirtschaftsordnung, Londoner Vorträge zur Wirtschaftspolitik und zwei Beiträge zur Antimonopolpolitik, Münster, pp. 9-22.
  5. Feld, L. P., A. Doerr, D. Nientiedt and E. A. Koehler (2016), Ordnungspolitische Herausforderungen der Digitalisierung, Konrad-Adenauer-Stiftung, Sankt Augustin/Berlin.
  6. Tirole, J. (2019), Regulating the Disrupters,, 9 January 2019.
  7. New Stanford research finds computers are better judges of personality than friends and family,
  8. Federal Ministry for Economic Affairs and Energy (2019), Ein neuer Wettbewerbsrahmen für die Digitalwirtschaft, report by the Commission for Competition Law 4.0, Berlin.
  9. Wambach, A. and H.C. Müller (2018), Digitaler Wohlstand für alle. Ein Update der Sozialen Marktwirtschaft ist möglich, Frankfurt, New York, p. 51.
  10. Gauck, J. (2014), speech given at the event commemorating the 60th anniversary of the foundation of the Walter Eucken Institute on 16
  11. Wambach, A. and H.C. Müller (2018), op. cit., p. 208.