The opinion of Hosuk Lee Makiyama and Fredrik Erixon from the excellent European Centre for International Political Economy (ECIPE), a Brussels-based European think thank:
If another country takes Germany (or, rather, the EU) to the WTO for dispute settlement over this ban, it has a good chance to win. It is up to every country to design its regulations of financial services, and no one doubts there is a solid case to be made for a regulatory shake up – in Germany and elsewhere. However, it was exactly because of moves like the one now by the German government the WTO was created: to avoid countries using beggar-thy-neighbour policies, especially at times of economic distress, that puts other countries in difficult positions. This is what happened in the 1930s – in world trade generally, with its tit-for-tat tariff war, and, worse, in the escalation of financial regulations that closed cross-border finance and fragmented the entire European financial system. The purpose of the WTO was, and is, to act as a guardian of stability and prevent countries from rash unilateral actions that damage foreign firms and countries. It is surprising that it is Germany, of all countries, that is undoing the lessons of the tragic 1930s.
Commitments in WTO’s General Agreement on Trade in Services (GATS) are technically complicated stuff. Germany is bound by its commitments to other WTO members to permit any new financial services introduced on the market – unless measures are to ‘ensure integrity and stability of the financial system’, something Germany is not in a position to argue. Thus, neither prudential regulations nor actions to maintain financial stability are against GATS commitments. But Germany’s problem is that it hardly can defend itself on those grounds. The German ban is not a prudential regulation, which typically aims at protecting depositors and protects financial systems from excessive risk taking. Its merits as a measure to increase stability on the German market are, mildly put, hard to prove. And the ban has been done in the worst possible ways from the viewpoint of WTO rules: unilateral measure without any consultation with other countries. In short, the ban is against the founding principles of the WTO and the European Union – to stop disguised or poorly designed domestic regulations that restrict trade, worsen economic crisis and spread it to neighbours.