The State as a Financial Intermediary to Foster Long-Term Investments

Abstract

The economic development of the European Union is hampered by insufficient private and public long-Term investments. This weakness is seen as a rationale for state intervention, and numerous projects are discussed and implemented to find new ways to mobilize private capital for long-Term investments. For an economic assessment of this policy approach, the following paper evaluates the role of the state as a financial intermediary. However, we cannot establish a dependable link between the ongoing depression of longterm investments in some European countries and a market failure in the market for the financing of such investments. Furthermore, the state can only imperfectly perform the tasks of a financial intermediary. And finally, approaches to mobilize retail investors' money on the states' behalf would crowd out the common bank deposits and thereby could lead to a significant increase of systemic risk.