Category Archives: GIS Statements

Limits on posting workers create Europe’s high-cost cartels

GIS statement by Prince Michael of Liechtenstein

Markets work efficiently when they are based on competition. Cartels are damaging, and rightly are not allowed, because they eliminate competition. A successful internal market needs regional and regulatory competition, something that some countries – mostly those with excessive cost structures – frown upon. They use the terms “race to the bottom” and “unfair competition” to discriminate against less regulated or lower-cost regions.

GIS statement, ECAEF
GIS statement by Prince Michael of Liechtenstein. Photo: dpa.

At a meeting in Luxembourg on October 23, European Union labor ministers decided to put limits on “posting workers” – a system by which companies bring workers from one EU member state to another and remunerate them according to the laws in their country of origin. This is not to be confused with “wage dumping” and is perfectly in line with the EU’s principles of free exchange. Posting workers enhances competition and has mainly been used by companies based in Central Europe, such as Hungary, Slovakia and Poland.

French President Emmanuel Macron pushed hard for this change. He faces resistance from trade unions against his mild deregulation of labor laws in France. According to the agreement, wages and social security benefits should be paid according to the regulations of the country where the work is done. It is surprising that Mr. Macron, who claims to be a proponent of European values, has worked so hard to weaken liberal EU principles. Unsurprisingly, several Western European countries are following along for similar reasons, including Germany and the Benelux countries.

These countries complain that posting workers gives EU member states with lower labor costs an “unfair” competitive advantage, but they ignore that they are protecting a high-cost cartel. Imposing such rules is protectionist and limits competition.

The ministers of labor reached a compromise that would introduce a cap of 12 months during which employers can “post” workers to another member state, with a transition period of four years. This change will be proposed to the European Commission and the European Parliament.
Astonishingly, President Macron posted a triumphant tweet on this subject, saying that Europe is “moving forward” and adding “more protections, less fraud.” This suggests that he considers a legitimate competitive labor market practice as “fraud.” It is disappointing that this comes from a politician who calls himself liberal.

In August of this year, President Macron embarked on a tour of Central and Southeastern Europe. It seems he had two interlinked agendas. The first was to divide the Visegrad Group by conspicuously only meeting in Vienna with the Czech and Slovakian prime ministers, purposely snubbing Hungary and Poland. The other was to lobby for the limits on posting workers. It has been reported that in exchange for Slovakia’s support, he suggested he would help the country reduce its refugee allocation.

This is a case where under the pretext of “fair” competition, real competition is being limited and protectionism is applied inside the internal market.

Read the full GIS statement here ->
Limits on posting workers …


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Taxation horrors and Europe’s frustration

GIS statement by Prince Michael of Liechtenstein

At their meeting in Tallinn, Estonia, in mid-September, European Union Finance Ministers discussed new measures for taxing internet-based companies. They want to establish a system that could be brought to the Organisation for Economic Co-operation and Development (OECD), which would adapt these measures to global standards.

Whew! Finally, wealthy companies like Google, Facebook and Apple will be taxed and punished for their rapacious capitalist methods to the detriment of European taxpayers.
Of course, this is the populist side of the story. The cynical side is that there is an undeclared economic war between the United States and the EU. On one side, the U.S. Department of Justice issues fines against European companies for the alleged violation of American laws. On the other side, Europe retaliates with tax claims resulting in complicated schemes that are administrative nightmares.

The OECD has a program to limit practices called “base erosion and profit shifting” (BEPS), which is supposed to ensure that companies are not moving their results to jurisdictions with lower taxes. The scheme is extremely complicated, opens wide possibilities for arbitrary assessment and abuse of authority, and probably costs more than the additional tax revenue it generates.
The more complicated a system is, the more vulnerable it is to manipulation
The new measures discussed in Tallinn are likely to produce a similar nightmare, and will also affect European businesses.
Unfortunately, these are just some examples of an illogical, overly complex and oversized system. This is not only a European problem, it is a global problem. The more complicated a system is, the more vulnerable it is to manipulation. Taxpayers’ abuse of the system might even increase, but such complexity will especially lead to a high degree of legal insecurity and arbitrary application of the rules. In any case, it creates huge, unnecessary costs for the economy. All this is harmful.
Remedies are very easy. Simplifying tax systems would save enormous costs for governments and taxpayers. It would not necessarily reduce taxes received, but it would relieve resources and therefore benefit the economy and society. It will result in more freedom and reduce citizens’ dependence on the authorities.
European complex
The Tallinn decision might also be an indication of a European “inferiority complex” in the face of American tech giants. But instead of slapping new taxes on these companies, Europe should ponder why it is less competitive than the U.S. in the field of technology.
It might want to start by looking at differences between the European and American defense industries. Defense is one of the only areas where government programs bring innovation, and such research and development has frequently resulted in new technologies for civilian use. A striking example is that both the internet and Silicon Valley got their start through U.S. Department of Defense projects. Over the last 60 years, the U.S. has invested heavily in defense. This has not been the case in Europe.
The main remedy, however, would be for Europe to adapt to a culture of increased innovation and entrepreneurship. Rather than public grants schemes for innovative endeavors, this would simply mean fewer restrictive regulations. It would also require a less risk-averse attitude and a better ability to accept failure. New ventures frequently fail, but in Europe, especially among government authorities and financial institutions, few are willing to excuse such failures or offer a second chance.
The solution – so simple, but apparently difficult to implement – is streamlined taxation and regulatory systems, and especially a better acceptance of risk and failure.

Read the full GIS statement here ->
Taxation horrors and Europe’s frustration


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Palm oil, Russian fighters and the European Parliament

GIS Statement

GIS statement by Prince Michael of Liechtenstein

Indonesia, the world’s fourth-largest country population-wise, is the world’s largest exporter of palm oil. The value of this export exceeds $12 billion per year, which accounts for some 8 percent of the value of Indonesia’s total exports. Palm oil production and export is a crucial part of the country’s economy. The main importers are India, China, the European Union and Pakistan.

Palm oil is a tropical product and there is concern that too much rainforest is being cleared, especially in the Indonesian archipelago, to free land for palm oil production. Deforestation is a problem. It cannot be stopped, however, by trying to limit the production of palm oil. Sustainable harvest, and proper use and marketing of tropical timber and other products are parts of a better solution. The commercial value of the rainforest to the local population also needs to be recognized, like Alpine forests are. These are key components for an effective approach to stop excessive deforestation.

The problem in Indonesia is not the production of palm oil, but the lack of market incentives for a sustainable, economically and ecologically viable use of the forests. Such incentives make preservation in the population’s interest.

Rain forests are important. A market for tropical products exists. Economies do not respond to sticks, but they work fine with market carrots. The underlying cause, unfortunately, of the tropical deforestation problem is a combination of a short-term view and the lack of property rights. Forestry is a very long-term business. A tree planted today will only be harvested two generations later. Sustainable forestry, with the exception of selected preserve areas, cannot be enforced by putting limits on timber or other products, such as palm oil or coffee. Only property rights, efficient regulation of the use of forests and efficient markets lead to the desired results. This can be achieved in Indonesia and elsewhere.
Against this backdrop, it is rather arrogant for the Western world to try to force developing countries into declaring major parts of their territories as natural preserves that cannot be touched. The United States and Europe cannot be the nannies telling Asian, African and South American countries how to use their national resources. It is naive to believe that this concept can work.

Unintended consequences

Ignoring reason, the European Parliament passed a resolution in April 2017 to promote the reduction of palm oil imports to fight deforestation. It certainly meant well, but the policy is wrongheaded and harmful to Indonesia’s emerging economy.
A long-term, sustainable effect could be achieved by promoting the policies mentioned above and offering access for tropical timber and other products to European markets – at reasonable (not dumping) prices.
It is fascinating how immediately the EU parliamentarians’ “good” intentions triggered a development frustrating the initiative. It happens that Indonesia needs to upgrade its air force with a new generation of fighter planes. Instead of buying American, as in the past, Jakarta is ordering Russian Su-35 fighters and will pay for them with tropical crops, mainly palm oil. This transaction will compensate Indonesia for potential losses in EU markets, and is therefore in its vital interest.
Oops! So, Indonesia will continue exporting palm oil, a necessity for its economy, wellbeing and social stability. Russia secures a needed supply of tropical products, and, additionally, expands the markets for its defense industry. This helps Russia’s economy and its military strength. At the same time, the outcome weakens the effectiveness of the Western sanctions against Russia and underscores the futility of the EU Parliament’s forest preservation policy.
“Feel-good” initiatives should be carefully thought through before implementation, and their effects weighed between the intended and unintended potential consequences.

Read the original article here ->
GIS | Geopolitical Intelligence Services

Populists, demagogues and the French elections

GIS statement by Prince Michael of Liechtenstein

The National Front’s lead in France’s election campaign has once again put the spotlight on populism. “Populism” has become a buzzword that is increasingly used as a negative label meant to discredit non-mainstream movements and kill any substantive discussion about the merits of their proposals.

Such methods are intellectually arrogant. They imply a disrespect for voters’ judgment and therefore contradict the idea of democracy. Populism is, in fact, an ingredient of any functioning democracy, though it needs to be reined in by a system of checks and balances. It is only when populism becomes demagoguery that it turns dangerous.

Such damaging demagoguery can be seen in the discussion about equality. It targets envy and leads to a totalitarian culture. Men are unequal by nature: this is the biggest driver and strength of mankind, while love – man’s most noble characteristic – is also only possible in accepting inequality. Inequality does not mean that we must see others as better or worse, but it does entail an acceptance of the individuality of other people, families and social groups. Since equality is deeply against human nature, a society that denies inequality can only be totalitarian.

‘Undemocratic’ bulwarks

Thomas Piketty, a French economist famous for his book Capital in the Twenty-First Century, claims, in a manner that is rather questionable scientifically, that inequality is the root of most of society’s problems. It is significant that – leaving his field of study, economics – he criticizes the European Parliament for its “inequality” because the votes there are not precisely linked to population size. It is true that a member of parliament from Luxembourg or Malta needs fewer votes to be elected than one from Germany or France, but the smaller member states should be properly represented.
His argument is further undermined when viewed from another perspective. The protection of democratic institutions and the rule of law is important: there must be checks and balances. These include “undemocratic,” well-entrenched institutions designed to withstand the negative forms of populism. Two countries that have maintained a strong democratic culture over a long period of time – the United States and Switzerland – ensure that the smaller and larger members of their federations are represented equally. In the U.S. Senate, Rhode Island’s representation is equal to California’s. A similar system exists in Switzerland, with its cantons.

Such architectures make these countries less prone to the negative consequences of populist excesses. This is also the role of monarchies. A monarchy is much better placed than a political party to withstand short-term turns toward populism and demagoguery.
French surprise?
France, which is proud of its democratic tradition, has a centralist system. The principle of subsidiarity, with strong regional representation and decentralization, is not a decisive factor in avoiding the excesses of a populist majority. Checks and balances are guaranteed by the judicial system, while sometimes the president’s party does not have the majority in parliament and the government is controlled by a different party, a phenomenon called “cohabitation.” Nevertheless, this centralist system can make France vulnerable to populist and even demagogic movements.

This year, the French election campaign is a huge, messy spectacle of populists and demagogues. Most candidates make promises and promote programs that will have damaging long-term consequences. This is not limited to Marine Le Pen’s National Front. Emmanuel Macron, who has been considered the favorite in recent weeks, is making proposals that are attractive on the surface, but are unrealistic and financially unsustainable. As the campaign heads toward the finish line, he has repeated an old nationalist-protectionist mantra, blaming Germany for being too productive and creating imbalances.

But France is always good for a surprise. Republican Francois Fillon still has a chance to win over enough voters, despite the allegations against him. Of all the candidates, his program is the most realistic, and he has the courage to address unpopular issues and big problems that urgently need solving. With Mr. Fillon, France has the chance to show Europe that it is possible to win an election without being a populist or a demagogue …

Read the full GIS statement here ->
Populists, demagogues and the French elections


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

The day Europe goes bankrupt

by Prince Michael of Liechtenstein

Behavioral scientists have observed that man as a species has developed an ability to ignore threatening or negative information. We tend not to look closely at bank statements showing debt or disturbing results of medical tests. Surprisingly, people with higher IQs are even more prone to this mental displacement than the less gifted. Such behavior could be called the ostrich principle. This does a serious injustice to the ostrich, which as any zoologist will confirm, does not stick its head in the sand when danger looms.

So with apologies to ostriches, we will still use this term to describe the shocking and nearly universal ignorance of the problem of Implicit Pension Debt.

By Implicit Pension Debt (IPD), we understand pension obligations that governments, including regional and local authorities, have incurred toward current and future pensioners. Most tax and accounting codes require companies to report such implicit debts on the liability side of the ledger as obligations. Not so with governments, whose accounting practices would under normal circumstances be considered as falsifying public accounts.
Six European countries have an implied pension debt exceeding 300 percent of GDP

One of the Maastricht Treaty criteria for adherence to the euro stipulates that public debt should not exceed 60 percent of gross domestic product. Anything above that level – and this is borne out by empirical data – is detrimental to sustainable economic development. Unfortunately, official figures already show the average debt-to-GDP ratio in the eurozone hovering close to 90 percent. Germany is also breaking the rules with a ratio of about 70 percent.

Now comes the shocking but consciously or subconsciously suppressed data about implicit pension debt. According to a recent study, six European countries – Austria, Finland, France, Germany, Italy and Poland – have an IPD exceeding 300 percent of gross domestic product. This includes three of the European Union’s four largest economies. Ten more European countries have ratios between 200 and 300 percent.
And the kicker? The data cited above are based on the present value of future pensions as of 2006. More up-to-date figures probably won’t be available until the end of 2017, when Eurostat is supposed to start publishing accrued-to-date pension entitlements statistics in its new European System of National Accounts.

Some of the European Union’s biggest economies could get crushed by pension debt

Back in 2006, two French journalists, Philippe Jaffre and Philippe Ries, published a novel called Le Jour ou la France a fait fallite (“The Day France went Bankrupt”). The book is brilliant in its foresight. It describes how France’s public debt inexorably rises until the day comes when creditors refuse to grant additional loans. The country’s debt is downgraded by the rating agencies and domestic banks, due to their high exposure to government bonds, become insolvent. The French economy stops working as wages go unpaid and the financial system collapses. To restore financing, creditors demand drastic measures. The novel culminates with Sotheby’s moving into the Louvre and auctioning its treasures, including the Mona Lisa.

In hindsight, one can only admire the two authors’ forward-looking realism. What they failed to anticipate, however, was the audacity of the European Central Bank. Through two mechanisms – quantitative easing (particularly the buying of government bonds) and the “target system” credit facilities – monetary policymakers have converted the debt of some high-spender countries into a liability of the entire eurozone.
Delayed collapse
The target system means that the ECB funds trades. For example, an exporter in one country is paid through his central bank. The ECB then gives a credit to this central bank and debits the importing country. The problem, however, is that Germany has now piled up 800 billion euros in target credits with the ECB. It will never be able to recover this sum, as the debtor countries will not be able to cover their debits. Thus, such transactions amount to hidden transfer payments with artificial money. Their effect is to delay financial collapse, at the cost of making the situation even worse.
The issue is no longer when France goes bankrupt, but when Europe does. The level of debt declared in the national accounts is already worrying. With implicit pension liabilities a multiple of that, it appears that a systemic implosion is unavoidable.
Just printing money is not a sustainable solution. A more sensible response would be to reduce the state’s role in the economy and to drastically streamline the regulations and controls that are stifling business. But nobody in power is proposing this, and even if they did, it might already be too late.
National insolvency could be triggered by an incident or accident, which in turn could lead to a European or even global contagion

The ostrich principle is irresponsible because it ignores the possibility of fiscal collapse and its economic, social and political consequences. What would these be?

In free societies with respect for constitutional principles, governments would need to sell off their assets – especially real estate and shares in state-owned companies. The Louvre auction is a dramatic example. But it would also mean a sweeping reorganization of the economy that would leave less room for the state and more for business.
More likely, the ostrich principle will continue to apply. In that case, national insolvency could be triggered by an incident or accident, which in turn could lead to a European or even global contagion.
In this worst-case scenario, political decision makers might decide to take the path of least resistance and confiscate or socialize private wealth. The effect of such autocratic measures would be to destroy prosperity and social cohesion, under the hypocritical banner of equality and justice.
To boost revenue for the profligate public sector, income controls might also be introduced. Europe would proceed – as Friedrich Hayek forecast – on the “road to serfdom.” Thirty years after the fall of the Berlin Wall, we will have arrived back at the economic and social model of East Germany.

Read the original GIS statement here ->
Opinion: The day Europe goes bankrupt


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defence, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyse the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyse and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.