Category Archives: GIS Statements

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

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.

Trumponomics is worth a second look

GIS Statement by Prince Michael of Liechtenstein

Trumponomics is worth a second look | The public perception of President Donald Trump’s economic program is that it is a chaotic mix of protectionist measures, tax relief for rich people, uncoordinated increases in infrastructure spending and antisocial cuts in healthcare benefits. However, it may be worth taking a closer look at the administration’s agenda before jumping to premature conclusions.

Alan Greenspan
Alan Greenspan

The United States, along with Europe, has a long track record of Keynesian overspending. This means that the present administration is saddled with a difficult economic, financial and fiscal legacy.
The biggest public focus is now on claims of protectionism. But the mantra of the present administration is not against free trade per se, but against the unfair practices of some U.S. trading partners. Obviously, it would be best for the world to have an unrestricted global exchange of goods and services. Realistically, however, every country will have its restrictions.

China and bilateralism

Unfortunately, behind the praiseworthy aim of fighting unfair practices is the largely unfounded claim – featured prominently in the presidential campaign – that unfair Chinese labor practices have caused the loss of millions of U.S. industrial jobs. No mention was made of the real culprit: failures by American labor unions and politicians, which have resulted in insufficient modernization of industry and improvements in worker skills and productivity.
It is correct that the U.S. has a huge trade deficit with China and that the U.S. imposes fewer restrictions on trade and business in general than China does. However, one must also consider that China’s total purchasing power is still inferior to the U.S., which contributes to its lower import figures. That doesn’t mean President Trump is wrong to insist on fair practices by China, which is something that previous U.S. presidents have done …

Read the full article here ->
Trumponomics is worth a second look


*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.

The U.S. and China’s ‘free trade’ agendas

GiS Expert View by Henrique Schneider

“Pursuing protectionism is like locking oneself in a dark room,” said China’s President Xi Jinping. “Wind and rain may be kept outside, but so is light and air.” Mr. Xi’s words of warning were directed at the new president of the United States. Meanwhile in Washington, Donald Trump erected new barriers to free trade. Why does Communist China seem to embrace free trade while the capitalist U.S. resorts to protectionism? The answer is simple. In both countries trade, or its absence, is just an instrument of politics. China’s approach to trade is best described as mercantilism. Its government allows for some economic freedom within its borders.
However, it pushes and regulates exports and curbs imports. The more the country exports, the more money it accumulates and the more power it has.
China does allow for some internal trade. But it has a set of “strategic industries” that are ring-fenced by regulation. This regulation makes it almost impossible for foreigners to supply, invest or acquire any stake in them. Also, a large network of state-owned enterprises operates independently from China’s free-trading commitments …

Continue reading ->
The U.S. and China’s ‘free trade’ agendas

25 years after Maastricht, the euro is worth rescuing

GIS Statement* by Prince Michael of Liechtenstein

For the euro currency to thrive, the ECB must commit to protecting its value, as opposed to aiding politicians in their current budgetary troubles (source: dpa)


Europe is commemorating the inception of its common currency, the euro, a quarter of a century ago. The goal to establish it was set forth in the Maastricht Treaty, which was drafted in December 1991 and entered into force in 1993. The currency began its virtual existence in 1999, and euro bills and coins entered circulation in 2002. The anniversary is remembered, but not celebrated. The euro, created with great enthusiasm, is now widely perceived as a failure. In fact, the common currency was introduced not only for valid economic and business reasons. There was a political agenda attached to the project as well – to push forward the process of European integration and unification.

In the Maastricht agreement, conditions were set to guarantee the stability of the new currency and to make certain that it would enhance economic growth within the European Union. The supranational European Central Bank (ECB) was supposed to act independently and stay focused on ensuring monetary stability. Another crucial Maastricht criterion was that member states were to avoid budget deficits of more than 3 percent of their gross domestic product (GDP), and accumulated public debts in excess of 60 percent of their GDP.

That was the plan. However, there was also the political agenda of the “ever-closer union” and the “harmonization” mania. This led to misconstrued risk premiums for loans. Also, the critically needed program for weaker regions to increase their productivity, and a transition period before they fully entered the common currency system, were neglected. Under national currencies, countries restored their competitiveness through currency devaluation; under the euro, this avenue was closed to them. This resulted in financial signals that were misguiding. Business in southern Europe turned en masse to construction, financed with – thanks to the euro – comparatively cheap debt.

Tall bill for mistakes

The consequences were dire. A much larger disaster, however, was brought about by disregard for the deficit criteria. These were immediately flaunted by the two largest members of the community, the supposed stability guarantors Germany and France. Other governments took their cue from them and breaking the deficit ceilings became common practice.

The list of sins was expanded further when the eurozone’s entrance criteria were diluted to accept countries such as Greece. It was clear from the onset that some countries in the EU did not meet the requirements and never would. They cheated the system while the ECB, the European Commission and other member states looked the other way. Greece was the most striking case, but a few other states were in the same category.

In the new eurozone, states happily spent and accumulated debt. Politicians eschewed reform under the protective shield of baseless triple-A ratings on their burgeoning sovereign debt. Such fictions can continue only to a point; in 2010 a severe fiscal crisis hit. In many instances, the euro was blamed. It was an easy scapegoat.

The present policy of the ECB, of low to negative interest rates and “quantitative easing” (which consists of increasing the money supply and buying financial assets especially sovereign debt from banks) represents a complete breach of the rules and criteria of the ECB. This policy not merely debases the currency, it also erodes the public’s remaining trust in European institutions and, in consequence, the European Union.

How to rescue the euro

A grave mistake of the past was that not all eurozone criteria were correct. The pursuit of the “ever-closer union” and “harmonization” caused the architects of the euro zone to ignore the large regional differences in the real economy and economic behavior. Making matters worse, the proper criteria were given short shrift by many member states and the European Commission. Now the ECB has joined in the destructive process.

As the cures for the assumed failure of the euro are promoted, they again turn up to be the harmonization and the ever-closer union. It is said that what Europe needs to salvage its common currency is a common economic policy – which is rather difficult to accept, as a currency should serve the economy, not vice versa. In this bubble, the very same assumptions which led to undermining the euro are presented as the tools of its rescue. This is only a way of centralizing EU economies, nearly certainly making them more inefficient, and a script for arriving at a planned economy.

As a businessman, I appreciate the convenience of a common currency. It is hugely advantageous in trade inside the eurozone, as well as globally. As a means of exchange, saving and investment, the euro is beneficial to the entire European society and certainly worth maintaining. But this can work only if the political agenda, attached to the euro from the beginning, is dropped. A proper system requires a central bank committed to the value of the currency. It will also be necessary to allow some members of the eurozone to disengage in an orderly fashion and return to their national currencies.

The time is high for the technocrats to realize that Europe is successful in its rich, natural diversity, not in “harmonization” of an artificial, “ever-closer union.”


*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 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 analyse and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.