Prince Michael of Liechtenstein about the global economy after the coronavirus pandemic in the interview with Angelika Fortuna of Sdirect24.org.
1. Will pandemic accelerate the fission of US and Chinese economics?
The fissions between the US and China are following a clear logic and are developing already for some years. It is the tension between an incumbent hegemon and a growing new power, challenging the hegemon. This is exacerbated by the fact of a rivalry of two distinctively different systems, interests, and values. In the US and Europe for a time, the belief prevailed that China – with increasing economic prosperity – would become more democratic and approach his governance systems to western standards. This illusion proved wrong. On the contrary, China became – based on its economic and technological progress, – not only more self-confident, which can be seen as positive, but also more assertive and authoritarian. Now China wants to be a global player, at least equal to the US, and Washington wants to contain China. China’s neighbours’ concern to be dominated, from South Korea and Japan in the northeast to India in the south, makes them allies of the US and helps to contain. On the other side, China actively invests in military capabilities and the navy to underline their power claim. The Belt and Road Initiatives are geared to avoid the containment and increase Beijing’s influence in the partner countries of the initiative. To answer your question: the pandemic is also be used momentarily in the dispute, but does not play a decisive role.
2. What is the current situation in the euro area? What is your assessment?
The Euro-Area has a whole host of issues on the independence of monetary from fiscal policy. The Euro was conceived on the idea to be an independent currency. He should be governed by a supranational bank independent from politics, according to the Deutsche Bundesbank’s successful model, in order to have a currency that fits different economies in a single market. Precautions were taken. The essential basis for such a currency is that the monitory policy would be independent of the fiscal policy of member states. Two important points make it possible. On the one side, the limitation of the fiscal deficits of the member states to a maximum of 3.5 % of GDP. Second, the non-bail out rule means that the ECB must not bail out countries, and member states are not supposed to support the deficits of other member states. All these rules were blissfully ignored. This results in a very shaky system and more and more complicated mechanisms are introduced to stabilize the system. It also results in new dangerous and unsubstantiated doctrines such as a common currency requires a common economic policy. Such an economic policy results in standardization which is not based on excellence but on mediocrity. The separation of monetary policies does not exist anymore. This is a free ride for excessive public spending and deficits. The Corona crisis gives an excuse to exacerbate this tendency.
3. What do you currently see as the biggest risk to the global economy?
There are a few dangerous situations at present. First, the global debt situation has reached levels that are not sustainable anymore and will weaken the economy and social cohesion. Second, the tendency to regulate everything on a global basis as well as controlling and limiting personal freedom and self-responsibility make our global economy very vulnerable. The overregulation limits entrepreneurial freedom and obstructs innovation. Under a hypocritical pretext of transparency, personal and business privacy is violated. We have to note two important points: personal privacy, also in financial matters, is a human right, and transparency and accountability is essential for public institutions towards the citizen, but not vice-versa. The power national and supranational institutions gain by overregulation will allow more arbitrary decisions by authorities, violating legal and planning security. Third, the significant role of the government in the economy and increasing share of public expenditure in the economy. Fourth, rising protectionism. Protectionism always existed, happens frequently, and a protectionist mercantilism is increasing within all major trading blocs, including Europe, at present. This limits the drive to become more competitive and productive. The problem which Covid-19 now shows the weaknesses on the security of supply-chains will allow the governments more protectionism, even in areas where the supply-chain system is not relevant. We acknowledge, however, the importance of onboarding some of strategic supply.
4. The coronavirus epidemic has become a detonator of the economy disaster. What can the global economy look like after coronavirus?
Unfortunately, I cannot give a proper answer. It depends on how quickly the different measures are relived, and the regular course of business is allowed to start. One important issue is the current situation of the global travel and tourism industry, which is one of the biggest employers worldwide. This will be hurt drastically. The sector employs many unskilled persons, which will hardly find openings in other sectors. There is, however, a behavioural aspect that we should look at. Humans are social animals, want to have contact, and want to be entertained. There is an instinct to do what you like. So the entertainment Industry, Restaurants for eating and other things which makes life convenient will recover quickly as soon as this is allowed. Covid-19 prevented people from activities which many don`t like, such as driving a long way to work or strenuous shopping. Whether it is good or not, people will claim in the future more to work from the home office, and online shopping will come to more frequent use. This will change businesses and will also change the need for office buildings. We will need fewer supermarkets, malls, etc. just to mention a few points.
5. How to recover from the economic crisis after pandemic?
Recovery will be slowed down by a number of reasons. Some I gave already above talking about the largest risks. But there are more. Business is very limited by overregulation, and the costs of compliance with the jungle of regulations are close to unbearable. The excessive taxation in most OECD countries has damaged the equity base of private business. I am sorry to be so negative in spite of the fact that I like to be optimistic. I cannot see a sustainable recovery without systematic deregulation, reducing the size of the state and simplify fiscal taxation. We also would need to get a healthier regional competition and more subsidiarity on all levels. We have now a global economic problem, but so-called global solutions can only make the situation worse. The best answer to global problems are local solutions, adapting to the specific conditions and equirements. People are individuals, and also regions and cultures are different; this needs to be respected.
6. Coronavirus has shown that excessive dependence on Chinese factories is damaging Europe. What should the new European strategic independence be like?
Europe will have to find the right balance between globalization and strategic independence. Our continent will never be able to achieve strategic independence, but the risk has to be identified and mitigated.Keeping strategic stocks and being autonomous in certain areas is relevant. Generally, free trade should remain a priority, but extensive outsourcing is not advantageous in all areas. The problem of Europe in production is the high overheads due to regulations, for instance, in social laws and unrealistic consumer protection, and as said before the excessive costs of public services. This forces companies to outsource production. Not only through technology productivity can be increased, but also by less but more effective regulatory frameworks. The European strategy to gain more independence can only be by increasing productivity.