Tag Archive: Swiss

Swiss Law instead of Foreign Judiciary?

Is Swiss sovereignty being eroded by foreign judges? The promoters of the “Self-Determination Initiative” argue that Switzerland’s constitution and its laws should take precedence over international treaties. The People’s Party targets the bilateral treaties with the EU and the European Court of Justice in particular, according to political experts. Opponents of the initiative say the rightwing proposal would undermine Switzerland’s international reputation and its role as a reliable trading partner, as well as deal a blow to human rights.

The question of primacy between national and international law has been simmering for years in Switzerland and elsewhere. Human rights are of course international. We use the terminology that they are universal. This is obviously somewhat inconvenient for the government of nation-states, who have traditionally claimed absolute power over their citizens. The extent to which we have international human rights, or a court of international human rights, is necessarily going to interfere with the kind of claims that a national government can make. Additionally, these rights may be inconvenient in relation to what a nation state might intend to do. These rules and standards bestow upon the nation-state — one of the major violators of human rights — the responsibility of protecting human rights. It is called the “paradox of human rights”. International human rights rely on the nation-states to put rights into effect. And yet nation-states are often reluctant to countenance human rights because those human rights will necessarily put a limitation to the kind of power they have as national governments; their state sovereignty. These themes run through all human rights law. They run through the European Convention on Human Rights as much as through the Universal Declaration of Human Rights by the United Nations, or any other body of human rights.

It is worth stressing that with the European Convention on Human Rights we are looking at a system where individual petitions can be submitted to a court. As a citizen, I can take a case to the European Court of Human Rights, and the court may award remedies. Hoffman and Rowe (2010) argue that the Convention was an extremely radical innovation. Never before has there been a system of international law which holds states accountable to some superior court in respect of actions against their own citizens. Previous international courts and tribunals were constituted solely to settle disputes between states, or in the case of the Nuremberg tribunal, to try individuals for their own criminal responsibility. Coming back to the so-called Swiss “Self-Determination Initiative”: if my government violates my human rights and has no more obligation to protect them, where can I go?

Image credits: Stan Wayman, extracted from IPTC Photo

[Hoffman, D., & Rowe, J. J. (2010) Human Rights in the UK: An Introduction to the Human Rights Act 1998, Pearson Education]

Switzerland: Folk Economics bottled into “Sovereign Money Initiative”

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
(Friedrich von Hayek, 1988)

Irrespective of the quote above, there is a further difference between what economists know and what non-economists know. This can be summarised under the heading “folk economics”. There is an interesting observation here: If you (as a non-physicist) were engaged in a conversation with a physicist who tells you about string theory, you are unlikely to interrupt him and disagree with what he was telling you. An economist engaged in a discussion about the economics of obesity, for example, with a non-economist would be far more likely to be questioned about the views being put forward. If the economist told the non-economist that obesity was caused by the rise in poverty levels in countries, it is likely that there would be some disagreement with this view.

Sovereign Money Communism

The Swiss popular initiative ‘For crisis-resistant money: end fractional-reserve banking’ (Vollgeld-Initiative) will be put to a vote in a national referendum on the 10 June 2018. The initiative calls for the introduction of a sovereign money system in Switzerland. However, a sovereign money system could not prevent credit cycles and asset bubbles in real estate and financial investments. While lending may reinforce such asset bubbles, it does not cause them. Asset bubbles and credit cycles are primarily caused by exaggerated price expectations and a propensity to underestimate risks. The principal causes of the recent financial crisis could not have been circumvented under a sovereign money system. Chief among these are:

  • the belief that asset prices can go on rising indefinitely;
  • complex financial instruments with opaque risk liability (e.g. CDOs);
  • the accumulation of excessive amounts of short-term debt via the money and interbank markets;
  • and instability at investment banks with no deposit business.

Omitting a variable in a theory can lead to deceptive conclusions. When a theory is being used to support an argument about cause and effect, it is important to ask whether the movement of an omitted variable could explain the result. A second problem is what economists call reverse causality – we might decide that A causes B when in fact B causes A. The omitted variable and reverse causality traps require caution when drawing conclusions about causes and effects. It might seem that an easy way to determine the direction of causality is to examine the which variable moves first. If we see crime increase and then the police force expand, we reach one conclusion. If we see the police force expand and then crime increase, we reach another. Yet there is a flaw with this approach: people change their behaviour also in response to a change in their expectations of future conditions. A city that expects a major crime wave in the future might as well hire more police now. Or people make demands on credits in expectation of low interest rates.

The Scottish philosopher David Hume argued that no ought claim could be correctly inferred from a set of purely factual premises. This result is sometimes referred to as Hume’s Law, or the Is – Ought Problem. Hume found that there seems to be a significant difference between positive statements and prescriptive or normative statements, and that it is not obvious how one can coherently move from descriptive statements to prescriptive ones. You can only derive should claims from premises that include should claims. Yet the initiative backers’ arguments are exactly drawn this way.

Without flexible money expansion and contraction, such a centralised system strongly resembles the communist idea of a command economy. For understandable reasons the initiative’s backers hold a distaste for banks creating money, but a much more democratic and disruptive concept is about to change the world:

Swiss Legislation: The Breakdown of the Social Contract Between the Generations

When the legislator seeks to overrule a previous law or decision, it can adopt one of three different approaches (Holland and Webb, 2013):

  1. Approach 1: say that the law becomes [x] and, if that differs substantially from what the understanding of law was until now, then hard luck – it was always [y] but it becomes [x] now. Here, any decision which changes the law from what it was previously used to be operates retrospectively as well as prospectively. It is retrospective in that the parties to the case are caught by the ruling and so are all those who have created leases or contracts on the basis of what used to be the law. Of course this can produce disturbance.
    For example, this year Romania’s President signed into law a bill that enables property buyers to walk away from overpriced mortgages, setting it on a potential collision course with commercial banks, the central bank and the European Commission. What the news conceal, however, is that the banks in Romania (about 90.2% of bank assets are held by institutions with foreign [read: EU] capital) transferred full currency risk to the borrowers, imposing credits in Swiss francs (CHF) instead of Romanian lei (RON). Since the Swiss unpegged the franc from the euro (€), those credits have become a borrower’s trauma.
  2. Approach 2: say that the new law is [x] but, because everyone has organised their affairs until now on the basis that the law was [y], the new view of the law only affects events occuring after the decision. So only contracts or leases formed after the date of legislation would be affected by the new law [x]. Contracts and leases, etc. formed before the ruling would continue to fall under the old law [y]. This is the ‘purest’ form of prospective overruling.
  3. Approach 3: it is possible to come up with other variations (mixtures). For instance, the decision might be held to be prospective as regards everyone not involved in the case but retrospective in its effect as between the parties to the case in which the ruling is given.

This month, the Swiss people will get the final say on reforms to the pension system in a referendum. Instead of a real reform with a flexible retirement age, the set of reforms would see the retirement age for women raised to 65 – it is currently 64 – bringing it in line with men. Secondly, pension payments will decrease from 6.8% of the capital per year to 6%, although salary deductions will go up slightly. That will be compensated with a ridiculous monthly 70 franc bonus in AVS/AHV (state pension) payments for everyone (Giesskannenprinzip). On top of that, the reforms will be financed by a 0.6% increase in VAT, a change to the constitution that will be put to the people – and especially to the young. The whole package is another symptom of the breakdown of the social contract between the generations.

How can politicians make a mark? By creating new laws and regulations. Preferably, these laws carry their names and have such fancy designations as the ‘Dodd-Frank Act’. As Niall Ferguson (2013) puts it: “Among the most deadly enemies of the rule of law is bad law.”

Sapiens omnia sua secum portat

The former CEO of UBS and Credit Suisse criticises the Swiss fiscal policy as shortsighted and dangerous. In a widely noted article he analyses the bondage of the Swiss Franc to the Euro and outlines its consequences as damaging. “Only the richest one percent of the Swiss population benefit from the policy. The people will have to bear the damage.”

Oswald Grübel doesn’t mince matters

Grübel argues that we witness a historical moment: After years of cautionary balance, the central banks nowadays directly engage in economic processes and influence fiscal outcomes, driven by political motivation. Central banks have blown up their balance sheets, pretending to boost the economy. What they really do is passing the burden to the next generation. In Switzerland, linking the Franc to the Euro was the most significant intervention in recent history. It triggered an effect like the one of free money for the Swiss economy: exports exploded and there is almost full employment.

Grübel suspects politicians of stapling Switzerland to the Eurozone through the back door: After years of bonding the Franc to the Euro, the government could argue that the measure proved to be a success and that a formal annexation to Europe would be the next logical step. Besides, an escape from the Euro could prove very costly.

Grübel has a point here, and as far as I remember there were always Swiss politicians dreaming of the annexation to a bigger Reich since 1933.

You can read the full German article here: [Den Schaden tr?gt das Volk]