Tag Archive: Swiss

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 trägt das Volk]