Why Cash Won’t Lose Its Cachet Any Time Soon


Even as Sweden is expected to go cashless by 2023, and cashless options are gaining traction globally, there is a growing clamor to keep cash alive. In the U.S., for instance, cities like Philadelphia, New York and San Francisco, along with the state of New Jersey, have introduced bills that prohibit retail establishments from refusing to accept cash. The European Central Bank (ECB), governing the 19 European Union countries using the euro, believes everyone must have cash as a payment option.

“Many countries have already learned that the speed with which Sweden has developed towards a cashless society has side effects, which must be taken seriously,” says Henk Esselink, head of the issues and circulation section for the currency management division at the ECB. In a conversation with Knowledge@Wharton, Esselink discussed why cash matters, and how the dynamics between cash payments and cashless payments are likely to play out in the coming years.

An edited transcript of the conversation follows.



Knowledge@Wharton: Sweden is expected to become the world’s first cashless society by March 2023. Do you think this is a positive move for Sweden and also for the world at large?

Henk Esselink: Apart from the academic question as to when a society is regarded as cashless, I think it is impossible to anticipate a precise date, or even a year, when a country becomes cashless. In Sweden, consumers prefer to pay less with cash, and banks and retailers prefer not to handle cash. This is acceptable as long as it is by choice and they don’t feel forced to do so. The ECB believes that everyone should have the choice to pay with cash, card or any other means of payment that may be offered, but that cash should be among the options. If a cashless society means that people no longer have access to cash or cannot pay with cash at all, that would be a bad thing.

Even in Sweden, some groups may become, or feel, socially excluded if cash is no longer available or accepted. There are also large groups in society which use cash for budgeting purposes. Several studies have shown that consumers spend more money if they pay by card, instead of cash. In a 2017 ECB study on the use of cash by households in the euro area, we asked people why they prefer cash. The most often mentioned reason was that by using cash you have a clear overview of your expenses. I would imagine that in many countries in the world with on average lower incomes than in Sweden this argument is even more important. Moreover, cash ensures that citizens can exercise their fundamental right to privacy. Again, this may not be so much of a concern for Sweden, but it is certainly an issue in many countries in the world.

So, probably the positive aspect of Sweden becoming a cashless country would be that it is a test case for the rest of the world. Maybe the experience in Sweden can help other countries to develop policies to prevent cash from disappearing. Many countries have already learned that the speed with which Sweden has developed towards a cashless society has side effects, which must be taken seriously.

Knowledge@Wharton: In an interview with Knowledge@Wharton, Jonas Hedman, associate professor at the department of digitalization at the Copenhagen Business School, said becoming cashless is inevitable, not just for Sweden, but for other countries as well. Do you agree?


Esselink: The whole world is looking at Sweden, which seems to take pride in being on its way to becoming a cashless society. But what is often overlooked is that according to the 2018 payment patterns study of the Riksbank [Sweden’s Central Bank], the majority of respondents said they used cash in the last month of the interview, 31% of the population said they withdraw cash one to three times a month, and 6% said one or more times a week. These are non-negligible parts of the population.

Moreover, even Sweden saw an increase in banknotes and coins in circulation in value terms in 2018 compared with 2017. But apart from Sweden and Norway, which experienced two consecutive years of decline of banknotes in circulation in the years before (which may also have to do with the introduction of a new series banknotes), in nearly all countries in the world the demand for cash is still increasing year on year. This is true even for developed countries with a good cashless payment infrastructure like the U.S., Japan, and the euro area. In the euro area, even the two lowest denominations, the 5 euro and 10 euro bills, which are typically only used for transaction purposes, have shown growth rates over the last 10 years which outpace GDP growth. I agree that we can expect many economies to become much less dependent on cash in the coming years, but that doesn’t mean that cash will disappear.

The circumstances in every country are different. For example, in Germany, people have a very different view about privacy than in Sweden. In many countries, central banks see the supply of cash as a core activity. In the U.S., various states have issued laws that make it mandatory to accept cash. The main reasoning behind this is that cashless shops [are viewed as] discriminating against people who don’t have bank accounts or access to electronic means of payment. Globally, there are well over 1.5 billion people who don’t have bank accounts. For most of them, cash is the only way to pay. So, although we are moving to a “less cash” society in several countries, it is premature to conclude only from the Swedish experience that a cashless society is inevitable.

Knowledge@Wharton: How do you expect the dynamics between cash payments and cashless payments to pan out in the coming years?

Esselink: I can only talk about the euro area, but we will probably see similar developments in other countries, too. The share of cash payments at points of sale will decline due to the increase in card accepting terminals, contactless payment options, person-to-person and instant payment options, and in general due to the increase in online payments. However, the decline will not be as fast as many predict. In 2030, a considerable share of payments will still be in cash, at least in terms of number of payments.

In the euro area, with a generally good payment infrastructure, on average 79% of the number of all transactions were in cash in 2016. If we take the development in the use of cash in the U.K. or the Netherlands in the last 10 years as a reference — countries which had a significant decline in cash use — and extrapolate this trend to the euro area, then on average in the euro area in 2030 close to 50% of all payments would still be made in cash. However, there will be some countries where the share of cash in number of payments will be much lower than the euro area average. In terms of value of transactions, the share of cash will be considerably lower than in number of transactions, as it is already the case now.

Knowledge@Wharton: When it comes to cash payments, what are the main trends you see?

Esselink: In a recent IMF study titled “Cash Use Across Countries and the Demand for Central Bank Digital Currency,” authors Tanai Khiaonarong and David Humphrey conclude that normal demographic change, coupled with a preference for non-cash payments by the younger portion of the population, is sufficient to explain yearly average reduction in cash use across the countries they analyzed. I think this is a realistic conclusion. It is evident from various studies that younger generations are more inclined to pay cashless and adopt new means of payment. So as new generations come, and older generations disappear, the share of cash in payments at points-of-sale will almost naturally decline.

Furthermore, expect cash to be increasingly used for mainly smaller value payments in places where cash is still convenient and cost efficient. This is typically in smaller shops, at marketplaces, and in bars and restaurants. Another trend, more related to the logistics: cash will be recirculated more locally. This means that people will get cash from shops and typical banking services will be provided by machines in retail stores. This will make cash more efficient and will allow people to get access to cash even in areas where banks and ATMs have disappeared. All these trends have already started, and we will see them develop further in the next decade.

Knowledge@Wharton: What trends are you seeing in non-cash payments?

Esselink: In the euro area, I see contactless payments as the main driver of the increased use of cards. In our survey on the use of cash, it appeared that consumers value the speed of transactions. For retailers also, and in particular the supermarkets, transaction time is very important, as it is a cost. Initially, card and PIN transactions of low value will be substituted by contactless card transactions. But the convenience will likely also induce some of the cash users to use contactless technology. In the euro area, 81% of all transactions were below 25 euros in 2016. Therefore, I see a large potential for contactless here. I don’t see instant payment solutions as a major threat to cash in the coming years. It will replace some of the person-to-person payments, and some of the very high-value cash payments, like for furniture and second-hand cars.

Also for services in and around the house this could replace some cash transactions. But since in the euro area two-thirds of all transactions at points of sale are done in shops for day-to-day items and in bars, restaurants and cafés, I expect the impact of instant payment solutions on cash to be rather limited. But if suppliers of these solutions make an appealing business case for retailers and consumers, it may gain market share in the euro area, first by replacing card payments and maybe later on also some cash payments. In countries with a less well-established card network, such payment solutions may gain further ground.

Also, internet commerce is expected to increase in the coming years. And although in some countries it is possible to pay with cash at the pick-up points, most internet transactions are done with non-cash means of payments. Therefore, the increase in internet commerce will also increase card payments and other non-cash means of payment.

Knowledge@Wharton: What do you think are the major advantages of becoming a cashless society? Could you explain with examples?

Esselink: Asking someone who is working on the issuance of banknotes in the euro area what the advantages of a cashless society are, is asking the turkey to vote for Christmas. I will nevertheless try to mention some of the arguments that some have put forward, but will at the same time explain why these arguments are not always convincing.

Some claim that cash is expensive and that non-cash means of payment are cheaper. From various studies we know that it depends on the country, the infrastructure, and the number and value of payments. Generally one can say that for larger value payments the societal costs of cards are indeed lower than for cash. But for low value payments, cash is still cheaper than cards. If we are not looking at the societal costs, one could say that it depends on each business whether cash or cards is cheaper. For a large supermarket which can negotiate good conditions for the merchant fees and which has many transactions, the break-even point between cash and cards may be different than for a small shop that has few transactions.

Some also say that in a cashless society there will be no robberies of cash and no ATM attacks. However, this does not mean that there will be no criminals. If cash disappears, criminals will find other ways to get other people’s money, like we already see now with phishing sites aiming at getting access to online banking, online credit card fraud, etc.

Another argument of a cashless society is that crime and tax evasion would be reduced. But again, those who want to launder their money or evade taxes will always find ways to do so. I only have to refer to the Panama papers and the Paradise papers and everyone will understand what I mean. If a country became cashless, criminals would, of course, start using other currencies. Professor [Friedrich] Schneider [of Austria’s Johannes Kepler University in Linz] estimates that if cash was completely abolished the shadow economy may be reduced by 20%, and proceeds from crime may be reduced by 10%. That is of course a good thing, but one may wonder whether this could not be achieved in a less disruptive way than by completely abolishing all cash. Interestingly, although Sweden is the country with the lowest use of cash in Europe, it is not the country with the smallest shadow economy.

Knowledge@Wharton: What are some other disadvantages and challenges of a cashless society?

Esselink: As I mentioned earlier, there are multiple groups in society which rely on cash. For vulnerable groups, like the elderly, visually handicapped, people who use cash for budgeting purposes or even children, cash is important, or even essential, as they do not have access to account-based means of payment.

In a developed country like the United Kingdom 2.7 million people (i.e. around 5% of the 16+ population) mainly rely on cash. People may also wish to use cash to keep their transactions private for legitimate reasons. The challenge is to make sure these groups remain to have access to cash. Further, cash provides immediate settlement, and transactions can be effected without infrastructure or costs.

Also, in many European countries there is no national card scheme. This means that the whole retail payment system relies on two international card schemes not located in the EU. Without cash, there would be no competition for cards and the fees for card use and acceptance may go up. There would also be no back-up in case card payment systems fail. Although cash also relies on a technical infrastructure, it may still be a business continuity measure for certain events affecting the retail payment system.

Finally, cash is the only way citizens have access to central bank money. Following a crisis, like for instance the Lehman Brothers crisis, many people went to the bank to withdraw cash from their accounts. If there were no cash, there would be no option for citizens to get their money out of the private banking system. Indeed, what is often forgotten is that cash is an important means to store value. Actually, the largest part of the euro banknote circulation is used as store of value within the euro area and abroad.

Knowledge@Wharton: How can these challenges be mitigated and resolved?

Esselink: All stakeholders in the cash cycle, including central banks, commercial banks, cash management companies and retailers must work together to keep the cash distribution and handling efficient with declining volumes. They must join forces to keep cash available by providing a good coverage of the ATM network, while retailers should continue to accept cash.

Retail automation such as smart safes for the automated acceptance and processing of cash by retailers may reduce the handling costs for retailers and cash-in-transit companies, and may reduce security risks. At the same time, policy makers, banks and retailers should think about alternatives for cash and the dependency on two international card schemes. In this respect one could think of creating interoperability of national card schemes in Europe. But one can also think of instant payment solutions. With launch of TARGET Instant Payment Settlement (TIPS) in November 2018, the Eurosystem has laid the groundwork for the development of innovative, customer-friendly retail payment solutions.

It is now up to the market to develop applications that meet the requirements of consumers and retailers. In the further away future, one could also think of central bank digital currencies as alternative for cash. But at this stage I would say it is easier, cheaper and safer to ensure a good cash supply than to replace cash by a central bank digital currency. This may however change over time, once many of the issues that are connected to central bank digital currency have been overcome.

Knowledge@Wharton: Jonas Hedman said most Swedish bank branches are cash-free and it’s hard to find a bank that accepts cash. Do you think it’s acceptable for banks to be cash free or must banks have an obligation towards their customers to accept and dispense cash at the branches?

Esselink: Swedish banks have to comply with an EU Directive (2014/92/EU) on access to payment accounts with basic features that requires banks to provide a basic bank account and basic banking services. Providing cash is part of the basic banking services (Article 17 of the said directive). One may also regard the funds on bank accounts as a credit by the account holders to their bank, and the customers are entitled to claim back their money from the bank. The claim refers to legal tender – banknotes or coins – as long as no other legal tender exists. Citizens and businesses should therefore carefully study the tariffs and conditions of their banks when opening new bank accounts for payment services.

Knowledge@Wharton: Given the pros and the cons of a cashless society, how must governments and financial institutions respond?

Esselink: Governments and financial institutions must make sure that citizens have the choice to pay with the payment instrument of their choice. They should promote the efficiency of all means of payments. At the same time, they should also ensure that a competitive market for retail payments exists with different cashless retail payment solutions, and not only payment cards as alternative. In some countries which rely almost entirely on cash it is logical that the efforts would be to encourage cashless means of payments, whilst making sure that people keep the options to pay with cash. Meanwhile, in countries where cash as payment option may disappear, they should take measures to ensure cash remains a viable payment option as a kind of public good, especially considering that payment cards and new payment solutions have already an enormous backing by the private sector such as the card schemes, banks and fintechs.

Europe’s diminished far right still poses a threat

Mainstream parties should be alert to the risks of sharing power with populists

Tony Barber



Across Europe, in the streets and conference halls, in social media and on television, radical rightwing populists pump out a relentless message. Society consists of the common people represented by the national-populist right on one side, and corrupt elites gorged on power and contemptuous of the masses on the other.

This week, the radical right’s flattering self-portraits and malicious conspiracy theories lie in shreds. A sordid scandal, involving the hypothetical exchange of government contracts for Russian financial and political support, has engulfed Austria’s far-right Freedom party (FPÖ) and swept it out of the ruling coalition in Vienna.

The FPÖ deserves punishment at the hands of voters in this week’s European Parliament elections. Yet its core vote will probably remain intact, as will that of like-minded movements in France, Hungary, Italy and elsewhere. These parties cater for the minority of Austrians and other Europeans who simultaneously dislike the EU, cannot stand immigrants and rage at globalisation.

Austria’s scandal recalls a memorable phrase coined by Victor Adler, the pre-first world war Social Democrat. He described the declining Habsburg empire’s political system as “absolutism mitigated by sloppiness”. Modern Austrian politics, in its far-right incarnation, is intolerance aggravated by sleaze. Is it too much to hope that the FPÖ will never again be allowed near the corridors of national power?

Whether in office or screaming from the sidelines, Europe’s radical right is the polar opposite of clean hands, democratic values and patriotism. The hallmarks of these parties are dubious financial deals and nepotism. Given a sniff of power, they race to control the police and intelligence services, strip courts and media of their independence and twist electoral systems to their advantage. To cap it all, they forge friendships with the Kremlin, endorse its annexation of Ukraine’s Crimea peninsula and trade their nations’ independence for Russian favours.

To be clear, mainstream European parties would be making a grave mistake if they were to heap all the blame on Moscow. Of course, the Russians interfere in European referendums and elections, as they did in the 2016 US presidential contest. There is no shortage of Russian money available for gaining influence over political parties. However, the chief causes of the radical European right’s rise are homegrown.

They lie in the reckless financial capitalism that flourished for 20 years after the collapse of European communism, until its near-breakdown harmed millions of people who were not responsible for the mess. They lie in expansive principles of freedom of movement that took no account of how less prosperous, less internationalised parts of Europe might react to rising numbers of economic migrants. They lie, finally, in the stumbling efforts of EU leaders to get a grip on these problems.

According to pre-election estimates, the radical right — together with the radical left and assorted anti-establishment populists — may claim about 30 per cent of the seats in the next 751-seat EU legislature. Among the rightwing nationalist parties that can expect good results are Italy’s League, led by Matteo Salvini, deputy premier and interior minister, and Hungary’s Fidesz, led by Viktor Orban, prime minister. However, Europe’s rightwing populists are no more a united force than the bulldogs fighting under a carpet to which Winston Churchill once compared rivals for power in the Kremlin. The pro-Russian sympathies of the FPÖ, France’s National Rally and the League disturb rightwing populists and nationalists in Poland, Sweden and the Baltic states, for whom Russia is a threat to national freedom, not a buddy with deep pockets.

The refugee and migrant question is also deeply divisive. Mr Salvini wants Italy to be rid of irregular migrants, but his counterparts in France and central Europe refuse to co-operate by backing EU-wide redistribution schemes. Lastly, the Alternative for Germany party and its northern European equivalents support free markets and fiscal discipline in a way that clashes with the interventionism of Marine Le Pen, leader of National Rally, and her southern European friends.

Europe’s traditional centre-right parties cannot afford complacency. Like their liberal and centre-left competitors, they will have the radical right snapping at their heels as long as they fail to renew the European model of welfare state capitalism that is coming apart at the seams. However, there are steps that the moderate right can and should take to prevent a calamity. First, they must think twice before parroting the prejudices and abusive rhetoric of the radical nationalists. Any short-term electoral gain is bought at the price of legitimising forces that are out to destroy the political order.

Second, and even more important, the moderates must take a far more clear-eyed view of the risks of offering a share of power to the radical right. Sebastian Kurz, Austria’s wunderkind chancellor, thought he had these risks under control when he brought the Freedom party into government after the 2017 national elections. Instead, the FPÖ, with its hands on the defence and interior ministries, was a menace to western security and to Austria’s democratic institutions. Either this lesson is learnt, or dangerous times are in store for Europe.













Balkanising technology will backfire on the US

China will benefit if America forces the world to choose between them

Henry Paulson


The eyes of the world will be on Donald Trump and Xi Jinping as they attend the G20 meeting in Osaka on Friday © FT montage; Reuters; Getty Images



Washington’s decision to blacklist Huawei, preventing US companies from buying its products, may be a death sentence for China’s leading technology group. It is hard to see how Huawei can survive without a negotiated settlement between presidents Donald Trump and Xi Jinping.

But this fight is about more than the fate of one company. After 30 years of globalisation, we now face the very real prospect that an economic iron curtain may descend. Technology has become a core problem in the US-China relationship, blurring the lines between economic competitiveness and national security. The battle is about whose economy will drive the technology of the future and set the standards for it.

These issues are among the most intractable because they strike at the core of each country’s national security and competitiveness, and there is no playbook for resolving them.

Increasingly, the west and China will compete over whose technologies and standards will become dominant. The battle could fragment the world as some regions choose Chinese products and standards while others opt for infrastructure that is dependent on US and western technology and standards. One likely source of friction is the competition to build and deploy 5G architecture, which will underpin a vast array of commercial and military technologies.

Mutual efforts to exclude one another’s technologies from national supply chains would break the global innovation ecosystem. For strictly military systems, there is of course a straightforward national security basis for exclusion. But few hardware or software systems are straightforwardly military any more.

The US faces a twofold problem. First, other countries are unlikely to sever their technology relationships with China. A full-blown US push to freeze out applications with widespread or beneficial commercial uses is likely to flounder when other countries refuse to go along.

Some wealthy democracies may follow the US and seek to strip Chinese equipment out of their backbone technological systems. But most, and maybe all, developing economies will not and neither will some US allies.

America also risks isolating itself. The Huawei supply ban will reverberate well beyond China because it sets a precedent. Others may stop doing business with American companies and relying on US suppliers rather than run the risk that Washington might step in and inflict great harm on them by terminating the commercial relationship.

Understandably, Americans abhor China’s history of pervasive technology theft and forced technology transfer. They also rightly dislike the Chinese models of internet governance and regulation. But innovation cannot be separated from competitiveness. Balkanising technology could harm global innovation, hurting the competitiveness not just of Chinese firms but also of US companies around the world.

US policymakers are now focused on finding ways to hurt China and weaken its technological progress in advanced and emerging industries such as artificial intelligence, quantum computing, and advanced manufacturing. But they aren’t focused enough on what that effort might mean for America’s own technological progress and economic competitiveness, both of which underpin our national security.

As much as business and innovation leaders welcome the actions the US government is now taking to protect vital new technologies, they worry that government bureaucrats will introduce controls without fully considering the impact on America’s global position and its access to some of the world’s largest and fastest-growing markets.

Detaching the US from Chinese entrepreneurs, scientists and inventors — and the ecosystem in which they foster innovation — will undermine America’s own ability to innovate. China and other countries will continue to jointly make progress by working with one another.

At worst, we could sequester so much important technology in the US that American companies would no longer be able to participate in the international research collaborations and supply chains that fuel the fastest-growing industries. The US would also lose its place as the world’s most attractive investment destination.

The whole world will be watching when Messrs Trump and Xi attend the G20 meeting in Osaka on Friday. Business and government leaders everywhere hope the two leaders can reboot the trade negotiations and drive them to a successful conclusion. But as arduous as these talks have been, this challenge pales in comparison to managing the looming technology competition.

This is the paramount challenge for US economic and national security because innovation is one of America’s defining strengths. We need to protect it — but without erecting an economic iron curtain that weakens us by closing us off from other innovative economies and people.


The writer, a former US Treasury secretary, chairs the Paulson Institute

Europe Gives Up On Sound Money, Prepares To Join The Currency War


Not so long ago, Europe seemed to have its financial house more-or-less in order. German government spending was actually falling. Industries that had been nationalized in the socialist 70s were being privatized. The European Central Bank – run by sound money advocate Jean-Claude Trichet – was smarter and more cautious than the incoherently rambunctious Bernanke Fed. The euro, for a while, was actually preferred by many over the dollar.

Then – gradually at first and now very quickly – everything went sideways.

Mario Draghi took over for Trichet at the ECB and promised to do “whatever it takes” to generate at least 2% inflation. Then he proceeded to deliver on that promise with massive asset purchases and negative interest rates.

Inequality – which, we’re now coming to realize – is fed by low interest rates and easy money, rose to near-US proportions. Immigration was mishandled to the point that it became THE political issue. And populist parties opposed to the existing system attracted enough votes to rattle the mainstream parties.

The entrenched political/financial class, shocked by the unwashed masses’ effrontery, are now responding exactly as you’d expect, with massive increases in social spending, promises of even easier money (Draghi actually claimed that there was “plenty of headroom” to cut rates from the current -0.4%) and, well, whatever else it takes to stay in power.

Here, for instance, is Germany’s government spending. Note the uptrend now that the Greens are contenders:


German government spending Europe currency war


From today’s Wall Street Journal:
To win voters lost to an anti-globalization backlash, Europe’s mainstream parties are going back to the 1970s. 
In Germany, the U.K, Denmark, France and Spain, these parties are aiming to reverse decades of pro-market policy and promising greater state control of business and the economy, more welfare benefits, bigger pensions and higher taxes for corporations and the wealthy. Some have discussed nationalizations and expropriations. 
It could add up to the biggest shift in economic policy on the continent in decades. 
In Germany, Europe’s biggest economy, the government has increased social spending in a bid to stop the exodus of voters to antiestablishment, populist and special-interest parties. Reacting to pressure on both ends of the political spectrum, it passed the largest-ever budget last year. 
“The zeitgeist of globalization and liberalization is over,” said Ralf Stegner, vice chairman of the 130-year-old Social Democratic Party, the junior partner in Chancellor Angela Merkel’s government coalition. “The state needs to become much more involved in key areas such as work, pensions and health care.” 
The policies mark the end of an era in Europe that started four decades ago, with the ascent of former British Prime Minister Margaret Thatcher and her U.S. ally, President Ronald Reagan. 
After Thatcher abolished capital controls in 1979 and began selling off state companies in the 1980s, other European governments followed suit, embracing supply-side policies, deregulation, market liberalization and tax cuts. Revenues from privatization among European Union member states rose from $13 billion in 1990 to $87 billion in 2005, according to Privatization Barometer, a database run by consultancy KPMG Advisory S.p.A. 
Today, concerns about growing inequality, stagnating wages, immigration, the debt crisis and China’s rising power have fueled the recent political shift. European businesses and governments also worry about potential changes in U.S. policy, amid looming threats of trade sanctions. 
This erosion of the old technocratic consensus about how to run an economy, even in countries where populists aren’t getting any closer to power, could be one the most lasting consequences of the recent antiestablishment surge. 
Even in countries where populist parties are already in government, such as Poland, those parties have shifted their focus from nationalist and anti-immigration rhetoric to championing generous welfare policies and state aid. 
Bigger Benefits 
Germany’s SPD has embraced additional welfare spending, paid for by tax revenues, to combat a retreat of voters so rapid it threatens to turn the once-dominant force in German politics into a niche player. The party is now pushing for policies such as unconditional pension for people who have worked for a certain period but didn’t make sufficient contributions into the pension pot. 
In the U.K., Jeremy Corbyn, leader of the opposition Labor Party, has proposed renationalizing railways, public utilities, the postal service and the Royal Bank of Scotland, the country’s second-biggest lender. It’s effectively a reversal of the privatization spree initiated by Ms. Thatcher. The party is also toying with policies such as universal basic income for all and a four-day working week for public-sector employees. 
Labor has been polling ahead of the ruling Conservatives in opinion surveys for most of the past two years.

This reversion to the failed ideas of yesteryear is spreading across the Continent as debts mount and growth slows, which is pretty much how it always works: Borrow too much and the system starts to fail, leading to calls for a return to the good old days of … rising benefits paid for with borrowed money.

The next stage – again always and everywhere – is rising inflation and a currency crisis that wipes out the savings of the people the inflationary policies were supposed to help.

Which is another way of saying the currency war between the US and China will soon be joined by Europe, leaving most of us with nowhere to hide but gold.


Germany’s Dangerously Flawed Energy Policies

Germany has made a noble effort to reduce greenhouse-gas emissions and replace conventional energy sources with wind and solar power. But now it is time to face reality: the country cannot possibly play a role in combating climate change until it first reverses its decision to phase out nuclear power.

Hans-Werner Sinn

sinn86_IanForsythGettyImages_seabirdsmistwindturbines


MUNICH – French President Emmanuel Macron thinks an overhaul of Germany’s economic model is overdue. As far as energy is concerned, he is probably right.

While France produces over 70% of its electricity in nuclear power plants and is trying to convert to electric vehicles (EV) running on nuclear energy, Germany relies on wind farms and other forms of green energy, and plans to phase out nuclear power by 2022, and coal power by 2038. Yet the attempt to turn the wheels of German industry with wind faces growing political resistance, as the country is already littered with so many wind turbines – some of them nearly 250 meters (820 feet) high – that even its most beautiful vistas are coming to resemble industrial landscapes.

Farmers and forest owners, of course, have welcomed the opportunity to convert their land to industrial sites. Usually, only landowners on the outskirts of big cities enjoy such windfalls, but with legislation facilitating the erection of wind turbines in rural areas, German farmers and forest owners have struck gold.

Nonetheless, the expansion of wind turbines is stalling, owing to a growing chorus of citizens who object to the destruction of the natural environment. Protest movements against what is seen as environmental vandalism are sprouting like mushrooms. Even the German Nature and Biodiversity Conservation Union (NABU) is beginning to reconsider its position on wind turbines, owing to the loss of insects, birds, and bats on a massive scale. And while solar energy and biogas plants still represent potential alternatives to wind, they are also facing limits, given that Germany is not a sun-kissed country, and the table-or-tank problem – whether to use land to grow food or fuel – represents a serious ethical dilemma.

The main problem is the volatility of wind and solar energy. Sometimes there is too little electricity, and sometimes there is too much. If the wind isn’t blowing and the sun isn’t shining, conventional power plants must shore up the electricity supply. Hence, no matter how many wind- and solar-powered plants Germany builds, it still cannot dismantle its conventional plants.

Moreover, when wind and solar generate too much electricity, they regularly drive the price of electricity below zero. These distortions will grow dramatically if the market share of wind and solar power, currently at 25%, increases beyond 30%, because production spikes will then begin to overshoot electricity demand.

Worse, as the market share of directly usable wind and solar power approaches 100%, so, too, does the proportion of surplus energy. Even if Germany and its neighbors were to create a perfect electricity network stretching from the Alps to Norway, with as many pumped-storage plants as geologically possible being built in the participating countries, the market share of wind and solar power could not surpass 50% without ever-larger portions of the excess current peaks being dumped or degenerated by a change in the entropy level (conversion into heat or gas).

Confronted with this problem, many people point to electric vehicles as a solution. There can be little doubt that EVs are the future, given the European Union’s massive regulatory interventions in the automobile market (at France’s urging) to make it so. But, far from alleviating Germany’s energy problems, EVs will make them even worse.

Drawing an ever-greater proportion of their energy from green sources, German households already pay the highest electricity prices in Europe, ahead of Denmark, which also relies heavily on wind power. If the German transportation sector is forced to become electric, the resulting increase in power demand will lead to further price increases, inflicting sustained damage on the country’s industrial base.

If Germany wants to keep energy prices constant, it must temper its green ambitions. But without further reducing its carbon dioxide emissions, it will miss its binding EU targets for reducing greenhouse-gas emissions and have to pay fines to the EU.

There are only two ways out of this quandary. The first is to convert existing coal-fired power plants into gas plants, which produce only half as much CO2. That, at least, would allow Germany to reduce its annual CO2 emissions from 900 million to 770 million tons. This option would require new gas pipelines similar to Nord Stream 2, a joint German-Russian project that already faces stiff resistance from the European Commission and particularly France. Indeed, just a week after signing a new Franco-German friendship treaty in January, Macron suddenly stopped supporting German Chancellor Angela Merkel’s effort to block the EU asserting control over the pipeline, even though it crosses no other member state’s territory and would not normally be subject to EU regulation.

Germany’s second energy option is to buy foreign nuclear power or start building new nuclear power plants on its own territory. Germany would tacitly accept the former, but for the latter to happen, it would have to undergo a politically painful process of returning to reality and retiring the generation of politicians who have insisted on a nuclear phase-out. In 2009, Sweden, the first European country to abandon nuclear power after the Three Mile Island accident in 1979, reversed its decision. Germany may have to do the same at some stage. While it has already lost most of its own nuclear expertise, the country wouldn’t have to look far for new nuclear-power plants: they’re available for purchase from France.


Hans-Werner Sinn, Professor of Economics at the University of Munich, was President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently, of The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs.

It’s Never Been Easier to Be a C.E.O., and the Pay Keeps Rising

Compensation for top bosses grew at double the pace of ordinary workers’ wages, according to our annual analysis. Topping the list: Elon Musk, with a $2.3 billion package.

By Peter Eavis 



This is not a difficult time to be a chief executive.

The solid economy has bolstered companies’ sales, and President Trump’s corporate tax cuts have juiced profits. A huge increase in stock buybacks has lifted share prices.

Despite all the structural forces aiding companies’ bottom lines and stock prices, boards continue to act as if C.E.O.s have unique powers to deliver better returns — and have gone to great lengths to compensate them. The most prominent example: Tesla approved a pay package to Elon Musk valued at as much as $2.3 billion. It’s not just the highest sum for last year; it’s the biggest ever, according to compensation experts. (More on Mr. Musk below.)

Something about this feels inevitable. Every year, Equilar, an executive compensation consulting firm, conducts a survey for The New York Times of the 200 highest-paid chief executives in America. And nearly every year, C.E.O.s already earning huge sums get even bigger payouts. In 2018, our analysis shows, they did particularly well: The median boss received compensation of $18.6 million — a raise of $1.1 million, or 6.3 percent, from the year prior.

C.E.O. pay increased at almost twice the rate of ordinary wages. In 2018 — a pretty good year for the labor market — the average American private-sector worker got a 3.2 percent raise, or an extra 84 cents per hour.

These gains at the top are in spite of recent efforts to restrain C.E.O. pay. Earlier this decade, Congress required that companies disclose the ratio of their chief executive’s pay to that of their median employee. Lawmakers also gave shareholders a special but nonbinding vote on the matter. Another trend theoretically contributing to accountability is that company boards, under pressure from some shareholders and advisory firms, have tied a lot more of a chief executive’s pay to a company’s performance.

And yet the compensation machine still spits out bigger and bigger rewards. Mr. Musk topped Equilar’s list by more than $2 billion. In second place was David M. Zaslav, the chief executive of Discovery, an entertainment company, at $129.5 million.

Palo Alto Networks, which provides cybersecurity services, gave its incoming chief, Nikesh Arora, a package that it said was worth $125 million. Oracle awarded each of its two co-chief executives payouts of $108 million and gave its chairman, Larry Ellison, slightly more. One of the co-C.E.O.s, Safra A. Catz, was 2018’s highest-paid woman, one of only eight on the Equilar list.

Uber’s chief executive, Dara Khosrowshahi, who got a $45.3 million award, would have been 10th on Equilar’s list. But since the company was not public last year, it was not included in the rankings. Also missing: the C.E.O.s of private equity firms and hedge funds, whose compensation can run into the hundreds of millions.

Five takeaways from the 2018 report:
 
C.E.O.s get paid regardless of logic
 
When Tesla announced its multibillion-dollar award for Mr. Musk in January 2018, it was hailed as a bold experiment, fitting of a visionary entrepreneur. Sure, the multibillion headline number was big enough to appease the gods, but the award was structured in such a way that Tesla would have to reach highly ambitious milestones for Mr. Musk to receive any of it. Tesla’s market capitalization is now $35 billion. To gain all the options in the award, its market value would have to increase 18 times over, to $650 billion.

“Elon’s entire compensation is directly tied to the long-term success of Tesla and its shareholders, and none of the equity from his 2018 performance package has vested,” said Kamran Mumtaz, a spokesman for Tesla.

The award’s structure was driven by concern that Mr. Musk’s attention could wander to his other ventures, like SpaceX, or that he could leave Tesla altogether. In describing the compensation package, the board said it wanted to “motivate Mr. Musk to continue to not only lead Tesla over the long term, but particularly in light of his other business interests, to devote his time and energy in doing so.”

In the months after Mr. Musk’s focus was supposedly fortified, however, both he and the company faltered. The company struggled to produce and deliver its electric cars, senior executives departed and financial concerns returned. Mr. Musk posted messages on Twitter about a deal to take Tesla private that the Securities and Exchange Commission later described as false and misleading. (Both Mr. Musk and Tesla settled with the agency.)

Why grant Mr. Musk the award at all? Analysts for Institutional Shareholder Services said at the time that because Mr. Musk already owned roughly a fifth of Tesla, his financial interests were already strongly aligned with the company. If its value hits $650 billion, his stake could be worth more than $100 billion, so it’s unclear what extra incentive a $2.3 billion carrot provides. Jeff Bezos, Amazon’s chief executive, did not require huge additional equity grants to inspire him to build his company.

C.E.O.s get paid extra to do the basics

Two chief executives who ended high up on Equilar’s list, Robert A. Iger of Disney and John J. Legere of T-Mobile, are getting awards for leading their companies through large mergers.

But carrying out mergers could be considered a core part of a C.E.O.’s job description, and not deserving of extra pay. CVS, for instance, gave a few senior executives a special award for overseeing its big merger with Aetna, but its chief executive, Larry J. Merlo, did not get one.

Mr. Iger of Disney is getting extra shares that Equilar values at nearly $74 million, an award that was dependent on the completion of Disney’s acquisition of 21st Century Fox and is subject to performance goals. Adding that sum to the $65.6 million that Mr. Iger was awarded last year would give him a combined haul of nearly $140 million.

Abigail Disney, a granddaughter of Roy O. Disney, who founded Disney in 1923 with his brother, Walt Disney, recently tore into the company’s pay practices. “He deserves a lot of money; I’ve never quibbled with that,” she said, referring to Mr. Iger’s compensation. “But the question is how far we’re going to go.”

David J. Jefferson, a spokesman for Disney, said the boards of both Disney and 21st Century Fox had requested that Mr. Iger extend his employment agreement to oversee the merger. He added that the stock award for completing the deal “will only reach target value if Disney delivers strong performance through 2021.”

Mr. Legere, whose company is combining with Sprint, stands to get a special merger award that T-Mobile valued at $37 million. He’ll get it even if the deal does not close. In its proxy, T-Mobile said the stock grant was designed to push recipients to maximize returns for T-Mobile shareholders even if the company did not merge with Sprint.

C.E.O.s get paid regardless of scandal

Timothy J. Sloan stepped down from Wells Fargo in March, after struggling to convince Congress and regulators that the bank was fixing its problems after several scandals. Mr. Sloan’s stock grants, worth around $24 million, according to Equilar, will vest over the next three years, Wells Fargo said.

Facebook had a horrible 2018. The Cambridge Analytica scandal revealed the company’s poor controls on user data, and the activity of Russia-linked actors on Facebook around the time of the 2016 election was one of the biggest outrages to ever hit a large technology company. The company is now spending billions trying to make its network secure, and it faces regulatory scrutiny that could affect it for years.

But executive compensation barely took a hit. Facebook’s board gave an $18.4 million stock award to both Sheryl K. Sandberg, the chief operating officer, and Mike Schroepfer, the chief technology officer. (Mark Zuckerberg, Facebook’s chief executive, is not paid like the other senior executives; effectively all his compensation is made up of payments to cover the costs of travel and personal security.)

C.E.O.s often get paid more than companies say

Equilar does its analysis based on headline compensation numbers from proxy statements. But those are estimates, often based on companies’ complex calculations of what stock and options grants will be worth in the future. Some shareholder advisory analysts do their own math and conclude that the awards are likely to pay out far more than companies claim.

Institutional Shareholder Services, for instance, estimated that the 2018 compensation granted to each of Oracle’s co-C.E.O.s had a value of $207 million, compared with the $108 million in the proxy. I.S.S.’s calculations sometimes differ because they make different assumptions about whether executives will achieve performance targets. (Oracle declined to comment.)

Of course, executives may end up earning a lot more than the headline number because their firms performed exceptionally well. Jamie Dimon, the chief executive of JPMorgan Chase, came 22nd in Equilar’s 2018 ranking. He got an award in 2016 that, at the time, was valued at $20.5 million. At the end of the payout’s performance period in January, in part because Mr. Dimon hit his higher performance goals, the grant was actually worth $56 million, according to Equilar’s calculations.

Failure is possible, though. Just as executives can earn far more than originally estimated, an award can end up being worth zero. For example, a performance-based award Mr. Iger received in 2014 was valued at $60 million, but because Disney’s operating income fell short of a target, he did not collect. Mr. Zaslav also failed to get all of a 2014 package originally valued at $145 million; the award actually paid out $65 million. Mr. Zaslav can perhaps afford to shed some pay given the starting size of his awards; the last three had a combined value of nearly $209 million.

C.E.O.s get paid to invest in their companies

Upon joining Palo Alto Networks last year, Mr. Arora took $20 million of his own money and purchased company stock. When chief executives invest a portion of their fortunes, it can strengthen the alignment between the top executive and shareholders. (Famously, before he joined Bank One in 2000, Mr. Dimon spent roughly $57 million buying shares in the bank, which later merged with JPMorgan Chase.)

But this incentive may not be as strong in Mr. Arora’s case. The $20 million is a relatively small proportion of his total 2018 compensation, valued at $125 million. What’s more, Palo Alto matched his cash investment with an award of restricted stock. (“Mr. Arora’s performance-based equity award provides value to Mr. Arora only if our stockholders realize significant value,” said Ben Malloy, a company spokesman.)


Peter Eavis is a New York based reporter covering companies and markets. Before coming to the Times in 2012, he worked at The Wall Street Journal.