andreas dombret : what's the future of globalisation? what's the future of free markets? european optimism in an uncertain world speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at new york university, new york city, 11 october 2017. * * * 1. introduction : whither globalisation? whither free markets? ladies and gentlemen it gives me great pleasure to be back in new york and at nyu. today i want to talk about two things : chocolate and nobel prizes. stay with me for a moment. some time ago, i stumbled upon a story that connected chocolate and nobel prizes in a way that reminds me of how we talk about globalisation nowadays. in 2012, a new york - based physician and researcher published a note in the new england journal of medicine in which he analysed the link between chocolate consumption and cognitive function. 1 while not unusual, his measurement was, let ’ s say, creative. he measured the correlation between a nation ’ s chocolate consumption and the number of nobel laureates per population. it came as little surprise that switzerland won, with the us and germany achieving only a mediocre ranking. while the author himself was careful not to claim that he had found a causal link, he highlighted an extremely strong correlation – indeed, his only regression graph was quite close to being a perfect line. thus, others were tempted to debate the merits of launching a government programme to boost national cocoa consumption. correlation does not imply causation. intuition is not always based in fact. confusing correlation with causation is amusing – but it is also disturbingly similar to what we are seeing in current political debates. is the idea that more chocolate leads to more nobel prizes really any different from the idea that protectionism brings back old jobs? is it really any different from the idea that brexit or the breakup of the european union would bring with it increased welfare and security? across the globe, populism is on the rise – leading many to fear that the post - war economic order is coming to an end. what ’ s more, even the future of the western alliance has come into question. my impression is that many people in the united states are still asking these questions. political tensions still dominate. the role of global cooperation with other nations is still contested. globalisation and free markets are still questioned. some of you may be wondering whether i have brought optimism with me

base has been seriously 5 / 7 bis central bankers'speeches weakened by international tax evasion and avoidance. this is one of the big problems of globalisation. according to gabriel zucman, 8 % of the world ’ s total household wealth, which is usd 7. 6 trillion, was in tax havens in 2016 – according to zucman ’ s conservative estimates, 75 % of these funds are derived from illegal tax evasion. 5 in 2009, the g20 took action and compelled tax havens to sign bilateral treaties providing for the exchange of bank information. while this is an important first step, there is evidence that the effects are modest and that more needs to be done. 6 moreover, in addition to tax evasion, the public is also saddled with substantial losses due to t a x avoidance stemming from profit - shifting strategies implemented by international corporations. 7 the reason is simple : our tax codes are outdated and not ready for the digital age, in which it is possible to shift profits around the world. fortunately, the first steps in the right direction are also being taken here. oecd and g20 countries have agreed on the beps project – short for base erosion and profit shifting. but this agreement is toothless without effective implementation – which is the important task for all signatory countries. a promising approach is the recent initiative by ten eu member states to enhance the taxation of international corporations by updating the corporation tax codes in a manner independent of profits. and this brings me to the third principle : we need better globalisation. we need to find a form of global cooperation that lies in between the two extreme, ideologically motivated solutions of national isolation and a borderless global economy. a realistic middle ground would be focused global cooperation : continuing to exchange, to cooperate and to harmonise regulations, where sensible – but also focusing and improving our efforts. focused global cooperation would also offer greater scope for solutions that respect the legitimate interests of countries wanting to run their economies independently. an example is the global harmonisation of banking regulation. we, the basel committee – which includes the banking supervisors from the g20 – currently work on the final piece to complete global regulatory reforms after the financial crisis – the so - called basel iii agreement ; and we are close to an agreement. that would bring global minimum standards to regulate internationally active banks. yet, for purely nationally active banks, there is no need to have global minimum standards. national supervisors may adapt the standards to fit historically grown