Today’s top entrepreneurs are always learning to deal with fast and inevitable changes. All the entrepreneurs or startup firms are expected over time to adjust entry mode and mode of service when resolving market dynamics and regional & global parameters. The various situations of global geopolitics, according to several analysts’ claims, would allow diverse startups and innovators to work together to counter multiple geopolitical uncertainties and risks. For the growth and advancement of an entrepreneurial venture, other than geographical position and time, global factors involve many other items such as world population distribution, the effects of international developments such as the cold war, post-cold war results, regionalisation, and so on. Related effects happen for some significant events, such as changing state relationships, foreign trade disputes etc. Thus, the diverse dynamics in geopolitics may be clustered in several lines to construct a global model in terms of the potential for innovation and entrepreneurship.

To illustrate, a significant geopolitical change was observed in the post-cold war period with the fall of the USSR and the democratisation of Eastern Europe. The transition offered tremendous opportunities for creativity and entrepreneurship. This is an age we are living every small and big entrepreneur are concerned about geopolitical risks and opportunities. For instance, concerning various geopolitical situations, Israel has concentrated on numerous developments in different sectors, including defence, security, cybercrime, and software; thus a considerable amount of development has occurred in the entrepreneurial ecosystem of the nation. In such a geopolitical environment, with the help of numerous government policies, VC investment schemes, systemic developments continued to take place, contributing to the rapid growth of technical entrepreneurship, particularly in Tel Aviv.

Furthermore, in the current scenario, globalisation is another critical aspect of making a geopolitical decision. The economic effect of interconnectivity, resulting in new trading partners, monetary and labour movements, and global governance, especially in this field of globalisation. To assess the reach of innovation and entrepreneurship worldwide, especially in emerging markets, a proper study is needed through the lens of geopolitical variables such as global globalisation, intergovernmental institutions, ever-changing political structures, etc. The value of understanding the notion of globalisation should be taken into account when relating geopolitics and business practices.
The definition of globalisation often raises the scope of the market environment worldwide, and therefore, there is often a risk of rising uncertainty. Therefore, careful consideration of the benefits and challenges from globalisation is necessary for long-term viability to fuel creativity or build a model for startup growth. Globalisation leads to more vigorous competition in the industry. It is a dominant geopolitical dimension which is shaping the worldwide scenario of entrepreneurship.

Therefore, in the modern world, geopolitics related questions are very significant. For any international entrepreneurship opportunity, various geography-related questions are specifically relevant. Such enquiries are supposed to provide a framework in terms of exploring the extensive nature of geography and how it could create impacts on environment-oriented variables like cultures or local politics.

In brief, it will not be wrong to say that in the upcoming future, various geopolitical changes are going to influencing entrepreneurship scenario worldwide. For instance, after the current geopolitical shock, i.e. Covid-19 pandemic, it is expected that the world could experience a wave of innovation by the efforts of various entrepreneurs.

Dubbed ‘The Great Lockdown’ in a recent IMF report, the sudden halt of the world economy has sparked an imminent recession unlike anything we have seen since the second world war.

The estimated loss of global wealth is $9T (equivalent of Germany & Japan’s economies falling off the face of the earth for an entire year) and IMF project a 6% decline in GDP across Europe & the US – twice that of the 2009 global financial crisis.

However unlike 2009, interest rates today are at record lows, rendering any change from here ineffective. This means we need to print money to generate liquidity and spend money to fuel growth, both of which are problematic.

Why do Interest Rates Matter?

Interest rates are set using Monetary Policy which refers to the actions undertaken to control the money supply of a given currency in an economy. In each case, a central bank determines the minimum interest rate in which a currency can be borrowed. Monetary policy is set by the European Central Bank (ECB) in the Eurozone and the Federal Reserve (Fed) in the US.

The lower rates are, the cheaper it is for businesses to borrow which then incentives investment and fuels economic growth.

It is one of two primary tools used to achieve macroeconomic goals and is fundamental in stimulating growth. Without strategic monetary policy, inflation can go out of control (currency loses value) or a recovery can be stalled. For this reason, the UK choose to set their monetary policy independent of the Eurozone via the Bank of England.

Where is Monetary Policy at Today?

Prior to the Global Financial Crisis, monetary policy across the west was in fairly good shape. At the beginning of 2008, interest rates were 4.2% in the Euro, 5.25% in the Dollar and 5.5% in Sterling. This meant that once the crisis hit, central banks were able to lower rates and effectively fuel growth to curb the downturn.

Today, 12 years on, rates are lower than ever; 0% in the Euro, 0.25% in the Dollar and 0.1% in Sterling. This gives central banks virtually no ability to use them to generate further liquidity using interest rates during this crisis.

To put it simply, borrowing money can’t get any cheaper than it is today meaning that central banks can’t reduce the cost of borrowing to tackle this downturn like they could in 2009.

As a result they’ve turned to what’s called quantitative easing (QE) to increase the money supply. This is another word for printing money and is highly contentious as it creates inflation (decrease in the value of money) which may go out of control if not strictly measured. As a result it has a very limited capacity to generate liquidity.

Outside of QE, economies are reliant on fiscal policy to restore growth.

Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, namely macroeconomic conditions such as growth. It is set at the domestic level by national governments. Although the 3 economies in question are aligned on the issue of low interest rates, they face different problems individually when it comes to fiscal policy.

European Policy is Limited

ECB rates have been at 0% since 2016. If they go any lower they will be paying people to borrow money,  if they go any higher the Euro Area will be shocked with tighter rates than have been seen in the last four years and economic recovery will be inhibited. So as it stands, the ECB can’t do anything for Europe with interest rates.

This means monetary policy is reliant on QE. Which has recently hit a major roadblock in Germany where a recent ruling stated that the ECB’s QE Program is excessive (destabilising) and that the German Central Bank must cease cooperation with the ECB in the next 3 months unless they can prove otherwise.

This puts the ability of the ECB to tackle a downturn in serious jeopardy. Given that Germany is responsible for a third of the Eurozone’s GDP, a cease of cooperation will make the ECB’s policy ineffective.

This means that Eurozone countries must turn to fiscal policy for stimulus.

In the EU, fiscal policy is primarily set at the domestic level – meaning it’s up to each national government to choose how they’ll spend their money. Undoubtedly there will be an effort to coordinate spending in Eurozone countries to minimise the downturn’s impact across the continent. However, such efforts have historically been politically contentious and will likely be no different this time round. Coordination means that smaller countries (Ireland, Greece etc.) will have to base their spending on that of the larger countries (Germany & France). If one country fails to emerge from stagnated growth, other Eurozone countries will feel the burden.

With nationalism on the rise in Europe over the last half decade, we may see sharp resistance towards EU intervention in fiscal policy decisions, threatening the stability of the Euro entirely.

The UK still has to deal with Brexit

With interest rate constraints the UK has also resorted to QE, recently announcing a £200bn purchase of UK government and corporate bonds. However, they still need to finalise Brexit agreements before they leave the Customs Union and Single Market by the end of the year. This may be prolonged but will inhibit fiscal policy going forward.

Limitless QE and High Debt in the US

Similarly to the ECB, the Fed can do little with interest rates to aid growth from here,  turning to QE as for liquidity generation. However, it has slightly more independence than the ECB when it comes to its monetary policy. As a result, they’ve announced a limitless QE program. This effectively means they will print as much money as they believe is necessary to achieve their macroeconomic targets. The stock markets have reacted well to this announcement as it increases the likelihood of high returns. However, the stock market is not the economy, printing money has historically never been favourable and if the Fed isn’t careful they may devalue the dollar beyond their capacity to control it.

To destabilise matters even further, US officials have announced that they are considering writing off some of their debt to China. Such a move would be catastrophic for their credibility and will send the bond market into panic, this would be unprecedented.

Aside from issues with QE, fiscal policy in the US is also under constraints. As it stands, the US national debt is at a record $25T. This has more than doubled since 2008 and stands around $75,757 per person. Evidently, this is becoming less sustainable as time goes on and seriously calls into question how the US government can reliably borrow any further

In either case, an effort to restore growth now will be paid for in the near future. Undoubtedly, the debt is a long-term issue to be faced by millennials, of whom are currently already burdened with $1.6T in student loan debt (owed by 40 million borrowers). Whichever approach the government chooses to adopt, it will make the macroeconomic situation increasingly unsustainable. If the government are not responsible today, the US public will have to pay for it down the line.

In essence, to reboot the economy, the US government will need to spend more money, mounting on their ever growing, unsustainable debt which may lose all its value should QE go out of control.

The Outcome

In Europe & the US monetary policy is restricted to QE as a mechanism for generating liquidity. This is limited at best and destructive at worst.

The West will have to fight this battle without the monetary tools we’ve had in the past – which means national governments need to strategically set their fiscal policies to coordinate a quick recovery across both continents.

In Europe, this involves a coordinated effort among distinctively different economies who are each faced with their own problems and political pressures. In the US, it likely requires an increase in the ever-growing national debt which will have to be paid for at some point in the future. It is hard to imagine a sustainable “V Shaped” recovery in such a global climate. If there is, it will entail a lot of borrowing.

Economics can be convoluted and politics can be misleading, which has taken this conversation out of mainstream news reports. Monetary policy will not be able to help us out of this crisis and extensive efforts to do so could make it worse. Fiscal policy will take on all the responsibility for recovery, which implies increased debt and a need for smart spending.

Whether or not the economy gets back on its feet next year, interest rates will eventually have to rise, and government debt will eventually have to be paid back. In order to do so, we need long term strategic vision and strong underlying growth. If not, we may see the demise of the Euro over the next decade and potentially the Dollar.

The sooner we recognise this, the better we can act. The longer we ignore it, the less we can do.

By Sinéad Flynn

Overview

Innovation and technology are the most prominent buzz words for firms and corporations around the world. The next big idea, next invention, and next discovery are waiting to emerge. Society has evolved from the 1880s, where it was once thought by Commissioner of US Patent Office Charles Duell that “everything that can be invented has been invented” to new advances exploding at our fingertips without limits. FinTech has received a great deal of attention, and it’s only in its infant stages.  Marc Andressen notes that ‘internet companies might end up in 180 countries before they have 180 employees.’ Globalisation and technology have had a huge impact on markets, and the role of Fintech is just a new stimulation.

What is Fintech?

Fintech is a financial technology that aims to compete with traditional financial methods. Fintech can take the shape of crowdfunding, cryptocurrencies, or blockchain, and notably is expanding into new markets rapidly. While online banking has been prevalent for years, fintech adds a new dimension to the payment’s services. Within seconds, users are sending and receiving money faster than ever before. Fintech has begun to dominate our everyday lives where it is commonly seen with those who use Apple Pay or Samsung Pay or those that have sent funds via GoFundMe. The limits to what may be considered Fintech can be unlimited, where most start-ups are embracing technology to create innovative products and services. FinTech is emerging throughout trading, insurance, and risk management as well, which has appeared quite disruptive to these industries that haven’t changed for quite some time.

Opportunity or Threat?

While business may be booming, and the financial crash seems to be forgotten, how does commercial law interact with this fast-paced business environment? It is argued that fintech firms receive a competitive advantage and create an attractive space for investors when they comply with regulations. Cryptocurrency companies and those that are an unregistered seller of securities have been hit hard in the US by the Security and Exchange Commission. These fines have diminished confidence in these certain start-ups and created financial loss through settlements and fines. There are concerns that fintech firms are utilising their institutions to harbour illegal assets utilised for criminal activity. While fintech firms have been embraced for their revolutionary growth and modern methods to business in this age of technology, it must be approached with caution due to poor ethical choices being made at times.

Striking the Balance

Countries such as Ireland that rely on a great deal of foreign direct investment must adequately strike the right balance between attracting new business, but also ensuring the system is not abused. Research shows that there is no specific legislation designed to regulate certain services that fall under this broad FinTech category, besides those concerning the Central Bank of Ireland and minimal EU Regulations. Ireland is a lucrative location for start-ups and businesses looking to set up a European hub, as they have more freedom to do so while then receiving this passport into the European market. Diversity in our financial markets reflects this growing desire to explore alternative mechanisms to enhance society. While research is ongoing for the limitations and effects FinTech firms bring to the table, these initiatives are looking primarily to law firms to structure and protect their interests.

A Closer Look

If one narrows the analysis of Fintech into electronic payment companies, the Payment Services Regulation 2018 will apply. This Regulation has effectively created a more level playing field for fintech start-ups to enter the market and develop their technology services further with an overall aim to increase competition for the benefit of consumers. At the moment, it is argued here that the EU is fully embracing these innovative and competitive practices. If one assumes that the market will regulate itself and that the legislature should be more laissez-faire, then more relaxed regulations should be welcomed. While this may be worrisome to those that appreciate the traditional style of banking and finance, this is ultimately a positive step, as time and time again, traditional banking models and financial institutions of the past have failed multiple sectors leading to dire losses.

Has the Balance Been Struck?

The right balance must be struck in order to protect investors, but also to facilitate this necessary development. The Central Bank of Ireland is conscious that there is a lack of legislation specific to Fintech entities, and that it has assumed the role as the main regulator where able. This leaves investors and innovators in a precarious spot. In one regard, there is little law guiding their activities, but in turn, this allows them to receive the freedom necessary to develop and surpass imaginable limits on their ventures. While the Payments Services Regulation may increase accountability and reporting, this may not be enough to accurately analyse how these institutions are operating.

What Next?

The embrace of the change in the financial markets may be a positive step, and a mechanism that may prevent future economic crashes and downturns as new perspectives and ways of managing the financial sector are introduced. Consumers must be wary for that this partially unregulated ecosystem may produce detrimental effects that hindsight may prove useful.