Qatar:
The Grand Duchy of Luxembourg's major strategic decisions
Translated
from French: http://feierwon.blogspot.com/2012/11/qatar-les-grands-choix-strategiques-du.html
A
small country knows that quite often one needs greater than oneself. The
reverse, that often one needs smaller than oneself, generally only flourishes
in fables. Armed with this wisdom, Luxembourg has always worked to compensate
for its weaknesses by joining alliances with larger than itself for its
security, for economic partnerships and political unions. Some people gave our
recent relations with Qatar the character of a "strategic
relationship". Is Qatar really a strategic relationship, and what is the
strategy? Is it bigger than ourselves or did we need smaller than ourselves?
Our
traditional strategic partners
Historically,
Luxembourg always needed bigger than itself economically. This was the case
with the Zollverein, followed in 1921 by a very close economic and monetary
relationship with Belgium by signing Belgian- Luxembourg Economic Union (BLEU)
Agreement. The postwar period saw the expansion of the BLEU into Benelux first,
leading later to the EU.
For
its external security, after the lessons learnt on the validity of its former
"permanent neutrality," Luxembourg joined the Western European Union
(WEU), a panicky reaction to Soviet expansion after WW II, and thereafter NATO,
which is basically the American nuclear umbrella. These policies were designed
to provide Luxembourg with economic and financial stability, markets,
innovation and ensuring its external security. They were backed by a broad
national consensus. Those agreements between States also encouraged everyday economic and cultural exchanges, and
invited foreign companies to establish in Luxembourg through targeted promotional
campaigns in the United States, Japan and European countries. In short, it opened
up Luxembourg to the outside world.
Is
Qatar a strategic partner?
Indeed
yes, we have to assume that, given that official exchanges at the highest level
have initiated the subsequent economic relations, of which both governments are
even part of. These were initiated as a willful policy, and so indeed represent
a strategy. Is it a providential one and
was it well thought out?
The
Gulf flows over with oil and gas riches. These resources are typically held by
sovereign wealth funds where the country's "sovereign" and the fund
are often the same entity. They can also be found in a series of "family
offices", quasi private banks. An
international financial center is certainly not prohibited to attract this
clientele. But it is a special clientele and as such needs special scrutiny
and care.
Luxembourg's
strategy is illustrated by multiple visits to Qatar by MM. Krecké and Frieden and occasionally the Luxembourg Crown
Prince. My old instincts and experience made me question this enthusiasm, which
seemed too boundless for this type of partner (1) (feierwon.blogspot.com June
23, 2011). The best evidence of the large cultural gap that Luxembourg was
going to have with Qatar was given by Minister Krecké, who said on occasion
that "if we remain committed to our principles, we will lose the
business!" It is exactly that point that a prominent member of Amnesty
International, Robert Altmann, has brought up in a public letter about that new
friendship. (2).
Objections
are not limited merely to matters of principle. The culture shock is also quite
large. The constitution of Qatar is such that it certainly will not serve as a
model for the ongoing revision of Luxembourg's constitution (3). Islamic law is
applied, which is likely to ruffle a few feathers in the West. Labor
legislation is rudimentary, tens of thousands of migrant workers are subject to
the whims of employers and trade unions do not exist.
Already
some fundamental policies of Qatar seem to contain a source of conflict with
the international positions of Luxembourg, if not with Luxembourg mentality.
Thus there is already conflict with a Luxembourg membership in the UN Security
Council, our position on Hamas which we consider a terrorist organization, but
is the object of financial largesse and support by Qatar. The Middle East as a
whole is a minefield for our diplomacy executing a delicate dance between UN,
Hamas, Qatar, Iran and Israel. It is true, as Mr. Krecké observed, that you cannot
maintain such a relationship without abandoning some principles.
Finally,
and this is almost a caricature, Qatar is a prominent member of OPEC, which is
a cartel that manipulates oil prices, the same way as Cargolux, which has
manipulated airfreight pricing in collusion with other Cargo airlines. Cargolux
has been punished, Qatar and OPEC not yet. But they will be twice: first, when
the United States pass legislation known as the "No Oil Producing
Cartels Act" which also produces the nice acronym "NOPEC", to put an
end to blackmail the OPEC. The second shock is about to happen with the fast
development of shale gas and oil in the United States and around the world.
Prices are being slashed, with US reserves in excess of 20 times those of Saudi
Arabia. It is in this environment of conflict, disagreement and
misunderstanding and cultural disharmony that Luxembourg believes it has found
a new strategic ally?
Cargolux:
Lucky Luke, out of luck, gets stuck
Under
a blazing sun in February 2011, Luc Frieden arrived in the sands of Qatar. He
would come back to Luxembourg with, to the general surprise, an agreement for
the participation of Qatar Airways in Cargolux. Some say they were not aware of
this initiative. Yes, they were says Frieden. Meanwhile Frieden staged his own
trilogy of Wallenstein with his friend François Pauly as the lead actor, according
to "Forum". Pauly joined Hinduja first, to eventually take the helm
at KBL, pending its acquisition by Hinduja. But finally, as the Hinduja deal
fell through, in the third act he switched horses and rode into the same
position at BIL. This is probably one of the famous synergies antics that were otherwise
announced. So that's at least one objective attained by Luxembourg, however
limited and tactical it was.
Qatar
for once has bigger visions than that. As far as all the other announced Luxembourg
"strategies" from 2011 go, they just sound today like superficial and hollow slogans, not really thought
through. In retrospect it sounds like a vaudeville, hearing Mr. Juncker, who it
seems is already the holder of the order "Wider den Thierischen
Ernst" make a number of grandiose comments on the occasion of the visit of
the Prime Minister of Qatar in June 2011. He announced that through this
marriage arranged by Luc Frieden, Cargolux would open new routes, embark on new
clients, increase business, create new jobs. I understand if nobody laughs at
that type of humor, a year later.
It
is remarkable that Qatar, through its Precision Fund, acquires all its Luxembourg
properties below valuations previously announced: € 300 million below the price
offered by Hinduja for KBL, 50% below the first acquisition price for BIL, and
about $ 60 million less than HNA / Yangtze for Cargolux. These tactics in
business are called "Bait and Switch". Shouldn't anyone explain to
the good people of Luxembourg how come that Ali Baba is emptying our cave, and seems
to know all our passwords?
On
the other hand, we have remained the champion of financial and regulatory engineering.
Together with the superb (yes, they are) negotiators from Qatar, we didn't rest
until we found the tricks to circumvent the objections of the European
Commission to a future increase in the participation of Qatar Airways in Cargolux,
by establishing Precision Capital Luxembourg. Precision became European, et voilà!
They have a mission and goals, and they put in place the means and resources to
achieve those goals. Which are truly large and numerous. We on the other hand
have been naive and are in a crisis. We have developed a mentality of losers.
Our visions and objectives got down to that level.
Another
small Luxembourg endeavor and particular purpose was to allow private investors
to exit from Cargolux through financial acrobatics that favored them, by using a
trust agreement with ING. The "Land" has called the operation
"Friedengate."
Cargolux:
The Luxembourg Government decides who is making a profit.
Mr.
Frieden questioned by RTL sees no problem in the blatant discrimination against
State holdings in Cargolux. Everything is legal and transparent, and will be
shown to the public, which has the right to know, as you know. At this point,
the narrative almost appears as a practical exercise in a course to explain
sophism and other fallacies: Cargolux had stopped negotiating with Qatar
Airways, but finds itself bound by an agreement that it did not agree to? The
Chinese offer of HNA was 50% higher, but we preferred to sell for less? And
though we wanted to sell for less, private shareholders wanted more anyway?
Mr.
Frieden said that it is normal that the shareholder who withdraws deserves
higher pay. Everyone could have obtained higher pay with HNA. And by using the
same discrimination against BCEE, Luxair and SNCI the windfall for the private
shareholders would have been even bigger, according to this logic? Which
establishes a wonderful rule, that in this case, as a shareholder, the less you
earn the more you receive if you are private? Cargolux employees would readily
endorse such an idea for themselves. Alas, the story is not credible:
First
of all, the State also wanted to withdraw, but did not get preferential
treatment, as didn't the parastatals, which also ceded part of their holdings.
It
is not the international practice either. It is contrary to popular wisdom, that
someone who retires, who wants to get off the Titanic, is allowed to leave with
all the cheese. Conventional and professional wisdom would normally sell to the
highest bidder, which is the Chinese group HNA.
Equality
between shareholders is also violated. How can one trivialize this? It is about
taxpayer's money!
And
finally the argument that the higher value given to the leaving private
shareholders' holdings also increases
the value of shares held by those who remain is just misleading and false. That
valuation has been ratcheted down through the effects of the discriminatory
sale, and by the psychological effect of the public witnessing all those private
investors stampeding out of Catgolux. Which further pulls Cargolux down. No the
valuation of Cargolux has decreased under the triple blow of the QR low bid,
the discriminatary sale and the stampede. One should not make a virtue out of a
vice.
Like
what, certain strategic relationships can go astray.
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