Don Quijones: US Threatens UK over Brexit Vote

Yves here. The spectacle of the US attempting to influence UK domestic politics through having the US Trade Representative Michael Froman issue a threat is pathetic, overreaching, and unconvincing. Froman has a history of being insensitive and inept, so this is par for the course (see Clive for a long-form discussion regarding Japan; the reason Japan nevertheless is on board with the TPP is that it got something it wanted badly, which is US permission to rearm, and had the TPP watered down to almost nothing on the provisions it cared about). It’s neither appropriate nor pretty to see the US try to influence UK votes.

But more important, anyone who is paying attention won’t regard this threat as credible. The US and UK are so tightly bound up in each other in their surveillance state activities that they are a classic example of Ambrose Bierce’s definition of partners: “When two thieves have their hands so deeply plunged into each other’s pockets that they cannot separately plunder a third party.” The US is highly unlikely to threaten such a special relationship, assuming excluding the UK from toxic, sovereignty-reducing “trade” deals is even a bad thing. And a new President, and thus a new Trade Representative with new marching orders, will be in place before a Brexit vote; it’s to take place by the end of 2017 and inertia argues for later rather than sooner.

The spectacle of the EU increasingly divided over the refugee crisis is far more likely to have an impact on the Brexit vote than anything the US would say. So if the US really is worried that the UK will leave the EU, it might consider ending its policy of turning countries in the Middle East into failed states.

By Don Quijones, Spain & Mexico, editor at Wolf Street. Originally published at Wolf Street

Brexit poses a far greater threat to the European establishment than Grexit ever did. The UK may not be in the Eurozone, but it is Europe’s second largest economy. Hence the rabid fear-mongering about the potential consequences for the UK of a yes-vote in a future in-out referendum.

Millions of jobs will disappear, the doomsayers warn. Universities will lose their funding. The City of London will decamp to Frankfurt. British farmers will lose their subsidies. Human rights will vanish into thin air. Planes will fall out of the sky. And one day the lights will all go out.

Eternal Extortion

This endless parade of doom-and-gloom scenarios is an essential part of Europe’s eternal extortion game. The same extortion game has already played out in Greece. And before that, in Ireland. The name of the game is fear, and its ultimate aim is to ensure that no meaningful change is ever allowed to take place in Europe’s bankrupt political system.

The latest warning of Brexit doom and gloom did not come from London or Brussels; it came from across the Atlantic, from arguably Britain’s closest historic ally, the U.S. of A.

The chosen messenger was U.S. Trade Rep Michael Froman. The message he delivered was unequivocal: the US is “not in the market” to negotiate a bilateral trade deal with “individual nations” like Britain. Once out of the EU, the UK would be a nobody nation, a friendless state shunned by its erstwhile allies. No more special relationships, no more five-eye meetings, no more invites to White House black-tie dinners.

In a 2009 article for Rolling Stone, Matt Taibbi described Froman as one of the most egregious examples of the way the revolving door works between business and government. Like Larry Summers, Froman is a Bob Rubin protégé. Along with them, he helped lay the foundations for President Clinton’s deregulation of the U.S. financial system. And like them, he is just as comfortable in Wall Street C-suites as in Washington’s corridors of power.

In his current role as U.S. Trade Representative, Froman is negotiating on behalf of the U.S. government (and corporate and banking sectors) some of the most far-reaching trade agreements (TPP, TTIP and TiSA) of modern history. And according to Froman, if the people of Britain aren’t careful, they will be excluded from them (an outcome that some might actually view quite favorably).

“I think it’s absolutely clear that Britain has a greater voice at the trade table being part of the EU, being part of a larger economic entity,” Froman told the news agency Reuters, adding that European Union membership gives the United Kingdom more leverage in negotiations.

Another BRIC in the Wall

Froman’s stark warnings are a slap in the face for campaigners in Britain who are making the case for leaving the EU, reports Politico. The “Better Off Out” campaign cites “freedom to make better trade deals with other nations” as the first reason to leave the EU.

Yet according to the man who negotiates trade deals on behalf of the government of the world’s most powerful nation, if Britain leaves the EU, it “would be subject to the same tariffs, and other trade-related measures, as China, or Brazil or India.” Ouch!

If we are to take Froman’s blustery words at face value, a post-Brexit Britain will be just another BRIC in the wall. To make sure the message sinks in, Standard & Poor’s followed up with its own analysis, warning that if Britain voted to exit the EU it may lose its triple-A credit rating, for the first time since 1978.

Why All the Fear?

It’s not hard to see why the US government might be concerned about the prospect of a British exit from the EU. As its biggest trading partner, the U.S. wants a strong, healthy Europe. Which means a Europe that is not in the process of disintegrating.

The UK accounts for one sixth of the EU economy. It is also an important source of external demand and is currently the second largest net contributor to the EU’s operating budget in absolute terms, behind Germany, and the fourth largest as a percentage of GNI, behind Sweden, Denmark and Germany. If Britain were to leave, the EU would need to either cut spending or increase contributions by other member states, up to a maximum of 5.8% of current levels, in order to make up the difference.

That is a big ask for a region that has spent years languishing in economic purgatory, with some governments already in virtual bankruptcy. Meanwhile the region’s sugar daddy, the German economy, is watching its largest bank and car manufacturer suffer their worst quarterly losses in decades. The last thing the EU needs right now is to lose its second biggest source of funds.

Crossing the Threshold

But it’s not just about money. Naturally the U.S. would much prefer to deal with just one partner – Brussels – in its convoluted trade negotiations with Europe. It also wants to safeguard Europe’s transition to a fully supranational system of governance, a project that the U.S. government has strongly supported and actively (and covertly) assisted since the creation, in 1951, of the European Coal and Steel Community. That’s over half a century worth of political capital.

And now that capital is at risk. The British government, largely in response to public pressure, has done the unthinkable: it has offered the people of Britain a democratic choice between continued membership or exit of the world’s most ambitious experiment of regional integration. If the people vote for the latter, they will force open a door that doesn’t yet exist. Once open, that door may prove difficult to shut. Others may be tempted to cross its threshold.

For that reason alone, the business and political establishment in Brussels, London, and now Washington will stop at nothing to make sure that when the big day comes, the British people, like the Irish before them (second time around, of course), vote the right way.

It’s hard to find a more wretched hive of corporate lobbyists, law firms, and money-grubbing apparatchiks than Brussels. And now, following dieselgate, the automakers are flexing their big muscles. Read… Cheating, No Problem: Automakers Win Again in Europe