We’ve been neglecting Brexit due to Trump going uber hawkish and the resulting barrage of news stories to sort through. And another reason is that the noise to signal ratio got even higher in the British media around the time Brexit became official.
Formal progress will be virtually nil till late May. The UK and EU have exchanged their opening communiques, with the EU’s a draft of the process for the negotiations, which need to be fleshed out and then approved by all the 27 remaining members of the EU, hopefully by the end of next month.
However, even with the exchange of missives and related snorting and pawing of earth, it is becoming plenty obvious that it is starting to dawn on Theresa May that she is not in a good position. Yet a fresh poll shows that popular approval for Brexit is at a five month high.
I hope readers will fill in any significant issues I have missed. Here are some of the high points from the last few weeks:
May has been retreating by inches. She’s been forced to admit that she’s lost her demand to have trade talks proceed in parallel to exit negotiations, something that the EU nixed from the Brexit vote. Among other reasons, we pointed out it was a non-starter under EU treaties. She’s also had to concede on another hardliner issue, that EU migration will continue during a “transition phase” that she insists on calling an “implementation phase,” as if the rebranding makes a difference.
Notice that this “transition phase” has more strings attached than May appears to have ‘fessed up to. The initial European Council guidelines stipulate that the UK must also adhere to EU laws, accept the jurisdiction of EU courts, and continue to pay EU fees.
Nevertheless, the Brexiteers are still firmly behind May, just as Trump’s supporters remained stalwart (at least initially) as he retreated from some of his major campaign promises.
The EU is almost completely united against the UK. This has happened even faster and more firmly than I expected, and I though I was being unduly dire. I had thought this outcome would come about regardless though how the EU was setting the order of negotiations.
The critical bit was putting the settlement of the financial exit tab first, which the UK depicts as an outrage (this despite the fact that Maggie Thatcher negotiated the UK paying lower dues than other member nations). First, this is one area where Eastern European countries, which on other topics are more predisposed towards the UK, are hardliners. Second, one of the norms of negotiation is to address the less divisive issues first so as to create some early successes and forge decent working relations between the two parties. Putting a fractious issue up front where the EU side is of one mind, and the only divergence among them is how bloody minded, will help cement relations among them to the disadvantage of the UK. 1
We had also stressed, and informed members of the commentariat had confirmed, that the UK had done a plenty to sour relations with Europe well before the Brexit vote. It constantly criticized Brussels, was difficult to work with, made too clear its belief that the English were racially superior to many of the Continentals, and whinged that it was being treated poorly when it had an extremely favorable deal. And then the UK would engage in disrespectful moves on top of that, like electing Nigel Farage to the European Parliament and making Boris Johnson Foreign Minister (I gasped out loud when I first read that).
A Guardian piece last weekend gives some fresh indicators. The opening paragraph is bad enough:
The EU is set to inflict a double humiliation on Theresa May, stripping Britain of its European agencies within weeks, while formally rejecting the prime minister’s calls for early trade talks.
The two agencies are the European Banking Authority and the European Medicines Agency. The Guardian says they not only employ roughly 1000 people in total but serve as a center for other activities.
The article continues to say that despite a charm tour by David Davies, not a single country agreed to support the UK’s pitch to negotiate trade in parallel with the exit talks. This is despite an earlier analysis by Politico indicating that quite a few countries were “soft” on trade with respect to the UK and harder on other issues.
And the UK has no one to blame but itself. From the same article:
Senior EU sources claimed that Britain’s aggressive approach to the talks, including threats of becoming a low-tax, low-regulation state unless it was given a good deal, had backfired. “However realistic the threats were, or not, they were noticed,” one senior EU source said. “The future prosperity of the single market was challenged. That had an impact – it pushed people together.”
Another senior diplomat said initial sympathy with Britain had fallen away in many capitals, due to the approach of Theresa May’s government. “Of course, we want to protect trade with Britain, but maintaining the single market, keeping trade flowing there, is the priority, and so we will work through [the EU’s chief negotiator] Michel Barnier,” the source said. “Britain used to be pragmatic. That doesn’t seem to be the case any more, and we need to protect our interests.”
The EU is also considering other moves that are either sound negotiating measures or snubs, depending on your point of view, such as barring the UK from weekly trade policy discussions.
The UK is still in denial about its leverage with respect to trade. Brexit enthusiasts appear not to have advanced their analysis from the simple-minded “Europe runs a big trade deficit with us, therefore they have a lot to lose.” First this ignores that the EU can and will force the exit of some manufacturing from the UK, staring with Airbus parts, hitting UK exports. Second, when you adjust for the size of GDP, the UK does indeed have more to lose than the EU does.
More refined analyses confirm that high-level take. From Politico in early April:
In Berlin, officials say that, as negotiations begin, they have the upper hand. Brexit may have some limited economic impact on Germany, but the consequences for the U.K. could be far more devastating. And Berlin is sticking to its hard line that doing what it thinks is needed to keep the EU from disintegrating is far more important to its long-term interests than anything it might gain economically by bending to British pressure on trade…
German businesses leaders appear to be behind Merkel when it comes to the integrity of the European Union’s single market. “On the idea that German business might soften the German government’s stance: You can cross that off your list,” is how a German diplomat put it…
While Britain is Germany’s third-largest market for exports, Berlin is quick to point out that the British economy also depends on German companies, which currently employ almost 400,000 workers in Britain. And many of those German companies are already pivoting away from the U.K. According to numbers released by DIHK business association, almost one in every 10 German companies is planning to shift investment away from the U.K. to Germany or other EU countries.
Immigration collateral damage already starting. While the plural of anecdote is not data, there are more and more stories of immigrants departing, not just EU migrants but non-EU workers such as Philippines and India passport holders. Some of it is due to the rise in xenophobia; the other is uncertainty.
Proving the thesis is a Polish NHS worker who expressed her views was trolled so aggressively that she took a tweetstorm about her concerns down and turned her Twitter account to “protected”:
Thread from Polish NHS worker on why she’s leaving. #Brexit proving to be the dumbest thing ever voted for in living memory. https://t.co/9mT0lMnqio
— Mike Cormack (@bucketoftongues) April 18, 2017
And a think tank has written that if too many NHS workers from the EU follow her footsteps, the NHS will implode. From the Guardian (hat tip Richard Smith):
The NHS would collapse without its 57,000 workers who are EU nationals and they must be offered free British citizenship so they don’t leave the country after Brexit….
In particular, according to [Craig] Murray [of he Institute of Public Policy Research], the position of EU citizens working in the NHS needs to be safeguarded by making them a “generous citizenship offer”. He added: “There are currently around 57,000 EU nationals working in the English NHS, accounting for 5% of its workforce; one in 10 of the UK’s registered doctors is an EU national. Without them the NHS would collapse.”
Seasonal farm workers are also voting with their feet. From Reuters (hat tip Richard Smith):
For the last 18 years, Jerzy Kwapniewski has left his home in Poland to spend the summer months picking apples and hops on a farm in central England. He plans to look for work in Germany next year.
The 50-year-old seasonal worker is one of many east Europeans who, shaken by the fallout from Britain’s vote to leave the EU, have either left the country early or indicated a reluctance to return next year.
They are being driven away by a sharp fall in the pound that has eroded the value of their wages back home and concern for their safety as the anti-immigration rhetoric which fuelled the vote spills over into racist attacks….
Two employment agencies that bring eastern European workers to British farms told Reuters that in the last two months alone they had failed to find workers to fill 600 positions.
One, Fruitful Jobs, said the number of people contacting their Polish and Bulgarian recruitment offices had fallen by 70 percent since the June 23 referendum, compared with the usual 35 percent drop recorded for the latter stage of the season.
Each year, up to 80,000 seasonal workers come to Britain from the European Union to help with the harvest. Farmers say the loss of such staff threatens the wider food and farming industry which contributes around 7 percent of economic output.
However, Home Secretary Amber Rudd is more worried about baristas. And to add insult to injury, her scheme is cockamamie. From New Statesman:
Amber Rudd has a new wheeze to keep the flow of young workers that Britains’ ageing population needs to keep its shops, care homes, bars and so on open and the economy ticking over – a so-called “barista visa”.
Under the scheme, the Sun reveals, people from the European Union will be able to come to Britain for two years to work in hospitality, retail and other similar industries – but they won’t be able to claim benefits or to stay longer than two years….
It’s not a particularly attractive offer, is it? Come to Britain to work in a coffee shop. If you get promoted? You can’t stay. If you fall in love? You can’t stay. If you set up a new business or establish yourself as a writer while working at a coffee shop? You can’t stay.
Gibraltar could be a big sticking point. I had naively thought that the EU threw in Gibraltar on behalf of Spain as a useful bargaining chip. It is already looking like a much bigger bone of contention. From the EU side, it’s an unnecessary seedy competitor to its other more-savory-looking-but-not-really-so tax haven Luxembourg, which has the good fortune to have its Jean-Claude Juncker as the President of the European Commission.
The hysteria in the UK was way out of proportion to any importance Gibraltar has to Britain. And the Brexit loyalist arguments as to why Spain wouldn’t dare proceed were ludicrious: they might lose 10,000 jobs! Consider the offsets, per the Guardian:
If you imagine that, owing to some ancient treaty, Spain had a base in Dover, from which Russia’s chief spy had repeatedly sneaked into Kent, and smugglers had flooded the country with cheap fags, massively undermining our tax base, we would be pretty cross, too. It’s something of a wonder that Spain has put up with it for so long.
And Gibraltar isn’t any better for the UK:
It is a tribute to Gibraltar’s PR operation that more people in Britain don’t realise what is going on. Gibraltar is not part of the UK, can set its own tax rates and has been using them to aggressively undermine us as much as, if not more than, everyone else. A Gibraltarian growth industry in recent years has been online gambling, with most of the big UK operators – William Hill, Ladbrokes, Bet365 – moving their operations to the Rock….It’s not hard to understand why they’re there: it is considerably more profitable to run UK gambling operations if you don’t have to pay UK taxes and the British Treasury has missed out on millions of pounds as a result.
If all of this isn’t discouraging enough, what passes for leadership in the UK seems preoccupied with feeding the fantasies of tabloid readers rather than getting a grip. For instance, the day after the EU said it was relocating the European Banking Authority and the European Medicines Agency, David Davies made the remarkable and embarrassing show of acting as his protests would change outcomes. Consider the absurdity of this dry extract from the Financial Times:
David Davis, Brexit secretary, does not accept that the two agencies and roughly 1,000 staff will have to move from London’s Canary Wharf, even though the EU is about to run a competition to relocate them….
Mr Davis may simply be putting the agencies into the wider Brexit negotiation in the expectation that they can be traded for a concession elsewhere; EU officials say there is no question they must move.
Help me. The English-speaking world is suffering from an abject shortage of competent leaders when the moment demands great ones. All we can do is hunker down and hope for the best.
____
1 This is also a case of the UK being hoist on its own petard. The UK was the big proponent of EU expansion, when a good case could be made that the Eastern European entrants were often not advanced enough to integrate well economically into the rest of the EU. And indeed, they found the EU bureaucratic rules more cumbersome and limiting than they anticipated. So some of their eagerness to have the UK pay up is to help reduce the cost to them of EU participation, which all in has been higher than they anticipated.
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Also forgetting the French elections – if Mélenchon gets into the second round, Le Pen will win the Presidency. But even if Mélenchon wins, the EU is dead and Brexit will look like a master stroke for the British/English.
Thank you, Sean.
That has crossed many minds in London.
You’ve now offered the same bit of misinformed Brexit boosterism at the beginning of two separate threads.
No, it has been widely discussed that Le Pen will not in fact be able to achieve a Frexit due to the lack of sufficient Front National representation in Parliament. See this analysis from a month ago:
https://www.ft.com/content/d37b6d90-fdd1-11e6-8d8e-a5e3738f9ae4
Yves is dashing British hopes again! I’m sure if Le Pen wins it will take the pressure off May, at least temporarily. In the longer run Yves is clearly right. But you never know – facts on the ground might change.
We Brits can still hope for a miracle. But we should recognise it as such.
In the longer run, the Parliament would change dramatically IF LePen keeps her promises. All that argument really means is that it would take longer, assuming it would pass a referendum. In any case, the EU would have problems that would make Brexit look unimportant. LePen is unlikely to win – there doesn’t appear to be that kind of support. But just coming close puts the cat among the canaries.
France is experiencing the disadvantages of a Top Two runoff: disastrous spoiler effects in the first round.
Then there’s Italy.
Disregarding the situation in France there are various stresses on the EU managing to hold together over the next couple of years. If financial systems implode (banks in Italy? Spain? Greece? Deutsche Bank? not to mention USA vulnerabilities) then even if “Euro can’t stop becuz IT” will be a moot point. A messy EU collapse will ensue with ad hoc make-do efforts and chaos everywhere.
Regardless of what happens in France, the systemic vulnerabilities remain and grow. For example, consider the various credit bubbles noted here on many occasions. We are not heading for a soft landing. It’s more a question of where things will come undone first and worst to the extent that no more kicking of cans down the road is possible.
We can’t prevent the s**t from hitting the fan, we just can’t predict which s**t from which direction.
Reasons why Brexit & June 8 make sense:
BREXIT
1) EU is unsustainable, cost of Brexit will be a hell of a lot cheaper than having to contribute to the bail out of the PIGS. And EU knowing they will still need Britain to help bail out the PIGS means the penalties of Brexit will be kept to a token minimum.
2) The GBP will absorb a lot of the cost of Brexit, with better terms of trade & employment. You just have to look at how a floating AUD has allowed Aust to weather the global storms over the last 20-30 years.
3) Cost of large corporates moving to Continental Europe will be offset by small-medium businesses relocating to Britain due to lower regulatory & tax costs. It won’t all be losses.
4) As we have seen here in Aust immigration laws tend to be fine tuned to favour business no matter how parochial the politics. Ironically it was Europe’s inflexibility to allow better conditions for Commonwealth countries that feed some of Brexit because it amplified perceived ‘inequities’.
5) If France goes full socialist, international banking will not move to Paris because a) it impact executive pay and bonuses, and b) how do you operate an international bank on a 30 hour week? It’s bad enough as it is (worked for French bank both in London & Paris).
6) Britain is part of a Commonwealth that spans the globe. Scotland is largely irrelevant except for where to base Trident submarines. The Scots don’t even play cricket and even the French play rugby!
JUNE 8
1) the SNP IS THE opposition not Labor. This means Labor gets screwed in the middle. Sturgeon wholly out dominates Corbyn. Which means Corbyn won’t benefit as much as expected from any Sanders’ affect.
2) It will be an all-girl fight but with Sturgeon constrained to Scotland, May has all the upside.
3) Sturgeon’s high profile also frames the election as much about English vs Scottish as Britain vs Europe.
Note that May is not going to have any on-air debates down playing the relevancy of Corbyn!
4) All four French main contenders are within margins of error of getting into the next round. Either of Mélenchon or Le Pen winning will benefit May for a June 8 election. The odds are material enough rationally take a punt.
5) Odds of either Mélenchon or Le Pen winning are improved because post GFC about 3% of populations seem to be voting spitfully (as we have seen in Aust this is not party or left/right specific but anti-establishment – we’ve had right-wing gov’t thrown out after single terms as an example it is not purely right-wing driven). It is likely this 3% will be split between Mélenchon and Le Pen making things difficult for Macron.
6) Oh, and as Madeleine Albright said ““There’s a special place in hell for women who don’t help each other!” – will Le Pen benefit?
Sean wrote; ‘But even if Mélenchon wins, the EU is dead and Brexit will look like a master stroke ‘
We will see, won’t we?
Yves has gotten into a mode of trolling the Brexiteers. Given that this is a financially-focused blog, that’s fair enough — the EU has preponderance in terms of financial power.
Yet as she also notes: ‘one of the norms of negotiation is to address the less divisive issues first so as to create some early successes and forge decent working relations between the two parties. Putting a fractious issue up front where the EU side is of one mind, and the only divergence among them is how bloody minded, will help cement relations among them to the disadvantage of the UK.”
In the UK that’ll be seen as the EU wanting to play silly buggers – that is, existentially threaten the UK. And the EU does have financial preponderance. Which means the UK will look around around for ways to existentially threaten the EU back, which will mean it’ll look for ways to do that — whatever Yves likes to think — both within and without the financial sphere.
Things will get nasty and the UK will possibly crash out of the EU without any trade agreements. After which, things probably will get even nastier.
With all due respect, tell me what cards the UK has to play? I’m not “trolling Brexiters,” I am telling you who has the upper hand and it most certainly is not the UK. Both sides will suffer but the UK will take a much much bigger hit than the EU. And more to the point, the UK has no leverage.
Yves wrote: ‘With all due respect, tell me what cards the UK has to play?’
Events as a result of May calling an election now mean the picture may entirely change. I hope it does. But if Brexit proceeds, then, yes, the EU will play their hand as you describe.
Indeed, will likely overplay it. In what world does an actor simply take such punishment if it can inflict it back? As we’re both agreed, the UK has very little to zero leverage in the realm of finance and trade. Therefore they will turn elsewhere. You may think this melodramatic or unrealistic. I’m telling you that in the real world it’s naive to expect, as you do, that factions in the UK state will not think about taking out the old playbook —
https://en.wikipedia.org/wiki/Strategy_of_tension
http://libcom.org/history/natos-secret-armies-daniele-ganser
— and applying the methods and means there against
the EU’s many and growing vulnerabilities, with some new 21st century wrinkles.
Seriously. Tell me why they wouldn’t? This is how nation-states have always proceeded against each other, after all.
But we will see.
So far, no-one has shown a reasonable and executable Brexit strategy that would give UK any sort of _reasonable_ not to mention advantageous position. Yves shown times over and over that she has no liking for EU, so if there was one shown, I don’t doubt she would be happy to air it.
At the same time, the path has so many ways ending up in an UK disaster, that on balance of probabilities, it will end up in a disaster.
The primary motive here is that EU can’t end it up to well for the UK, and they know they hold the cards. They shown with Greece (EUR) AND Russia (sanctions) that they are willing to make economic sacrifices for the sake of policy.
It does seem unlikely that there will be very successful negotiations. The EU can’t afford to be be seen generous (to avoid further break up) but neither can the British govt be seen as a soft touch at home. The EU opening response was far more hostile than the May art 50 letter and crystallises the tone. The EU want 50Bn and no other trade agreements to be discussed – why would UK agree to that? EU liabilities are just that – the EU’s. In the finality the EU cannot demand anything from the UK financially and the UK position must be ‘bargain-for-bargain’ – why otherwise? Given current positions there’s not much to gain by either side agreeing anything it would seem.
Is this “disaster”? Well maybe for EU/UK trade in medium run although GBP depreciation will have more than covered tariffs on exports. I would however think it unlikely nominal UK GDP takes a hit – substitution and fiscal spending stand ever ready to support it in our ‘modern’ economies despite what economists may say.
I invite you to look at the “case of the missing substitution” in the UK economy post 2007.
Of course there would be adjustment. But I dare to say it would take a generation at least, and no-one knows where the adjustment would end. And one thing pretty much all post-Brexit polls agree on is that very very few people wanted their living standards to go down, which is now I believe fairly inevitable.
“The EU want 50Bn and no other trade agreements to be discussed – why would UK agree to that? ”
There is nothing to agree on. Those are previously set rules. One that leaves the EU using art. 50 has 2 years to settle one’s share of EU liabilities and one cannot officially negotiate any trade deal with anyone until one is a third country (outside the EU). Nothing about that is what the EU is demanding, it is what is in the treaty. The UK, being a fully sovereign nation, of course, has the full to choose to crash out of the EU if they want tomorrow. The would not have to respect anything in the treaty and not pay their share of EU liabilities. Is that what they want ? Then they should do it.
It’s wholly misleading to describe the issue of a one of a preponderance of financial power. The EU is, for better or worse, a multifaceted partnership of many different countries. The UK has unilaterally decided to opt out in a manner which was calculated to cause damage, in particular the manner in which east European workers were scapegoated. EU countries are now, both individually and collectively, engaged in trying to minimise the impacts on their own countries. They have every right to take an aggressive stance in negotiations in order to protect their own interests. As a joke circulating on Chinese social media has it, ‘The UK is like a husband who has declared to his wife that he wants a divorce, but he still wants sex every night’. It doesn’t work that way in a divorce, and it doesn’t work that way in international negotiations. Trying to make the UK out as some sort of victim here is ridiculous.
Trying to make the UK out as some sort of victim here is ridiculous
I agree it would be ridiculous. And with all respect, if you read what I wrote, I’m not making the UK out as a victim.
Though there will be those in the UK who’ll feel victimized, won’t they?
Its wholly misleading to describe the issue of a one of a preponderance of financial power.
In realpolitik terms, it’s very much to the point. The UK can’t win this one in the financial realm.
‘…it doesn’t work that way in international negotiations.’
Nor probably in international negotiations, I agree. So then, if Brexit does proceed — and events are very much in play with May calling an election — and the EU plays the hardest hand it can, then what can happen in the real world? Factions in the UK state will start thinking outside the realm of international negotiations and conventional finance, won’t they?
In which case, see my response to Yves above.
Yours is an interesting couple of posts. As the UK establishment realises it is indeed between a rock and a hard place it is likely ‘factions’ within the UK state might want to ‘think of taking out the old playbook’ but let’s remember, as your examples show, previous adventures were supported by powerful factions within the target countries and the US; how far UK ‘factions’ would get or even go without, let’s be honest here, US support would indeed be interesting to see. (Interesting in a horrific/depressing way, I’m not a psychopath)
Suez anyone?
Thanks Yves, great summary. As mentioned, a brexit strategy would be to go head to head with Switzerland, the US and Panama as a low-tax, low-regulation state. I bet that’s Tory’s napkin plan. The office space will be attractively priced. Sadly they’ll be pulling the rug out from under Gibralter, which likely would decay dramatically – the EU would end up taking it on just to avoid the eyesore of having to put a wall around it. And the departure of the Scots along with EU-based finance and manufacturing jobs could create a profoundly destabilizing collapse.
The EU could benefit as the UK will no longer be complaining, getting special treatment and delaying. It isn’t perfect: the democracy deficit, the Euro, absurd expansion apparently with the hope that a critical mass must be achieved that will trigger self-generating prosperity. As an EU resident I have little faith that the cultural differences between and within member states can be transcended.
US is not low tax nor is Switzerland. Both also have high regulatory and compliance costs. Swiss business is hurting badly
See
http://www.nakedcapitalism.com/2017/04/caymans-reputation-rhetoric-reality.html
The US and Switzerland are ranked higher than Cayman in the Financial Secrecy Index. Please correct me if I am wrong but the US dominates the world market for money laundering in absolute terms which is possible because of low tax and regulation regimes in the financial services sector. Good chances that a rump UK will make a bid for this title after brexit.
Michael Hudson has spoken on numerous occasions about his first-hand knowledge that the US specifically wanted a way so they could launder hot money from crime at least as well as other jurisdictions. Hudson saw how the USA’s strategy was developed and successfully implemented.
The US is the largest tax haven in the world with Delaware and Nevada laundering money and low regulation of cash transactions in real estate as both Jared Kushner and DJT know very well. It is a crime haven going back to before the Bronfman days of bootlegging……,do. look up what Brinkman means. The Bayrock boys show just how far you can launder money through prestige real estate.
Yet operating a real business with legit money is very onerous in USA and CH if you don’t have political pull.
SMEs struggle.
Thank you, Yves.
Splendid as always and far better than anything in the UK MSM – and judging by what I have just heard from my barber, if that is any guide and I suspect it is, most people in the UK have little idea of what will hit them.
Just one quibble. What did you mean by appointing Farage to the European Parliament? He was elected.
With regard to the general election just announced, the Labour sympathisers at the office fear for Labour. We expect a barrage of bile aimed at Corbyn and a replay of 1983.
Barrage of bile @ Corbyn could be the best thing that happened to him tbh. The best Tory strategy would be actually to ignore Labour almost entirely, and let them continue to kill themselves in the same way as they did in the last few years, as the assumption that Labour could pull together and do a bunny out of the hat in a month when they weren’t able to do it in two years is likely to be safe.
Bile could just manage to get the Labour together a bit..
Thank you, Vlade.
I hope and pray so, especially if constituency Labour parties can avoid selecting Blairites and heartland tribalism kicks in. The latter may be difficult without the posh boys in charge.
Aiee, will revise re Farage. Apologies. AM drafting.
Thank you, Yves.
There’s no need to apologise. These things happen.
Interesting times, eh?!
Just a few more observations, Yves, upon a second reading of your super article:
“What passes for leadership in the UK seems preoccupied with feeding the fantasies of tabloid readers rather than getting a grip.” This has been the case for the past forty years, especially as Maggie Thatcher cosied up to the likes of Murdoch.
“David Davis, Brexit secretary, does not accept that the two agencies and roughly 1,000 staff will have to move from London’s Canary Wharf, even though the EU is about to run a competition to relocate them.” This goes beyond Davis and Brexit. Appearances, as above, matter more than substance. The removal of these two bodies can be spun as “bullying”. It is already, “fact” accepted in unlikely quarters. It’s the same with Euro clearing, Airbus etc. A school of thought is emerging, fed by the likes of City AM, that the EU owes the UK and should pay the UK to leave. This includes the UK’s share of the ECB. The same people, especially Scots Tory and Unionist Brian Monteith, who “writes” in City AM, do not believe Scotland can make the same argument about UK assets such as the Bank of England.
“Help me. The English-speaking world is suffering from an abject shortage of competent leaders when the moment demands great ones. All we can do is hunker down and hope for the best.” You should have added uncorrupt. I am looking at pastures away from the UK, not just hunkering down.
City AM. The rag for the unthinking would-be-rich/master of the universe/etc. Daily Mail that would like to pretend to be FT.
Thank you, Vlade. Well said.
Some of the hacks there have moved to the Times, Torygraph and Wall Street Journal.
A former colleague and co-author of the Basel III rules on liquidity called City AM the Sun of business journalism.
Nah, no page 3.
Thank you, Vlade.
:-). Don’t encourage ’em!
This is an observation that is worth exploring. I don’t think incompetent leaders just happed, they are made. Call it the Bubble, the deep state, the swamp. These leaders exist in an envirment where information can be manageded and controled by special intests. Information that can be compelling, even to a healthy and well informed sceptic.
There is a knock-on effect of this bubble that drowns accurate information in a sea of noise. Information is vetted by its conformiaty to the narative, not by the evidence.
And because the Brits tend to have an inflated sense of ego, information that echos strength passes veting while a more realistic picture dosn’t.
Spot on. The English have been lied to by their newspapers for decades. Ever since one Boris Johnson went to Brussels having been sacked by the Times for lying. He started inventing stories about the EU and the Commission. Remember Evelyn Waugh’s Scoop? Well it has now happened in real life – journalist invents story and real life disaster follows. The English would never have voted to Leave if they had been told the truth. Someone recently said that it was the arrogance of the English which made them vulnerable to the deceit – they believed the lies because they believed themselves superior to other Europeans. Was that right? Sad if true.
English would never have voted YES in 1975 without Government Media propaganda
Theresa May’s “It’s not my fault, because they voted for it” election.
Thank you, Old Greshamite.
Have you noticed David Davis saying, “It’s the settled will of the British people.” The Tories / Brexiteers can always blame the (leave) voters.
that was my reaction too bec. Theresa really looks like she’s having a nervous breakdown these days. So did Cameron. Who wouldn’t? If you can’t take the heat get out of the kitchen. Or don’t go into it in the first place. Great summary, Thanks Yves.
Maybe her calling an election is her personal way to get out of the kitchen. She can cross it off on her to-do list and leave the problems to others.
Yves Smith: Excellent coverage of the situation, as always. And one of the most important observations is at the end, “The English-speaking world is suffering from an abject shortage of competent leaders when the moment demands great ones. All we can do is hunker down and hope for the best.” Who knew just how prophetic Monty Python’s Flying Circus and its Ministry of Silly Walks would be? It is remarkable that Angela Merkel has risen to the level of “statesman.” But compared to Trump, the Clintons, Tony Blair, Chuck Schumer, Nancy Pelosi, and John McCain, even the dodgy Matteo Renzi is starting to look like a statesman, let alone Alexis Tsipras, for all of his failings.
So you have political failure of the pampered elites of the English-speaking world. You have the blinkered English-speaking populace living in a fantasy realm of no-science and no-consequences. You have a military-industrial complex out of control of civil institutions and looking for adventures (Gertrude Bell and Lawrence of Arabia and other fantasms to evoke!). You have the English-speaking arts world producing painting, sculpture, plays, and novels that are marvelously content-free. What could possibly go wrong?
Also: The observations in the comments above about France seem wrongheaded to me. French readers? What with that darn commie Melanchon shaking up the race, I don’t foresee the French leaving the EU, which, after all, is a French project and aspiration of long standing.
And after reading Yves’s discussion, I’m wondering what Scottish and Irish readers have to say: Why would Northern Ireland choose to stay in the U.K.? And the Scots? How long before they leave?
I am trying to think of an era when the major countries of the West were led by such a weak and incompetent bunch, its proving difficult. As you say, an era when the chronically indecisive Merkel can appear a political heavyweight is not a vintage one for politicians.
As for France, I’m inclined to agree (not a France expert) that a Frexit is highly unlikely. It is too central to French identity. I suspect that it would actually suit Le Pen or Melanchon in power not to be able to achieve it. Managing an exit would be far too difficult to engineer.
As for Scotland and Ireland, the situation is very complicated. The Scots I think are stuck by low oil prices and the potential costs of a split. I suspect that while they are very anti Brexit another vote may well end up as ‘sticking with nurse for fear of something worse’. I really don’t know how this will turn out, but I suspect another independence vote is inevitable. The problem for the SNP is that now A.50 has been implemented, if Scotland was to go independent it might find itself in a horrible legal void if it couldn’t engineer an entry to the EU. It could well end up in an even worse situation than England if things were mishandled. The fear of this could lead to another ‘no’ vote.
N.Ireland is in a very sticky situation. Politics there are entirely deadlocked. It has possibly most to lose from Brexit as it is sure to devastate its agriculture industry which is heavily integrated to the Republics dairy infrastructure and will not get any more generous EU subsidies (there is no chance London will maintain the payments). Its local industry and business is likely to be very severely impacted. But the economic establishment there is in a bind – it wants to be with London, but desperately wants to be in the EU too. the political stalemate means any sort of negotiation is impossible. If Scotland goes independent its in an even worse situation. A pro-active government of the Republic could try some sort of imaginative constitutional arrangement with the North and with Scotland, but the current government is too weak and preoccupied with domestic issues to do this. There is, I think, a very strong possibility of Sinn Fein doing very well in the election in June now, so this may change things – not necessarily for the better if it causes Unionists to panic.
On top of the visible political mess in Ireland there is the less visible underbelly.
Within one week of a certain TD (member of Irish parliament)’s election I was told in a private phone conversation with that politician that all the important decisions in Ireland are made by 4 businessmen–not the elected politicians.
One of whom I’m sure is well known for his Trumpian hairstyle (I won’t mention his name, he’s notoriously litigious).
I’ve heard that sort of thing said, but I don’t actually buy it. There are a few businessmen with oversized influence, but in my experience the Irish business world is generally too disorganised and vissiperous for such a small group to ‘own’ the government. Even within the FG and FF parties there are competing factions representing different business interests (e.g. ag/food, construction, land rentiers, finance, etc).
French reader here :
My views in a few lines :
– Frexit is unlikely. Le Pen will lose against any of her contenders, and Mélenchon wants to reform Europe more than leave it. Macron and Fillon will not exit UE.
– I don’t see Scotland leaving UK to join UE again : Spain and some other countries would be blocking any attemps for a newly independant part of a country to join the union. The risk would be too great for their own integrity. UK division would therefore increase chaos and risk and bring no advantages to scots.
– Many Europhils in France see the brexit like an opportunity. Perfid Albion’s tendency to block any progress in European construction will disappear, opening new possibilities. The fact UK army leaves the UE, plus Trump’s noises about the NATO could also force Europe to start building a serious armed force. That’s something France has been willing to do for some time.
The health systems of southern EU nations lost vast numbers of trained medical specialists and nurses to the more competitive salaries provided by the UK NHS in the last decade. Brexit gives hope to those nations of getting some semblance of normal staffing levels in their health services since their current severe understaffing in many specialities owes a lot more to lack of trained warm bodies than to lack of funds (if you ignore Greece). Countries like Portugal and Spain spent millions training their physicians only to see them leave during the crisis and with the return of a stronger economy there is now a demand for more trained staff. Brexit is a welcome event that may help relieve stressed health systems in a lot of places in the EU.
Its a bit more complicated than that I think – I understand from a doctor friend that the Spanish health system benefits quite substantially from providing what is in effect NHS funded health services to retired Brits in the Costa del Sol (thats one reason why hospitals on the spanish Med coast are so very good). The combination of Brexit and a possibly falling sterling could well put unexpected pressure on the Spanish and Portuguese health systems. Both themselves rely heavily on importing cheaper health staff from South America.
UK pays Spain for treating U.K. Nationals with EHIC card and runs a trade deficit since NHS does not bill EU nationals in UK
They rely heavily on importing staff from Latin Americ? Really? When I had to visit a Spanish hospital two years ago (the service was excellent) all the staff were locals. Now this was in Galicia, so it probably cannot be compared to the tourist and foreign resident flooded costas on the other side of the country. but Spain produces an excess of well trained medical staff, many who are exported to other EU countries. Relatively poor Galicia figures prominently in this as it supplies a lot of doctors and nurses to even poorer Portugal.
I believe there is anwandte by which Brasilians could work in Portugal rather as Irish could work in UK pre-EU or Austrians in GE pre-EU
On the NHS Polish worker – TBH, now it’s not just the citizenship anymore. A lot of EU migrants (especially from the old soviet bloc, but I’m told from the South as well) are now starting to feel rather unsafe and unwanted, with quite a bit of murmurs that if the British prefer muslim migrants from Commonwealth to (say) Poles, then that’s what they should get.
Interesting that last line since my last foray onto the Office of National Statistics site showed that immigration was split more or less evenly between EU & non-EU.
That is correct. Moreover, a poll of Leave voters taken shortly after the referendum showed that around half of them think that Pakistan and Bangladesh are in the EU.
The Leave voters correlate strongly with the readers of the EU-bashing press in Britain. They are as badly informed as the faithful Fox News viewers in the USA.
Both are in for disappointment. America can elect a new President every 4 years and a new Congress every two. Britain’s will be stick with the economic consequences of Brexit for decades.
Airbus parts ? You mean wings which are a specialised area in UK and not easily replicated elsewhere.
http://www.airbus.com/newsevents/news-events-single/detail/investing-in-the-future-airbus-announces-new-uk-wing-development-and-test-centre/
On the other hand Airbus might simply destroy itself to save Boeing.
It really is funny how the Guardian is quoted – I suppose it fits the bill being a newspaper liquidating the Scott Trust in pursuit of ever-decreasing circulation. Frankly it is as big a joke as the Independent run by ex-KGB plutocrat Lebedev. UK press is as pathetic as the US media corpocracy.
There will be war in Europe anyway so it does not matter how negotiations go. The Bundeswehr is now where the Wehrmacht was in June 1941. The US is moving heavy kit between Beirut and Romania in a transporter USS Liberty Passion. There are movements across Poland. Russia will never fight another war on its own territory.
The EU is going to face a surge of Sultan Erdogan’s human wave invasion soon. Germany has discovered that 70% Turks voting in Germany prefer dictatorship to “democracy” and worry about Erdogan’s shock-troops in the Ruhr and how much real control Germany has in Hamm, Essen, Dortmund, Berlin, Cologne.
I think Yves you are getting too involved in the Glass Bead Game and not seeing street level politics. France will explode so will Italy and Ukraine and Turkey are breaking up. I am afraid Trump and the Pentagram are going to plunge every continent into turmoil.
I think we saw all this coming c. 2000. Some sort of prescience on the part of the Pentagram gave us Little George and led us straight into a new war economy. When you’ve tried to raise all boats, but only managed to screw up your own economic advantage because denial… then it’s back to full-metal profiteering. After 2008 we did not hesitate to slash and burn our own economy/population just to be first-in-first-out of this global breakdown, imo. “Pentagram” is right – it’s really feeling like a nightmare.
“There will be war in Europe anyway”. I don’t know how this fits in but there are nightly flights of C-130s into tiny Knock/NOC airport (with the unusually long runway where there are NO nights permitted per long-standing zoning/planning agreements). A friend whose good friend works in ATC at Knock airport told him that every night the regular staff leaves the tower at 8pm. At midnight a small skeleton crew comes on and stays till 4pm. When our friend went to investigate late at night with a camera for nighttime he photographed C-130. When he went down a side road to investigate a huge hanger positioned at a great distance from the terminal he was accosted by several huge guys in camoflage and British accents who told him to get out, fast.
An accountant friend who lives near Knock told me in 2003 of the multitude of middle-of-the-night flights in and out of Knock Airport. Everyone knew about it but nobody talked about it. The media talked about Shannon Airport plane-spotting but no one pays attention to what goes on at Knock. It’s positioned in a “bowl” in a way that makes it almost impossible to get access for clear photographs of the runway and surrounding area. Probably no coincidence.
Nice try. That facility if even has opened, just opened, so it is way too early for it to have had any impact on design. Moreover, that means the UK will have invested in a white elephant.
The UK refused to join Airbus as a partner. All the parts in the UK are made by subcontractors. They will be told to move production to the Continent or they will be replaced.
I doubt it very much. There is no prospect of it moving from Filton as UK has largest Aerospace sector in EU and BAe should probably take over Airbus which is a very unhappy place with A400M disaster and the manufacturing flaws in Eurofighter. Without UK orders Airbus is not credible and French nuclear SLBMs are built by Airbus
Headed for a cold exit. One can readily see negotiations in which each side proposes terms, the other side answers “surely you jest”, and there is no progress, until after two years matters come to an end. Apparently some Europeans are insisting that the UK would need to negotiate to rejoin the WTO, not considering that if the UK is not in the WTO then trade arrangements are unpleasant.
Eire must eventually consider if it is actually better off inside the EU, as long as, e.g., it can send sealed truck containers through the UK without customs inspections.
You should read the texts of treaties. There has to be an Agreement according to treaties
Huh? The treaty clearly states that if there is no exit agreement, the exit is effective regardless in 24 months. That is why officials have been warning about a “disorderly Brexit” and “crashing out” and how disastrous that would be.
As is many in Europe might be happy. With UK going the off-share havens that UK didn’t want to deal with (due to the massive amount of voting citizens in them or the amount of money the lobbyist for them have?) will be outside of the EU and can therefore be more easily sanctioned.
& while the Brits don’t like the working time directive and a few other directives aimed at reducing corporate bargaining power many citizens in Europe might like that UK is no longer influencing those.
As for fully implementing the services directive….. Hopefully that idea is now dead in the water.
UK is talking about implementing a Visa-program for skilled professionals, it may or may not be possible to do and if it is the NHS might not be in such a severe situation as described.
In the end we will see how much the corporate overlords will allow the EU punish UK for leaving….. The corporate overlords do not have much, if any, loyalties to nations so they might prefer minimal disruptions for their corporations over a prestige loss to the EU-project……
UK has a visa system for skilled professionals. It is how Americans get jobs in UK
It seems to me that the big question with the EU is how and when it will be reformed. The EU structure favors a few countries such as Germany and undermines other countries such as Greece. Is this stable?
“It seems to me that the big question with the EU is how and when it will
be reformedimplode.” There, I fixed it for ya.You are right; thanks for the correction.
The EU is unreformable at heart. The EU is fundamentally anti-democratic. The sooner people realise this, the better.
The current politicians don’t have much to brag about. I think Verifoukas and some others are trying to organize a pan-EU reform movement.
Some people have been talking about a “two speed” Eurozone (( am pretty sure Eurozone, where the stresses are worse) most importantly Merkel, but I haven’t seen that unpacked. My best guess is it means two membership classes, one more strict with more benefits and one looser with lower benefits.
As a form of governance, the EU seems a failure, based on the treatment of Greece. Greece is being treated in a colonial manner, similar to but worse then Puerto Rico’s treatment by the U.S. The EU bureaucrats lack accountability and incentives to act for the public interest. A basic principle of good governance is that the rulers are accountable to the ruled, as in a democracy, but this is not true of the EU. The bureaucrats have interests that seem more aligned with their countries of origin rather then the EU as a whole. The EU also requires unanimous agreement for some actions which seems impractical.
The EU reminds me a bit of the confederacy, which was hampered by an inability of the individual states to work for the common good.
EU is an empire not a commonwealth. Empires fray at the edges
Departure of migrants is what a lot of “Leave” voters wanted to have happen. If it’s happening, I imagine a lot of Brexiters would be saying to themselves, “Good!”
The critique to be made of May and the Conservative Party is that these people want to use Brexit to get a better deal. Of course that’s stupid, since Brexit isn’t about Utility, it’s about Sovereignty.
It’s unsurprising that the Conservatives are using dumb tactics. Think of Cameron and the referendum itself. He was trying to use the referendum as a tactic to put off the nationalists. It backfired, and Cameron got dumped instead.
Now May is trying to use the referendum result as a negotiating tactic with the EU. That’s going to backfire, too.
Cameron and May have always been in a self-contradictory position, since they’re really globalists, not nationalists.
The EU hardball tactics might also fail. Aren’t they just reinforcing everything that British people hate about the EU?
Let’s suppose that the EU leaders finally manage to humiliate May. That’s an easy win, since May comes to the field half-beaten already.
But what good does it do for the EU to have a UK full of embittered, thwarted nationalists? Winning a battle, losing the war.
If EU leaders were strategic, they would be trying to find ways to help the British PM to save her face, and to make it clear to all of Europe that the EU is a place where changes in the popular will can be accomodated.
However, today’s liberal integrationists, whether of the continental or global variety, have themselves become ideological extremists, more accustomed to making demands, than to offering concessions.s
Maybe picking a nit, but: “threats of becoming a low-tax, low-regulation state unless it was given a good deal, had backfired. “However realistic the threats were, or not, they were noticed,” one senior EU source said. “The future prosperity of the single market was challenged. That had an impact – it pushed people together.”” – doesn’t matter. Either the threat is real, or it isn’t. If it’s real, and it probably is as long as the Tories are in charge, the EU will have to deal with it, annoyed or not. Granted, this sort of thing won’t make the negotiations any smoother (actually, it’s PART of the negotiations), but in the end either decisions will reflect self-interest, or they won’t. The latter requires a lot of cutting off one’s nose to spite Britain; I suspect that will fade away as things progress. Remember, the EU has its own problems, mostly named LePen and Melenchon; but Merkel’s opponents can be, too. Then there’s Italy, which could be forced out any time everybody stops pretending – as reported here.
Ultimately, Brexit, like Trump, is a volatility bet. And Europe’s uncomfortably volatile. The transition is to take several years, isn’t it? The EU could be gone by then – not very likely, but a real possibility.
And more: ” such as barring the UK from weekly trade policy discussions.” Speaking of the rules: is that even legal? Again, either they’re still members or they’re not. Moving those offices is probably well within the EU’s remit; but treating them as a non-member, even while insisting that they’re still a member? Might be a good way to stop the payment of dues. If Britain is smart, they’ll just withdraw from those negotiations, which they now have no stake in; but expelling them is very different.
For over thirty years UK has had the novel experience of Biz telling Parliament how to govern and providing the advantages that MPs crave to make it so. During the decades of inevitable grof it worked spiffingly. We have now had a generation of politicians who best ideas of governance come from the ancient and dodgy ideas of business schools and academies and not from real politicians handing down the secrets of political management. Consequently, our leaders have been awaiting instructions from the City but they are not to be had.
This is actually an opportunity for Corbyn to belatedly publish his Jeffersonian / Madisonian proposals for a Brave New World and really amaze and delight the populace with hope and happiness. Will he do it? I guess we will soon know.
So what happens in the end?
Looks like:
1. No exit deal, UK reverts to WTO rules or nothing
2. Pound falls further
3. Immigrants leave and natives emigrate
4. House prices fall
5. Consumer price inflation
6. Factories and businesses move or close
7. Higher unemployment
Sounds like the 1970s.
Funny thing is, that is basically what some people here want.(Except for the unemployment and inflation.)
The UK economy has been overheating for a very long time. There are nice things about being the country everyone in the world wants to move to, There are lots of jobs. But there is also lots of stress. And you can forget about living in a house like your parents lived in. Housing costs are absurd.
The reason many voted for Brexit was wanting a simpler life. Looks like it might be a simpler and poorer life. Will they regret it? Who knows.
The British have been misled by their leaders-since well after WW II. That was when it was revealed that private sector was so weak, getting even more than 2 X Marshal Plan Aid than Germany didn’t boost private sector to match Germany. Germany appears to have been more capable since well 19th century, when it left British manufacturing in the dust!
Brexit was because cannot handle the fact they are not “respected”. Population wise, UK’ is peer of Germany and France;but that is only way it a “pe.r” Germany wipes the floor with UK;and even France is better off. Hey there is a reason why France has 3 x more local units AND still manages to provide more local autonomy AND still has less regional inequality than UK!. UK only provides more local autonomy than Malta, Cyprus and Ireland among 28 European countries. Meanwhile London dominates economy and The City is going to get a pounding. Already 100 applications by fin firms to move to Ireland!
The stupidity of UK leaders is that since WWII never established anything like Fraunhofer to help SMEs. Was more of a “taker” than a “giver’ as EU member, that is why EU is going to be tough.
They created Investors in Industry, huge Defence Research projects through Universities which led to development of Liquid Crystal Displays, Computers, jet engines, NMR, DNA-sequencing, Penicillin.
Germany had NO defence research, and its universities were stripped of independence and endowment by Hitler and Jewish scientists and research was voided. Germany lost 200,000 patents stolen by USA without compensation – the UK signally honoured German patent royalties.
Germans were not permitted to own radio sets. The country is still not Consumer-focused by Producer-focused as embodied in AGB regulations and lack of Consumer rights awareness. Chamber of Commerce membership is compulsory. Germany however has negative Net Investment
Huh? The LCD was invented in the US. Yes, the computer was invented either by Charles Babbage or Alan Turing, who were both Brits. But the first programmable computer was developed in Germany and the first digital computer, in the US.
http://www.computerhope.com/issues/ch000984.htm
It’s very well known that US and British researcher were in a fierce competition as to who would be the first to sequence DNA, and it’s still debated as to who really won.
The US has had negative net investment since 2003. I wrote about it in 2005. That has been pervasive in advanced economies for 15-20 years.
NO ! LCD was developed in UK as a Defence Research Project – either in Leicester or Birmingham. Turing used Colossus from the GPO so how diode he “invent” the computer ?
http://www.sid.org/Portals/sid/UKI_files/UK%20Contributions%20to%20LCD%20Technology.pdf
http://www.theguardian.com/science/blog/2013/mar/22/george-gray-liquid-crystal-displays
British made two big mistakes in 20th Century. The big one was letting Edward VII conduct foreign affairs with France and Entente Cordiale aligning with France against his nephew to whom he bore personal antipathy. Without the British Empire being aligned in French Revanchism for 1870 and bringing in Russian Empire to encircle German-speaking Europe and Ottoman Empire, Britain would not have become susceptible to US money lenders and Ireland would not have had De Valera able to use US threats against a bankrupt UK.
Without Lenin landing in St Petersburg 100 years ago this week Russia would have been the major economic power and the UK’s main foreign market following the McKinley Tariff Wall 1890.
UK economy suffered from sticking with Free Trade when Germany, France, USA, Russia imposed tariffs making it pointless for UK manufacturing to invest when flooded with cheap copies from low-wage Germany. Indeed Germany violated so many patents and trademarks that “Made in Germany” was introduced as cheap label like “Made in China”
coulda, woulda, shoulda…
the rich of the empire governed for the rich in the empire…there were no mistakes…just policies that the wealthy favoured for their short term gain
the rich of the Brexit will govern for the rich once again … it’s just business, nothing personal
(and certainly nothing for the nostalgic inclined)…