Posts Tagged ‘European Union’

Trying to care about Brexit

April 9, 2019

I really have not paid attention to Brexit. It seemed to me as soon as the referendum result came out that one could expend a lot of mental energy to no useful purpose. I don’t watch daytime tv, so I decided not to watch Brexit either.

A few weeks ago, the former prime minister of an African country I am researching asked me what I thought about Brexit. Wanting to shut the conversation down quickly, I said: ‘Well, the population blames the politicians. But a small majority voted for the case put forward by Boris Johnson and Michael Gove. And if you vote for clowns, you get a circus. That is all I can see.’

The former prime minister said he liked this analogy so much he was going to use it in debate in his own parliament. I wished him good luck but said I still wouldn’t pay attention to Brexit until it went right down to the wire.

Well, we should be down to the wire, except that we are about to get another extension so the wire is moving again. There is really no excuse for paying attention, but I did today read a short piece of analysis by investment research firm GaveKal’s Charles Gave that is sufficiently big-picture to not be a complete waste of time. Charles is politically to the right of me, but his analysis is almost always astute:

…………..

And the Brexit Winner Is…

By Charles Gave

 

The root of the current Brexit mess in the UK is simple enough. The UK is a parliamentary democracy. But Conservative Party prime minister David Cameron agreed to hold a popular referendum on whether the country should remain a member of the European Union or leave. Inconveniently, the population did not vote as expected by most of members of parliament, some three-quarters of whom supported remaining in the EU. This left the UK facing a constitutional question which has yet to be resolved: Who is the real sovereign power in the UK? The people or parliament?

In line with time-honored tradition, the answer was fudged. A minority government, itself consisting largely of remain-supporting MPs, set out to negotiate a Brexit deal, knowing full well that no genuine Brexit would ever pass through the remain-supporting House of Commons. In short, the solution was to botch the negotiations in an attempt to convince the general public that getting out of Europe was impossible.

This strategy has worked remarkably well to prevent Brexit from happening—which was, of course, its main goal. But it doesn’t seem to satisfy the average voter, and especially not those who voted for Brexit in the 2016 referendum. These voters have been left with the distinct impression that they have been taken for a ride by the UK’s political class, and in particular by their representatives in parliament. And the constitutional question remains unanswered, with the average voter convinced that he or she is the real sovereign, not the House of Commons. This leaves three possible outcomes.

1) The leader of another European government—Emmanuel Macron? Matteo Salvini? Viktor Orbán?—decides to put the UK out of its misery, vetoes a further extension of the UK’s EU membership and precipitates a hard Brexit. The hard Brexiteers, embodied by Brexit Party leader Nigel Farage, get what they want and declare victory. Theresa May steps down as prime minister, and the next general election is fought along traditional lines between the Conservatives and Labour.

2) In the face of opposition from a sizable number of her own MPs, May succeeds in passing a modified version of her withdrawal agreement through the Commons thanks to Labour support. The Conservative Party splits, and the next election is contested by three main parties rather than two: (i) Labour, (ii) remain-supporting Conservatives aligned with the Liberal Democrats (and with Blairite former-Labour centrists) as the party of the men of Davos, and (iii) the hard-Brexit-supporting rump of the Conservative party, aligned with Farage’s Brexit Party and other discontents. Most likely, the Brexit Party would not put up candidates against Brexiteer Conservative MPs, focusing instead on contests against Remainer Conservatives and Labour MPs with leave-voting constituencies. In a first past the post system, the result of such a contest would be highly unpredictable. But either way, Farage’s party would gain a considerable victory, having destroyed the two-party system.

3) May either secures a lengthy extension or revokes Article 50 altogether, and the UK participates in next month’s European Parliament elections. Farage’s Brexit Party fields a full complement of candidates, capitalizing on popular discontent with the political process to win enough seats effectively to confirm the 2016 referendum result (perhaps not as unlikely as it might sound—Farage’s UK Independence Party won the largest share of the UK vote in the 2014 European Parliament election). Such a clear refutation of the government’s Brexit fudge would leave May with no popular mandate, precipitating a general election, which would leave the UK again facing outcome two.

It may seem strange, but the least dangerous of these outcomes both for the EU (and especially France) and for the UK (and especially the Conservatives) is the first scenario. Macron could assume the mantle of Charles de Gaulle, who twice vetoed UK membership of the European Economic Community, and kick the UK out of the EU for her consistent reluctance to play by European—i.e. French—rules. Such decisive action could bolster his party’s support enough to win the May European Parliament election. If so, Macron would likely dissolve France’s National Assembly in the fall and call new legislative elections to restore the legitimacy he lost to the gilets jaunes protests.

In both the second and third scenarios, the Conservative Party is finished, and will split between the hard Brexiteers and the men of Davos. The days when the likes of Jacob Rees-Mogg and Anna Soubry could both find a political home in the same party are over.

I remain convinced that if the UK is indeed expelled from Europe, it will be as much a catastrophe for the world economy as Y2K. Investors should buy sterling aggressively on any subsequent dip, and continue to sell Germany.

If either the second or third scenario unfolds, investors should not leave sizeable amounts of capital at risk in Europe. There is plenty of money to be made elsewhere. The pound would weaken markedly, since in either scenario there would be an appreciable probability that Jeremy Corbyn could become prime minister. And as Corbyn’s track record amply demonstrates, once in power he is unlikely to prove much of a friend to investors.

 

Goodbye Greece

July 5, 2015

The Greeks have just voted ‘no’ to the terms of a new deal with their creditors. So what happens next?

I think that Germany-led Europe will let them fall out of the Eurozone. The Greeks think they are going to negotiate a better deal, but any improved deal just invites the likes of Italy to think they can get one. So I can’t see any way forward other than letting the Greeks go.

There will be some chaos in the financial markets, and plenty of short-term chaos in the Greek economy. But within a year a Greece run on drachmas will stabilise and start to show some growth at a more realistic exchange rate.

The bigger problem for Germany and the Eurozone core will then come into a view in a couple more years when an Italy that has not delivered structural reforms and is still barely growing sees that Greece is stabilised and starts to flirt more aggressively with leaving the Euro.

That, however, is two years away. In politics, you deal with intractable problems by kicking the can down the road. And that is why I think Greece has to go. So that Germans can try to imagine, for another couple of years, that the Euro project hasn’t been a monumental disaster.

Unfortunately it has.

That said, Spain and Ireland should be in much better shape in a couple of years which at least reduces the list of countries that might be looking for big debt hair-cuts from German and French banks.

I continue to believe that it is in Italy where the Euro mess will reach its apogee.

Dieting Fat Controller still loves a pork pie

November 8, 2014

 

 


osborne 2014 vs 2013

 

 

Britain’s Chancellor George Osborne has lost an impressive amount of weight in the past year. So much so that I was thinking I might have to stop calling him The Fat Controller.

Fat Controller in front of trains

It turns out, however, that George still loves a pork pie.

Witness the recent furore over Britain’s increased European Commission bill to reflect an upward revision to the estimated size of the British economy. The bill is linked to the size of the economy, then Britain gets a rebate (negotiated back in the 1980s) to reflect Britain’s relatively lower receipts of EU agricultural subsidies.

Anyhow, first Brave Dave Cameroon said he wasn’t going to pay the £1.7 billion extra charge. Then people slightly less dim than Cameron realised that Britain has to pay the bill, because there is nothing unusual or exceptional about it. It is just the regular bill, amended on the basis of statistical revisions that occur periodically in all statistical systems.

So now the Fat Controller is claiming in the press to have ‘halved’ the £1.7 billion bill. What he means is that because there is an automatic rebate, the bill is really only about £850 million. But George wants to pretend this represents him having ‘negotiated a deal’ with the EU on a trip to Brussels this week.

He has done no such thing. George’s trip secured some very marginal fiddling around with payment due dates, doubtless because EU officials just wanted to get him out of the building as fast as possible. But he hasn’t ‘negotiated’ anything of any substance. Whatsoever.

Instead, George is just telling bare-faced Porky Pies. Like some fantasist kid in a school playground.

And that is why I am going to continue to call him the Fat Controller. No matter how much weight he loses.

 

More:

The Guardian explains pretty clearly.

UKIP if you want to / Weekend reading & viewing

May 5, 2013

So UKIP (full name ‘UKIP if you want to, we are going to set this cross on fire’)  has won 100+ council seats.

To me it is a symptom of a less inclusive, more unequal society fomenting a brew of angry old and ignorant people (and old and ignorant people) that the Conservative Party can no longer accommodate because they have become too angry and prejudiced even for the Tories.

In America they call this sociological phenomenon the Tea Party and I am surprised the press is not going for more of an ‘ooh, we’ve now got one too’ angle. Indeed UK leader Nigel Farage (unfortunate foreign-sounding name, no?) says UKIP is indeed the Tea Party wrapped in a different flag.

The bigger issue at stake here is whether UKIP is more of a problem for the Tories or for Labour. Hopeful Tories say that since they got a quarter of this week’s local election vote, and so did UKIP, together the right has half the vote if it can just, like Humpty, be put back together again. This sounds superficially tremendous, but the US experience suggests it is not, because when the far right of the right-wing becomes so nutty that your mother-in-law starts to seem reasonable, it really benefits the left. If the Labour Party can generate a few sensible policies (a la Obama), and get rid of Ed Balls and other remaining Blair-Brown detritus, it may be set fair for the 2015 general election. A single term of opposition for what Blair and Brown did to their country would be an extraordinarily low price to have to pay…

 

Weekend reading & viewing:

Why it is very dangerous to give police any new powers (in cartoon format).

This repeated, just in case anybody has not seen it. Give Obama a tv show, now.

Amanda Knox’s interview with ABC‘s Diane Sawyer to coincide with the release of her book. Part 1 (only about 8 mins)

This is very funny and goes out to all my friends planning to ghettoise their children in expensive British boarding schools.

Here’s more in the same vein.

Boycotting Google. I own shares in Google, but they are tax evading bastards and they promised not to be evil, so they are also hypocrites. Here is how you can substitute their services. I am trying out the duckduckgo search engine, so far without problems.

Weekend reading: Italy and Spain and more

April 28, 2013

Italy gets a government that surely cannot last, led by a ‘left-wing’ politician whose uncle is the chief of staff to Silvio Berlusconi. Front up  a younger guy and put more women in the cabinet so the Germans think we’ve grown up, seems to be the plan. FT (sub needed) has a sensible leader about how political reform may be the only way to unlock the door to economic reform.

Meanwhile, in The Guardian Simon Hattenstone writes about his long correspondence with Amanda Knox, who faces a retrial for failing to be guilty of murder when everybody in Perugia knows she’s a witch.

In Spain, Almodovar has a new movie out about his country’s economic crisis. It sounds dark, funny and uplifting — whereas Italy has become shallow, unfunny and boring.

I quite like Krugman’s habit of leavening his blog with some decent music. And he has this very funny take-down of the Reinhart-Rogoff controversy over the relationship between debt and GDP from Colbert (you may need a VPN set to the US to view this). The theme of picking your data points to fit the hypothesis you already decided on is entirely consistent with what How Asia Works describes happening in World Bank reports about east Asian development in the 80s and 90s. Harvard, eh? Martin Wolf (sub needed) has a nice reminder of British industrial revolution history when debt was twice GDP. The best thing in How Asia Works on the non-linear relationship between debt and GDP growth is the financial history of South Korea, set out in Part 3. South Korea was more indebted than any Latin American state in the 1970s and 1980s but, unlike them, didn’t go bust because of what the debt was spent on.

If you are in London, this is superb. And very much on the theme of development.

Need more mirth?

Have a look at the curious tale of the Management Today review of How Asia Works…

Goodbye Margaret

April 8, 2013

thatcher 20s thatcher 50s

As a kid, I did impersonations of her, sitting in the back of my mother’s VW Beetle, leaning in between the seats. I lived in the increasingly post-industrial north of England and her voice was so ‘other’ that I couldn’t give a jot what she actually stood for. Of course I was too young to understand either the politics of Margaret Thatcher or the quintessentially British neurosis behind her forced upper class accent.

With the benefit of 30 years of hindsight, I have no great issue with the economics of Thatcher. The reason that so many people on all sides of the political divide find it hard to criticise her is that, more than anything, she delivered a mortal blow to many vested interest groups. In the Britain of the late 1970s, her time had come.

In the end, however, Margaret Thatcher’s legacy is a shallow one.  She did very little to challenge the dreary class basis of British society (far less, indeed, than her grotesque parody and successor, Tony Blair). She understood nothing about Europe and fingered liberal post-war Germany as a proto-fascist state. As a result, while she arrested the immediate economic decline of Britain, she presided over its continued intellectual demise, a trajectory that finds Britain today to be a very marginal society — far, far less than the sum of its individuals.

The United States had its Thatcher in Reagan. But since then it has produced Obama. We, meanwhile, gaze upon Cameron and Osborne, waiting forlornly for the thinking man’s Margaret to appear.

More:

Martin Wolf quick-ish wrap on her economics (FT sub needed)

Confirm the shallowness of Ken Baker by reading this (FT sub needed)

Ditto Niall “Harvard” Ferguson here (FT sub needed)

Guardian doesn’t seem to have anything interesting at a quick glance.

Across the pond, similar drivel from the NYT.

Bloomberg gets the point by focusing more acutely and has a good headline. But it ain’t philosophy.

As good as it gets, and nowhere near as good as his biography of her, by Hugo Young, from 2003 before he died.

Next day:

Perhaps time is improving the copy. Ian McEwan captures Thatcher quite well.

And AC Grayling does at least as well in the New York Times.


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