Talkin' Brexit

[jal]

So Larry Sunmmers in the Washington Post said today that Europe will lose more than the UK from the results of the referendum. He also said that conventional wisdom and the polls were wrong about the following lately:
Trump getting the nomination
Sanders having a lot more support than anticipated
Trudeau becoming Canada's PM
Brexit.
Doesn't bode well for the US elections in November, to me that's the biggest fallout of Brexit.
Here's a link to the article:

https://www.washingtonpost.com/news/won ... er-brexit/

[JimHow]

Geez I went to bed last night and the Leave people were saying it looked like a loss for their side….
What the heck happened?

[jal]

The exit polls were messed up, from what I gather, they couldn't ask for exit polls immediately after the vote so the pollsters asked voters to come back after the polls closed at 10pm and tell them what they voted for. Most of those who returned were Londoners, maybe everyone else in the uk goes to sleep early. Londoners voted remain overwhelmingly so that caused the confusion.

[Chateau Vin]

I feel it's more of an overreaction, especially the stock market and the business news outlets. I see the point that it could be that the other countries be leaving... Other member countries stand to lose more than UK, should they choose to exit.

UK is not as integrated with EU as the other member nations are to begin with. Yeah, it will have some repercussions in terms of businesses needing some adjustments, but geez these business outlets are proclaiming stuff as if it's the end of the world. Not to mention that greenspan grinch proclaiming that this is the worst thing that happened in over 30 yrs. I guess he is not owning up to the role he played in the 2008 debacle. What a sly...

Brexit is not ideal, but not apocalyptic either. Europe will be fine. UK will be fine. Rest of the world will be fine. Everybody will adapt and move on...

[Comte Flaneur]

Talk about talkin Brexit there is a big discussion in the link below, where I contribute a lot

I am devastated that we vote to leave the EU based on lies and misinformation

wine-pages.com/community/threads/general-brexit-debate.1510/page-47

[jal]

CV, I despise Greenspan, I agree with you about him. I also agree that Italeave, Nexit, Frexit, and Deportugal are less likely. These countries are seeing the shock of Brexit and will try to avoid it but even then, the common currency they share makes it extremely difficult to separate.

But I don't think it's an overreaction, the implications of Brexit are huge nonetheless.
1) Scotland will probably call for another referendum and will probably become independent.
2) Northern Ireland will do the same and try to unite with Ireland
3) Great Britain will no longer exist, it will be England and Wales only
4) Imagine borders and passport controls between England and Scotland. Jeez!
5) British citizens who have moved to the continent will need visas to remain there. They may get away with becoming Scottish when it becomes part of the EU but that's a long time away.
5) EU citizens who have moved to England will need visas to remain there.

Probably a lot more issues I am not thinking of.

And that's just on the personal level, trade agreements, corporations with multiple headquarters, banking and other regulations have to be renegotiated. Who will do that on behalf of England (notice I am not saying Britain)? Cameron is resigning and Boris Johnson seems like an only slightly smarter version of our Donald Trump.

I bet a lot of the "Leave" voters are having second thoughts now.

[stefan]

I hope that this provides a wake up call to Americans who are considering voting for Trump as a protest against the "establishment".

[jal]

And now a petition calling for a second referendum is gathering wind:

https://petition.parliament.uk/petitions/131215

[Chateau Vin]

And now a petition calling for a second referendum is gathering wind:

https://petition.parliament.uk/petitions/131215

Isn't it ironic that - seemingly more people in Scotland want to be part of EU than be united with UK even though Scotland is more close to UK in terms of its culture, politics, economics, etc.?

[Comte Flaneur]

Its complicated CV

http://www.theonion.com/article/america ... der--53156

[Chateau Vin]

Jaques,

I agree about the likelihoods and non-likelihoods you mentioned.

But for me, from a business point of view, they barely put a dent in world economics. Sure, with different currencies and controls, the free movement of capital might be affected. And businesses will have hiccups, but will adapt. IMO, it's not huge. It may be huge for people of UK, Ireland, etc. needing visas, splintering of UK, etc. like you mentioned. But it's impact on world GDP and economics is not much. I am arguing only about business implications, and that's why I singled out business outlets and business people, calling them that they are overreacting...

Coming from UChicago, I understand the necessity of free market economy for a peaceful and prosperous world, but I also understand it's implications to middle class and lower rung of people when you try to hasten it looking through the ivory towers, corner offices and glass facade institutions. Remember, the Argentinian economic mess and Freidman being booed while receiving the Nobel prize? EU is doing the same mistake...Ofcourse there is lot of misinformation about the EU block, but IMO EU has done it's share of mistakes, but it could have easily avoided them and more likely made 'Remain' campaign a winner in UK...

[Chateau Vin]

Its complicated CV

http://www.theonion.com/article/america ... der--53156

I know Ian. That's why I was about to call on you to shed some light...Could be revolt against establishment, unhappiness about current state, grass looking greener on the other side, associated history, go it alone nature, natural resources, plain populism, etc., etc.. Oh did I miss anything?

[Comte Flaneur]

All of that and more CV ...I will post in more detail soon

[jal]

Cv, I'm concerned about volatility and liquidity. Almost all rates are at at zero now so I feel central banks will have a hard time easing more. What would they do? More negative rates? More QE? Sure liquidity was not much of a problem yesterday but with a European recession looming, the lack of ammunition by the ECB is worrying me enough for now.
Volatility is also a concern and of course the reason is the implication of the Brexit vote on the US vote. As Stefan said, the Trump as president scenario just got a little scarier.
Hopefully markets will stabilize soon but I'm afraid we may be in for a rough ride over the next six months

[Comte Flaneur]

Why we voted out
1. The Leave campaign conducted an aggressive and effective campaign based mainly on outright lies but also effectively rubbishing everything the Remain campaign put out, and successfully dismissing everything Remain said as 'project fear'
2. Remain ran a lacklustre and negative campaign based mainly on economic arguments that most of the population didn't understand or believe. The most important argument that access to the Single Market, the most sophisticated free trade zone in the world, s worth multiples of our annual fee of £8bn (0.4% of GDP) was not effectively communicated.
3. The right wing tabloid press, including Rupert Murdoch's The Sun, were the major cheerleaders for Leave, propagating their myths and lies very effectively with sensationalist journalism.
4. The EU and foreign migrants have been convenient scapegoats for all the UK's ills
5. Most of this was based on misinformation and lies - for example the claim that on 24 June negotiations would start for Turkey to join the EU by 2020 and that there are 8 million Turks waiting to move into the UK. Turkey has no chance of being admitted on any foreseeable horizon
6. There was absolutely no question that many working class voters used the referendum as a protest vote to vent their anger and frustration. Especially white working class males (sound familiar?)
7. The Scots and Londoners are the most pro-EU in the UK. Scotland will push strongly for another referendum to secede from the UK and stay in the EU if the UK government decides to apply to leave the UK, which is not guaranteed
8. Boris Johnson, the former London Mayor and de facto leader of the Leave campaign - our nicer cuddlier version of Donald Trump, but no less dangerous - only decided at the last minute to back Leave and arguably did it as a means to win the Tory leadership. 
BoJo is likely to become PM in the fall and will try to extract a better deal than Cameron won in February. If he does, and I think he may, we could have another referendum or he just may decide not to apply to leave (via Article 50 of the Lisbon Treaty)
9. The UK election result is the biggest setback for the EU in its 59 year history. No country has ever left and the UK is in every way a top three member of the EU with Germany and France
10. The EU's main instinct and objective is to ensure the survival of the Union. Its worst nightmare is that Brexit triggers an unravelling of the EU. Brexit is a huge boost for extremists and nationalists in Europe like Marine Le Pen's Front National in France, where there are Presidential elections in the spring of 2017, so the EU will ostensibly play hardball with Britain to send a warning to others who are thinking of following suit
11. However senior EU figures like Donald Tusk and Wolfgang Schaeuble have admitted that the EU needs to be reformed regardless of the outcome of the UK referendum. So I think this is what will happen. A reformed EU incorporating UK wishes in substantive rather than cosmetic ways is likely to be offered to everyone, and hopefully we might not in the end leave. 

[RPCV]

I was in London Thursday and it was a miserable day. Rained throughout and was a topic of conversation that perhaps the young vote wouldn't turn out whereas the older voter may feel more duty. Thought that was an interesting perspective anyway.

[Comte Flaneur]

The turnout was pretty good across the board at 72% vs 66% for the last general election 13 months ago

[Comte Flaneur]

I got involved a lot and published this article that clearly did not resonate:

The case to remain

The EU referendum on Thursday is arguably the most important plebiscite anywhere in Europe since the Second World War. Unlike general elections, which are now held every five years in the UK, the outcome of this EU referendum will not only shape Britain’s future, but it will profoundly affect the rest of Europe and have an important impact on the rest of the world.

So if you are eligible to vote in the referendum please exercise your democratic right - I would argue obligation - to vote on Thursday.

Unfortunately a lot of people will go into the polling booths ill-informed, with a poor grasp of the key issues, having been wilfully misinformed as a result of embellishments, distortions and outright lies.

The Remain campaign is guilty of embellishments and fear-mongering and the Leave campaign is guilty of propagating myths, and worse, of systematic mendacity, which I will address below.

The case to remain in the EU – five good reasons

The UK has tariff-free access to the largest market of advanced economy consumers in the world (508 million). The benefits of this free trade single market access may be even harder to quantify than to articulate, but when you think about the range of goods and services we would pay more for outside the EU and the extent to which our access to parts of the single market would be subject to quantitative restrictions - for example in financial services, where the UK has a notable comparative advantage – the benefits of single market access are multiples of our annual net membership fee of approximately £8bn (0.4% of UK GDP and 1.0% of UK public spending). Organisations like the CBI and OBR claim we get £10 back for every pound we contribute. That may be a high end estimate, but even if it is only 2-5 x it is worth having.

A Brexit would make Britain poorer. If the UK leaves the pound would fall precipitously, possibly by as much as 15%. I will explain why in much more detail in part two. The UK has benefitted from large EU capital inflows and has been the biggest beneficiary of foreign direct investment in the EU (20% of the total stock). Much of that investment is predicated on the UK being in the EU and having access to the single market. If the UK leaves the EU much of that investment will dry up, or even reverse, which would imply a much lower equilibrium rate for the pound and therefore higher prices for imported goods and foreign holidays, and hence lower UK living standards. A Brexit could even trigger a sterling crisis of the sort we saw when the pound was ejected from the Exchange Rate Mechanism in 1992.

The EU is based on noble principles embodied in the 35 chapters of the ‘acquis communautaire’ which countries aspiring to join the EU have to meet in full. These include respect for human dignity, tolerance, liberty, democracy, equality, the rule of law, and respect for human rights, especially those of minorities. The objectives of the EU are for an area of freedom, security and justice without internal frontiers, an internal market where competition is free and undistorted, sustainable development, protection of the environment, the promotion of scientific and technological advance, combatting social exclusion and discrimination and the promotion of social justice. Unlike the US, which is blighted by gun crime, the EU has strict gun laws, which are set to be tightened further following last year’s Paris attacks. Being part of the EU means the UK can pool resources to fight terrorism and international crime syndicates, and as a bloc the EU is more effective for lobbying the United States and China to fight climate change. Moreover the EU is much stronger ballast than national governments against abuses by large multi-national corporations, white collar crime and international tax evasion. The EU is much less amenable to be ‘captured’ and lobbied by corporate interests. In the United States it is estimated that major lobby groups have six lobbyists for every politician in Washington DC, and the political system is broken, reflected in the lamentable calibre and tainted credentials of the two presidential candidates. Key EU Governance institutions are much less amenable to being lobbied by large multi-nationals and the European Commission is going after corporate giants like Google, Amazon and Microsoft over an array of corporate abuses. We could not rely on David Cameron’s Conservative government to do this because it is hopelessly in hock to corporate lobbyists.

A retreat in the isolationism would most likely end very badly. History is littered with examples of countries that have retreated into isolationism and have ended up a lot worse off. The United States retreated into isolationism in the 1920s. The US refused to join the League of Nations, closed its doors to immigration and erected trade barriers. This contributed to the Great Depression from 1929, a crumbling of the world peace structure and the rise of Nazi Germany in the 1930s. The Brexit campaign revolves around fanning fears about migration and xenophobia, marching to the drumbeat of demagogues like Donald Trump and Marine Le Pen. A Brexit would be a huge fillip for nationalist and extremist movements across Europe. No country has ever left the EU, and if Britain leaves it will be the biggest ever setback to the post-war European project, constructed on the ashes of two world wars in which nearly 100 million people perished, and the culmination of centuries of European conflicts. In the worst case a Brexit could be the catalyst for the unravelling of post-war Europe. Indeed this is what some Brexiteers are hoping for.

The UK can have the best of both worlds. The UK has no obligation to join the euro, has a written guarantee that it will not have to fund any future euro-zone bailouts and is not bound by the ‘ever closer union’ leitmotif, which is arguably necessary to make the euro-zone stronger. The UK should welcome ever closer union at the euro level if it makes the single currency more resilient. If we have another euro crisis the UK will be affected by the economic consequences if it is in or out of the EU. By remaining in the EU the UK can maintain the benefits of single market access with no obligation for ever closer union – the best of both worlds.

Laying bare five myths and lies of Vote Leave

If we stay in the EU negotiations for Turkish accession will start on Friday (24thJune) and Turkey is likely to join by 2020. This is an outright lie. Turkey first applied to join the EU 29 years ago in 1987, but has only satisfied one of the 35 chapters of the Acquis (see above). Moreover under President Erdogan Turkey is moving away from secular democratic principles to an authoritarian Islamic state, so Turkey is moving backwards rather than forwards in meeting the acquis criteria. Unless or until Turkey recognises Cyprus Turkish EU entry is a non-starter.

The UK sends £350m a week to Brussels and gets nothing back. That money could be spent on building schools and hospitals. This is tantamount to a lie. At the very least it is grossly misleading. The £350m figure is the UK’s gross contribution to the EU. It does not include Britain’s rebate that Margaret Thatcher negotiated in 1984 (worth £70m a week), and our overall net contribution is less than half that figure at about £150m a week. For that contribution we have access to the single market (see above). As mentioned above organisations like the OBR and the CBI argue that the UK gets £10 back for every £1 it contributes. That is likely a high end estimate, but even if it is 2-5x it is worth having.

Leaving the EU will save the NHS from being overrun by migrants. Again this is a wilful distortion. While there is no denying that some local constituencies have huge pressures on housing, health and education services as a result of migration, the NHS is crucially dependent on EU and non-EU migrants to operate. Migration, in other words also boosts the supply capacity of the NHS - i.e., its ability to deliver services. Moreover funding of the NHS is crucially dependent on the health of the overall economy. If the UK suffers an adverse economic shock – or even a recession – as a result of Brexit there will be less tax revenue and unpleasant choices will have to be made on spending priorities. The notion that leaving the EU would free up £350m a week to spend on the NHS is utterly bogus and tantamount to a lie.

The EU needs us more than we need the EU. This is based on the notion that the UK runs a large trade deficit with the EU and imports roughly £60bn a year more from the EU than it exports to it. But this is a fallacy because EU exports to the UK account for just 3% of other EU GDP while UK exports to the EU account for 12% of UK GDP. By this metric the UK is four times more dependent on the EU than the EU is on the UK.

If we lose access to the Single Market we could make up for this by trading more with Commonwealth countries and emerging markets. This may not be a lie but it is a deluded fantasy. The UK’s exports to the EU are 50 times bigger than the sum of all its exports to Commonwealth countries put together and six times bigger than exports to the ‘BRICS’ put together (Brazil, Russia, India, China, South Africa).

[AKR]

Maybe the natural trading alliance the UK should form is with the US and Canada. We share a common language, legal systems, Anglo Saxon - Judeo Christian culture, history of uniting versus common enemies, etc.

=======

Empires grow unwieldy over time, and the natural human desire for local self determination is one of the centrifugal forces that help tear apart these constructs over and over.

=======

Comte has penned a nice summary of the Remain camp's views, but it seems like the benefits did not accrue equitably to the population. Those who did not share in the economic prosperity merely saw their cost of housing go up, and terrorists leaving bombs in the Tube.

[jal]

Maybe the natural trading alliance the UK should form is with the US and Canada. We share a common language, legal systems, Anglo Saxon - Judeo Christian culture, history of uniting versus common enemies, etc.

That's what Bret Stephens was saying in his WSJ column but unfortunately Great Britain is at the end of the queue.

We are ways away from the Star Trek universe where humans on earth form one big happy family

[Chateau Vin]

Nice commentary Ian...I am afraid that populist sentiment is increasing in the US as well and unfortunately in both parties. That's when demagogues have their way as history teaches...

This Murdoch's media empire is contributing to that and more. Not just in UK, but also in the US.... Sowing divisions, dividing people into camps, fear mongering, you name it...US now is more divided than it was 20 years ago. This scortch earth politics with no compromise has become the new normal...

As far as common people, what Arv said was right on...Globalization and free market has not delivered to most people equitably. The disruptions caused by free market and globalization would be absorbed with some pain by the well to do, but for middle class and lower middle class it's a far greater pain. If a millionaire 's networth decreases by half, it's not good, but a common man's nest egg gets cut in half, it's devastating. This no doubt will fuel the fire of populism... Actually, it's a generational change for the worse for them, as it affects the affordability of good education to their kids.

Everyone agrees that good education is the key to move out of poverty. But with affordability of decent education becomes a central issue with stagnant wages and low standard of living, nobody wants their next generation drenched in hopelessness and will join the populist movement. It's natural for them to turn inward and become isolationists...I get pissed off when the academicians, policy makers, politicians and corporate leaders don't get this and go about doling economic prescriptions without giving a thourough thought...

Sorry for my rant...Tired of these do no good politics...

[Comte Flaneur]

Rupert Murdoch is an evil man, sowing the seeds of bigotry everywhere and a succession of British prime ministers have courted him. He has had a pervasive, pernicious influence, like a cancer on our societies.

His tawdry newspaper the Sun I think had an important influence on the outcome with this awful editorial which is packed with lies and mistruths, persuasively written.

https://www.thesun.co.uk/news/1277920/w ... n-june-23/

[jal]

Two videos about brexit from the last week (pre-referendum)

First John Oliver
https://youtu.be/iAgKHSNqxa8

Then Jonathan Pie (be patient with the first few minutes)
https://youtu.be/jGC5S3ag1q0

[AKR]

I hope all this Brexit stuff means lower wine prices for 'mericans.

[JimHow]

Meantime, Trump pulls even with Clinton in latest poll:

http://www.wsj.com/articles/donald-trum ... 1466946000

[hm$]

David Cameron will go down in history as having achieved in peacetime what Neville Chamberlain could not in war -- the systematic destruction of the United Kingdom.

hm$

[AKR]

come now, Neville secured 'peace in our time' !

[AlohaArtakaHoundsong]

So once we get past the shock and awe, the terrifying uncertainty and so forth does anybody actually see a material effect here beyond an increase in the cost of doing business? Like retributive stuff by the EU against the UK, or the total disintegration of the EU? Or the end of the world?

[jal]

Well, maybe not the end of the world, Art. But I do see a chance of the EU disintegrating, slowly and painfully.

And while the United Kingdom is now a lot cheaper for US citizens to visit, I am sure there will be a recession in Britain, and that may spread to the EU.

And again, my biggest fear is a Trump presidency.

[RDD]

At least the USA had a union strong enough to fight over and kill about everyone to preserve it. It really isn't a union if you can just secede.

[jal]

The following came from Morgan Stanley this morning. Feel free to ignore and don't shoot the messenger.

The Morgan Stanley Research Macroeconomics Team has raised the subjective probability for a global recession to start in the next 12 months to 40% from 30%. Political uncertainty has surged with the vote to Leave and has brought back the prospect of a renewed downturn, as policy uncertainty spells dampened demand growth. They warn that the political discontent on display in the UK could spill over into US presidential elections later this year, and elections in the Netherlands, France and Germany next year, giving to an overall rise in protectionism. They argues that the long-term political reaction is more important than the near-term central bank reaction, since the political reaction will determine further desire to pull out of the EU or the euro.

[AlohaArtakaHoundsong]

Macroeconomics is "hard." What is the "policy uncertainty" elasticity of aggregate demand? I assume the consumer, being unsophisticated and emotional may be less sensitive to policy uncertainty than business?

[jal]

Hence the word "subjective"

[JimHow]

New York markets are at all time highs. As far as I can tell, the sun continues to rise in the east.

[DavidG]

To extend the metaphor, it also appears that the sun hasn't set on the British Empire.

[jal]

Yes, so far so good.
Let's hope that we've seen the worse.

[Antoine]

Ian,

I like your specific input below and could not understand why this positive vision of Europe was not used in the campaign

"The EU is based on noble principles embodied in the 35 chapters of the ‘acquis communautaire’ which countries aspiring to join the EU have to meet in full. These include respect for human dignity, tolerance, liberty, democracy, equality, the rule of law, and respect for human rights, especially those of minorities.
The objectives of the EU are for an area of freedom, security and justice without internal frontiers, an internal market where competition is free and undistorted, sustainable development, protection of the environment, the promotion of scientific and technological advance, combatting social exclusion and discrimination and the promotion of social justice. Unlike the US, which is blighted by gun crime, the EU has strict gun laws, which are set to be tightened further following last year’s Paris attacks. Being part of the EU means the UK can pool resources to fight terrorism and international crime syndicates, and as a bloc the EU is more effective for lobbying the United States and China to fight climate change. Moreover the EU is much stronger ballast than national governments against abuses by large multi-national corporations, white collar crime and international tax evasion. The EU is much less amenable to be ‘captured’ and lobbied by corporate interests. In the United States it is estimated that major lobby groups have six lobbyists for every politician in Washington DC, and the political system is broken, reflected in the lamentable calibre and tainted credentials of the two presidential candidates. Key EU Governance institutions are much less amenable to being lobbied by large multi-nationals and the European Commission is going after corporate giants like Google, Amazon and Microsoft over an array of corporate abuses. We could not rely on David Cameron’s Conservative government to do this because it is hopelessly in hock to corporate lobbyists."

[Antoine]

I believe that when the dust has fallen, UK and EU will find a good agreement for both parties as this is both parties interests. There are already some good steps taken:
Yesterday, Hollande made 2 offers without asking/obtaining anything in return (the UK press may ignore it?):
- He promised the immigration control agreement between UK and France would be maintained
- He promised all UK citizens living in France would be free to stay without any administrative complications

Everybody knows UK and Europe are allies and have much more at stake than belonging to the EU like tackling global issues (environment, peace, terrorism, business...). Nobody will want to sacrifice that and, once UK has decided what it wants, then the negotiation can start and will proceed quickly. I believe we will get a mini Brexit that will allow UK to "take back control". It will be difficult though as UK already a very advantageous deal within the EU (contributes half of France and much less than Italy for instance) and will be asking for more competitive advantages/priviledges while EU countries will try to reach a more balanced relationship.

And let's face it, London is and will remain an EU city... as somebody who visited this country 45-50 years ago and have lived there since 1992, London has massively changed for the better (you can eat and drink well!...and find ingredients without going to Harrods or to Michelin starred restaurants...)...and it has now 4 to 500 000 French inhabitants..you can't go wrong with this...