Friday, 3 June 2016

The Referendum



Markets and Economy: 

There is no plan for what happens after we leave – there can’t be, it’s an unknown - ergo there will be a hiatus until new trade agreements are negotiated. Timescales vary but, on the basis of previous negotiations, it will be years, not months. During that time there will be uncertainty. Markets don't like uncertainty and do not invest. A drying up of investment means job losses. This is not idle speculation – it’s the best thing next to a scientific fact within economics and has happened countless times. I agree that, given the variables, economics is more a humanity than a strict science, but when things happen time after time they become predictable and therefore almost scientific certainties. 

Now when an economy is under threat and there is uncertainty, the currency speculators have a field day - they thrive on uncertainty. Another fact. It’s happened time after time and George Soros is the arch proponent of that strategy. The pound will fall – perversely, had we been in the Euro the effect would be negligible. 

Some are saying sterling didn’t fall during the 2009 financial crisis – the simple reason for this is that the major currency against which sterling is valued also slumped, as the cause emanated from the USA – it was a global crisis; this one will be of our own making. Additional to this, the global financial crisis was caused by irrational behaviour, namely the bundling of worthless securities into triple-A stock and institutions buying it. Essentially it was fraud and economic models don’t cater for irrational behaviour or fraud. 

The Exit camp is fond of trashing Treasury, IMF, ECB, FT and The Economist forecasts. Yesterday it was speculative to say I'd be in work this morning, but, on the basis of probabilities, it was an almost dead cert. While trying to pinpoint-forecast the currency exchange rate or interest rate three months hence may be nigh impossible, estimating general market reaction to a stimulus is a vastly more certain proposition. While individual forecasts vary, they are remarkably consistent on the direction the economy will go in the event of Brexit. Iain Duncan Smith may trash the Treasury forecast - and indeed any forecast which disagrees with his view - but he singularly fails to explain why the consensus is wrong. He does, however, cite Gerard Lyons, who has an enviable record as an economic forecaster and has won Forecaster of the Year with several publications, yet even he admits there will be an indefinite period of uncertainty when the economy will suffer. His focus is on what happens when we emerge from the uncertainty, not the uncertainty itself. 

5th largest economy? True (if you exclude the EU as a whole, which is 2nd only to the USA), but that is now, while we’re in the EU. Also it’s on the basis of our large financial sector, a proportion of which (certainly not all) would inevitably up–sticks and relocate to Frankfurt and the doorstep of a large market. If the economy is hit by Brexit, and it will, then we will no longer be the 5th largest economy. France, India and Italy are not far behind and Russia and Brazil just need an upturn in the oil market to get very near the top. If you look at the UK’s GDP per capita we fall down the list to 9th (again excluding the EU as a whole), with France and Mexico close on our heels. 

International Standing: 

 Britain already is a world power punching above its weight – it has one of only five seats on the UN Security Council. Perhaps it shouldn’t, but leaving the EU and the influence it currently has there would make many question that position, especially if leaving results in the breakup of the Union (see further down) and England becoming an isolated entity. There is momentum building to review the UNSC membership and I don’t give the ex UK (i.e. England on its own) much of a chance of retaining its position. People must ask themselves what fundamental aspect of the UK would change to negate the impact of leaving the EU - change doesn’t just happen in a vacuum. The chances are that nothing at all will change – there will be no new ways of trading, there will be no massive productivity improvements, there will be no will to work longer hours for less pay, there will be no desire to pay more taxes and there will be no move toward manufacturing. 

Trade: 

Europe will raise tariff barriers on the UK - they can't afford not to, else every other country in the EU will want to leave but still have single market access at zero cost, and that is anathema as it would destroy the EU. That’s just pure logic and self-interest. There can be no better trading relationship with the EU than the one we currently have. It’s reasonable to assume the tariffs will be applied the minute the UK payments stop, but what the transition will look like is anyone’s guess at present – there is no plan! Tariff barriers mean we become less competitive within the EU, again meaning job losses – a fact, as cost savings or productivity improvements are the only means of countering uncompetitiveness, and service industries (which is predominantly what we now have) are notoriously resistant to productivity improvements as they are not mechanised. Now there is a chance that the fall in Sterling will counter the tariffs, but not when trade agreements are finally negotiated and the pound starts to rise again as confidence returns to the market. 

But we can trade with the rest of the world, can’t we? Yes, but we already do! The rest of the world is not going to suddenly up its trade with us for no reason – trade depends on demand for our goods and services. Slashing import tariffs may be a valid strategy, but that won’t exactly work for exports and the balance of trade may spiral out of control. In any case, the EU already has FTA agreements with the vast majority of Commonwealth countries, and they are growing by the year. All we could do is replicate what Commonwealth countries already have with the EU – a zero sum game, and there’s no guarantee there would be the will to replicate existing deals, leading to negotiation and feasibly a worse deal as concessions are requested. 

But what about WTO? Britain would face tortuous negotiations to fix the terms of its membership of the World Trade Organisation if it votes to leave the EU, its director-general, Roberto Azevêdo signalled this would not be straightforward. He said a British exit from the EU would lead to unprecedented negotiations between the UK and the Geneva-based institution’s 161 other members. Britain joined the WTO under the auspices of the EU and its terms of membership have been shaped by two decades of negotiations led by Brussels. If Britain voted to leave the EU it would not be allowed to simply “cut and paste” those terms, Mr Azevêdo said. Britain would have to strike a deal on everything from the thousands of tariff lines covering its entire trade portfolio to quotas on agricultural exports, subsidies to British farmers and the access to other markets that banks and other UK services companies now enjoy. “Pretty much all of the UK’s trade [with the world] would somehow have to be negotiated,” he said. The WTO had never gone through such discussions with an existing member, he said, and even the procedures for doing so remained unclear. But the likely complexity of such talks, Mr Azevêdo said, made them akin to the tortuous “accession” negotiations countries go through to join the WTO. Even a small economy such as Liberia, which last year became the WTO’s 162nd member, took years to agree the terms of membership. 

Look at it this way; I have a company called UK Plc that I want you to invest in. It’s about to have a price increase on its products – that could be a single digit or even double digit percentage hike, depending on the product. There are competing products that don’t have this price hike and customers could switch to them because they’re cheaper. I say I’m going to find new customers, but I don’t know who at this time and I don’t know how much my goods will be priced above the price they currently sell for in the UK – I don’t have a plan. Would you invest in UK Plc with that level of uncertainty? 

Some maintain that the UK has the upper hand in negotiating with Europe as we buy more from them that they buy from us. Post Brexit the value of EU exports to the UK is approximately 3% of EU GDP; not negligible by any means, but equally perhaps not as dramatic as one might think (figures are notoriously difficult to determine and many Brexiteers – like Dan Hannan, MEP - are simply plucking figures of 21% from the air, admitting they are incorrect when questioned, but refusing to delete them). The EU, and even more so the UK, would certainly have a strong incentive to negotiate a sensible trading arrangement post-Brexit, but no-one should imagine the UK holds all the cards. For example, I wouldn’t like to try getting the French farmers to accept the importation of Welsh lamb post Brexit (today France is Welsh lamb’s largest EU customer). 

CAP and Fisheries Policy: 

As for the CAP - it gives Europe food security at the cost of overproduction. However, without it, we would be dangerously dependent on fluctuating imports. Farmers need the stability CAP provides. Left to the mercy of the market they couldn’t invest in improvements to food safety or environment protection. CAP ensures Europeans have stable food supplies at reasonable prices. As global warming increasingly impacts on harvests it’s even more important to protect domestic food supplies. Without CAP, all 27 EU nations would develop their own competing farm support systems creating single market chaos. 

The counter to this is that it was designed by the French to protect their agrarian economy, and there is a truth in this. However, at stake, for farmers is the roughly £2.5 to £3bn a year - varying according to the euro exchange rate - that farmers receive from Brussels. This is paid on the basis of the area of land they farm, and efforts they make to improve the environment, for instance by maintaining habitats for wildlife. Farmers also benefit from access to the EU market, which accounts for more than half of all British food and farming exports, amounting to more than £11bn a year. The NFU think it highly improbable that if we left the EU there would be £2bn a year to spend on farming and the environment from the £18bn dividend- there are too many competing demands and farming is not high on the government agenda. 

Over-fishing by UK trawlers caused the decimation of the fishing industry decades ago – it was the cause of the Iceland Cod Wars. Short term interests trumped sustainability at every turn. Any mention of 'conservation' was met with angry denouncements by fishermen. Yes, they were sawing off the branch they were sitting on but they were persuaded that conservationists were the enemy. They didn't care. Yes, the fisheries policy got off to a poor start, but it was EU quotas that have rejuvenated stocks to the extent where our stocks are once more on the increase and sustainable. The UK never stopped the Dutch and Spanish quota hoppers by stipulating the %age catch they had to land in the UK, which we could easily have done within EU rules. And did you know that British fishermen unloaded their catch in Spain and Portugal because they got a better price there? They were complicit. 

The Norwegian Model: 

The Norwegians pay more per head into the EU than we do – they don’t have the luxury of the rebate. A non-starter if you can do sums. £89 per person per year in the UK versus £134 per person in Norway. Norway’s ‘right of veto’ does not stop the EU enacting legislation and, if it relates to product standards or financial regulations, for example, Norway cannot use the old ones to continue to export to the EU and can therefore find itself locked out of the Single Market in the areas affected. 

Becoming Great Again: 

Relying on a halcyon past is not enough - for a start we don't manufacture much these days – almost 50% of our exports to the EU comprise financial service and insurance. Those industries gravitate to wherever trading conditions are best and where the major market happens to lie - which means within the much larger EU (and is why they're here now - we’re in the EU). Also some of the European car manufacturers who have based factories here will relocate to mainland Europe or scale down production to meet only domestic demand. Won’t they? Why not if it’s in their interests – logic. Bertelsmann Foundation’s recent survey of 700 British and German firms found 29% would cut capacity or relocate, with 80% firmly behind UK staying in the EU. This is in the public domain. 

For Britain to become ‘Great ‘again and become what we once were means longer hours and lower wages. There's no magical formula that doesn't involve either of those two factors, and we’ve become remarkably reluctant at accepting either of them. Never forget that when Britain was ‘Great’, there was grinding poverty in the working classes and frequently high unemployment – those two were the fuel of greatness and the plutocrats and the manufacturers ruled Britain. Since then we fought two world wars, lost the Empire (as the price for the last war), lost the shipbuilding industry, lost most of our car manufacturing – all these were before we even joined the EU. The 60s and early 70s were a litany of industrial decline. We did resurge with services, but those services are predominantly financial and insurance – two industries which show no patriotism whatsoever and, as I said before, comprise 50% of our exports to the EU. Merely wishing for an 1860s Great Great Britian will not make it happen. Britain’s industrial decline was nothing to do with the EU, but entirely self-inflicted and caused by power struggles between incompetent management and unions unwilling to accept productivity improvements. 

Yes, Britain can exist outside of the EU, but not without a fundamental readjustment, which is very likely to be painful for the reasons given above. 

TTIP: 

As for TTIP - Hollande (as the leader of a country with the largest public sector in Europe) has said that, due to the implications for public services, he will not ratify TTIP as it's currently written. Other countries, like Austria, have said the same. Cameron is quite happy with the wording, but there again it's the Conservatives who want to sell off the NHS. Now if we leave the EU, Cameron (or Boris) is free to implement TTIP as it stands - with dire consequences for the NHS. Again, please refute the logic. It’s all very well saying that if that does happen then the Conservatives can be voted out, but that’s like shutting the stable door once the horse has bolted. 

Freedom from Interference: 

And then you have to ask yourself how the EU actually impacts you in your day-to-day life - besides those bloody eco light bulbs, 5p on a plastic bag and interfering in how you dispose of your fridge (oh, and having the temerity to reduce you mobile roaming charges and affording you cheaper European goods - that's a severe curtailment of our right to pay more). The EU does not set our tax, does not build roads, does not run the NHS, does not defend us (but could, and perhaps should, given Putin’s sabre rattling), does not pay pensions and benefits - in fact, its effect on you is negligible, if any – except in the area of jobs and subsidies, if your business is on the subsidy list. The structural problems within the UK – the NHS, education, poor productivity, the demise of manufacturing – have nothing whatsoever to do with the EU, they’re national problems. 

German Control and Hegemony: 

Many are attacking Germany’s post war rise and saying the Germans are trying to achieve by economic means what they failed to do in two world wars. The comparison is facile. The rise of Germany after WWII was due to the UK grabbing all the (old) German technology and manufacturing tools as reparations and using them to augment the UK’s domestic manufacturing capability, leaving Germany to take advantage of the Marshall Plan to rebuild Europe. The effect was that Germany received brand new tooling while the UK was left with old, redundant German tooling and the post-war Labour government squandered its Marshall Aid on trying to maintain our position as a world power and banker for the sterling area – and building council houses (houses for votes). It was our own fault, and if you don’t believe me you just have to read the biography of Sir John Harvey Jones, who was the CEO of ICI and there in Germany after the war when we raided the German factories for technology. 

Immigration: 

This is what the Leave campaign is pinning its hopes on and is admittedly an issue. Turkey will not get into the EU until it meets the entry qualifications, one of which is recognition of Greek Cyprus, an EU member state. That’s not likely to happen in the short term, or even long term. Added to that, they have to redefine terrorism and their relation with the Armenians – another issue that’s not going to be resolved any time soon. Then there’s the human rights issue when Erdrogn is gathering more and more power to himself. The population of Turkey is 79m and any suggestion that the entire population of a country with a 5.7% growth rate (January 2016) would immediately up sticks and move to the UK with a growth rate of 0.4% (January 2016) is risible and plays to the anti-Muslim gallery, which is sizeable on the UK. The final nail in the coffin is Germany’s recognition of the Armenian genocide. 

The influx of Muslims seems to be a big subject, especially in northern towns, but the vast majority of Muslim immigrants in the north are ex Commonwealth, not EU and therefore not part of the EU freedom of movement. 

Control our own borders? We already do – remember that passport thing and the long queues at Heathrow? Are we going to do a Trump and ban all foreigners post Brexit. That won’t do the tourist industry any favours. There will always be visitors overstaying their visas, capitalising on relatives already here or simply sneaking in – that won’t stop post Brexit. And don’t expect the French to hold the Calais migrants any longer. Rubber boats crossing the Channel won’t miraculously disappear if we leave either. 

The issue is immigrants from within the EU and the free movement of labour. I have to hold my hands up and say there is no short term solution. We must work through the EU, and the EU recognisers the problems – and we have enough friends there (especially after Austria came within a whisker of voting in an extreme right-wing government) to effect the necessary change to limit numbers, such as changes to social security legislation, which is already under discussion within government. 

This is from a recent meta-analysis of the effects of immigration on wages: 

 • The impacts of immigration on the labour market critically depend on the skills of migrants, the skills of existing workers, and the characteristics of the host economy. Research evidence on the labour market effects of immigration is thus always specific to time and place. 

• UK research suggests that immigration has a small impact on average wages of existing workers but more significant effects along the wage distribution: low-wage workers lose while medium and high-paid workers gain. 

• The wage effects of immigration are likely to be greatest for resident workers who are migrants themselves. 

• Research does not find a significant impact of overall immigration on unemployment in the UK, but the evidence suggests that immigration from outside the EU could have a negative impact on the employment of UK-born workers, especially during an economic downturn. 

• For both wages and employment, short run effects of immigration differ from long run effects: any declines in the wages and employment of UK-born workers in the short run can be offset by rising wages and employment in the long run. 

It’s also worth noting that economic migrants are usually unskilled, and that invariably means they enter the market at the lowest rates, being the minimum wage, which cannot drop further. Competition for jobs at that end of the scale is determined by willingness to work hard. 

Enoch Powell is always mentioned in this context. People think he was a racist - he wasn't. He'd lived in India in his youth and had seen first-hand how the Muslims, Europeans and Hindus all lived in their isolated communities. That's what he called communalism and that's what he objected to, not immigrants themselves. People are fond of quoting the Rivers of Blood speech in defence of anti-immigration, but they're wrong to do so. He was actually instrumental in recruiting Caribbeans to fill the lack of workers in the NHS (and he was also trying to undermine Ted Heath). 

Sovereignty: 

Next to immigration the subject of sovereignty seems to be foremost; however, ask any Out voter which area they feel emasculated in or which EU laws they find objectionable and they fall silent. They are merely regurgitating the Exit mantra without any analysis or thought and areas of legislation totally within the remit of our government are attributed to the EU. The EU is a regulatory body and it’s entirely logical it should formulate regulations on trade. It has strayed into workers’ rights and consumer protection – both of which affect trade and can in no way be said to impinge on rights. Quite the reverse; they confer rights that governments don’t necessarily want workers or consumers to have. Only 14% of our laws (laws, not regulations) have been affected by the EU. Perhaps they object to the EU law banning the use of animals in cosmetic testing; perhaps some would like to repeal the equality rights for women or aren’t that bothered about food labelling? In any event, these EU laws that Brexiteers don’t like would still need to be followed when trading following Brexit. We would, of course have no say in any further EU enacted legislation. 

Bemoaning a loss of sovereignty is a bit rich when the current government was elected with only 24% of the vote. At least our MEPs are selected on the basis of proportional representation, which is manifestly more fair than first past the post. 

Interference in Our Judiciary by the ECHR: 

People are fond of conflating human rights law with the EU. The ECHR is not an EU institution, and while it is understood that membership of the ECHR is a prerequisite of EU membership, it’s by no means a barrier and any country is actually free to leave the ECHR, although no country to-date has done this, as the benefits outweigh the negatives. Don’t forget that human rights legislation is in place to protect you, the individual, and there are always people who abuse any system designed for a greater good – just look at social benefits. 

The Union: 

Scotland? The National Centre for Social Research calculates that 64 per cent of Scots voters endorse the European Union on the basis of more than a dozen polls taken in the past year. While there’s no current appetite for a 2nd referendum on the Union, the difference between those wanting another independence referendum and those who don’t is only 4% (44% vs 48%), with enough waverers to sway it either way. This could feasibly herald the breakup of the Union with part of our economy – the bit that makes money (admittedly not as much as it used to) from oil – going with it, thus further knocking us down the GDP table and fragmenting our clout. It seem strange that Brexiteers are so concerned with sovereignty and Great Britain’s future that they should risk the break-up of our country 

Red Tape: 

EU red tape? If UK business is being strangled by red tape, then why is business mostly in favour of remaining, especially at the big-business and digital end, where it’s overwhelming (yes, I’ll agree it’s evenly matched at the SME end)? Yes, there do need to be rules on “anchovy fishing in the Bay of Biscay” or there would soon be no more anchovies. Rules on the labeling of spirits ensure that drinkers know what they are buying and that exporters do not have to comply with a whole series of different national rules. It is likely that British consumers would agree that the addition of ammonium chloride- a potentially dangerous chemical if overused – as a feed additive for animals does need to be regulated. They might also want to know in clear terms how much energy water heaters use, so they can save on gas and electricity bills. Maximum residue levels for weed killers are necessary to ensure children do not get poisoned. But the broad picture is that rather than imposing additional red tape that would not exist without the EU, single market rules replace 28 national rules with a single EU rule, thus making life a lot easier for UK businesses operating across borders and boosting the overall economy at the same time. 

EU Army: 

Makes sense, if you ask me. In a recent TV programme where several ex NATO defence chiefs were brought together to see what their reaction would have been in the event of Putin rolling his tanks into the Baltics, the consensus was that NATO wouldn’t risk a war with Russia for the sake of a country with a population of 2m. So much for NATO membership. However, if the Baltics were part of a European superstate, Putin would think twice about poking the Baltics in the first place. Putin has 700k military personnel on active service with 2m in reserve. Europe combined has 1.55m personnel on active service, meaning cuts and savings could be made quite easily (no wonder UK defence staff are worried about the prospect of a European army). However, the treaty is clear that any plans for an EU army would require unanimity in the Council of Europe, meaning the UK would have a clear veto, not that I hope they would use it. 

It is worth noting that Donald Trump is on record saying; “I think NATO is obsolete. NATO was done at a time you had the Soviet Union, which was obviously larger -- much larger than Russia is today. I'm not saying Russia is not a threat.” This gives cause for concern if we’re relying on NATO – and especially the USA - being a foil to Putin. 

Our Fathers Didn’t Fight For This: 

“We didn’t fight two world wars for this.” Very few of us alive today actually fought in WWII, so it morphs into; “Our fathers didn’t fight in WWII for this.” My father was in WWII; he didn’t have the luxury of a gun in his hands – he was a sitting target in a Dutch cargo ship and was torpedoed – he met my mother while recuperating in the UK (and never forgave the Germans for that). Nevertheless, he was an ardent European. Just because your father fought in WWI does not mean you speak for all people who fought, that’s just too arrogant for words. 

Summary: It seems to me that many wanting Exit are just very, very angry and frustrated people who are pinning all those frustrations on the EU as a convenient whipping boy, as it’s not patriotic to lay the blame on your government – especially if you voted for the damned thing in the first place and have a convenient foreigner to blame. 

Many things attributed to the EU have nothing whatsoever to do with the EU and are totally within the remit of government, but that doesn’t matter to the Out camp. Out voters are like Luddites whose horizons stretch no further than their garden fences, raging against the machine – they rail against something that, in the main, they don’t seem to understand, or indeed (if some of the responses I’ve had are indicative) want to understand – they just want to kick it as the physical manifestation of their anger and personal issues. It’s basically like writing graffiti on the wall. They don’t like being told what to do, while not realising that MPs and local councils are constantly telling them what to do every day of their lives. 

The older Brexiteer has a nostalgic and rose-tinted recollection of a time when there was more deference, far less equality, poverty, slums, dirty air, polio, rickets and TB. I can’t prove this, but I have a strong suspicion that those calling loudest for exit (and complaining about our lack of influence in the EU) are the very ones who have never voted for an MEP in their lives. However, one thing we can be grateful to them for is the fact the large opposition to the EU will make reform a lot easier after the referendum. 

Is it worth it on the basis that, a) the UK annual expenditure is £772bn and b) the spend on the EU, less the rebate and subsidies is £9bn. That equates to 1.17% of the UK expenditure (or 0.03% of receipts), and that’s before we consider the benefits in jobs and prices from no tariffs.

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4 comments:

  1. I am very sorry but I was unable to read all that you wrote. It reminded me of a holy book and I have always avoided stuff that goes on and on.... so I read the last ten lines and thought to my self he must know what he is talking about.

    Anyway it was 28.6 deg C here today and inside the car after we returned from shopping was 38.5 a trifle hot you know.

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    1. You're joking - 28.6? I think we reached 21, but a cool breeze.

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  2. Ah' we get what we deserve...... according to (misguided) religionists!
    It was and is though luvverly :)

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