On Brexit, A Scenario

I was talking over lunch with the finance director of one of our
larger companies about Brexit. He ought to have more idea on this than
I do.
What happens next? One scenario: May finally capitulates to pressure
from Tory Outers, say next January, and triggers Article 50, or
whatever you do with the wretched thing.
So come January 2019 the UK is no longer in the EU. It is
inconceivable that the necessary trade deals with EU members can be concluded by then.
I am a manufacturer who wants to ship my goods to my regular customers
in Germany. Does the German state impose tariffs? Not in their
interest, if it risks similar action by UK Govt. They still want to
sell us Mercedes.
If I were manufacturing in Norway, outside the EU, no problem because
the necessary trade deal is in place, as I understand it. But come January 2019 there will
be no UK-Germany trading pact.
Another complication: a huge chunk of our “trade” with the EU is
actually goods shipped to Rottedam and then sent elsewhere, to places
where we presumably have trade deals. Is that affected?
My point is that no one knows the answer to any of this. Neither me, nor
my lunch companion. It would be an utterly irresponsible act by UK Govt to
trigger Article 50 until we do, given  such huge uncertainty
So here is another scenario. We send those charged with bringing about Brexit with finding out the answers to those questions. That should keep them busy. We stagger on in this Heisenbergian state, in but potentially out, for three years and then both parties go to the election with a commitment to staying within the EU, given those uncertainties. Which is what most of the country actually wants. Boris could change his mind again.

The Tory right erupts, but none are going to vote Labour. Ukip is a busted  flush. The Daily Mail has an aneurysm. The next (Tory) government carries on with the UK in the EU. The last four years look like a bad dream. Bobby Ewing waking in the shower.

(Is that right? My grasp on some parts of popular culture is a bit vague.)

 

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On Demographics, And Brexit

Here is an interesting fact to throw into the whole Brexit debate. Last year, for the first time ever, more people died in the EU than were born. The population of the EU, about 740 million, shrunk by 135,000, if you take out the effects of migration.

Of the biggest countries, only France and the UK saw a natural increase. Germany shrunk at a faster rate than any other country. To cut the figures another way, if the UK, and its natural increase in numbers, was excluded, that total fall of 135,000 would have more than doubled. The EU is running out of people, as are other advanced economies such as Japan. We in the UK are merely better off than most.

Obviously, migration makes up the difference, and then some. But a shrinking population, which is by definition an ageing one, is bad news for all of us. Which is why we are having to import so many economically active younger people.

Those Brexiteers who want that inwards migration to cease will have to face up to an inconvenient truth. If you are not prepared to allow people into the country to do the needed work, you are going to have to do it yourself. Which means a later retirement date.

Given that those voting for Out were, proportionately, older than those voting In, I wonder if they appreciated just what they were voting for, a longer working life. I rather think not. The Law of Unintended Consequences again, then.

On Brexit, And Teenage Idealism

I appreciate that in some circles today this will be as popular as admitting an earlier interest in paedophilia, but I campaigned in favour of the UK joining the EU ahead of the June 1975 referendum.

Aside from the clear business benefits of an open market, I had two main reasons for doing so. One, the French had been blocking us for years, in what looked like either spite or a bid to protect their own inefficient markets.

Two, the Communist Party, active at my university, was dead set against it. “No to the bosses’ Europe” was their slogan. I thought that if the Kremlin didn’t want a more united Europe on its doorstep, a more united Europe we should have.

Since then, to misquote Emperor Hirohito, the European project has worked out not entirely to our advantage. We did at least avoid the euro.

This summer’s referendum will lead to a vote to remain in, just as did the Scottish referendum, and for the same reason. Referenda tend to be carried by people who do not want change, rather than those prepared to risk it. We are at heart a cautious people.

This has led to the unattractive sight of many of our elected politicians being prepared to subsume their principles to their political ambitions. No big Conservative figure has stepped forward to lead the out campaign, even though they wish to leave, because they know this is going to lose, and they do not want to risk any further advancement to their careers by upsetting Number 10.

Perhaps if they were not so confident that the next election will see a Labour defeat, so prolonging those careers, they might be more prepared to make a stand. Politics is full of such grubby compromises.

Next time one of those shy Outers, and we know who they are, uses in a speech the word “principle”, bear this in mind. They don’t have any.

And I do hope this is the last thing I have to say on the subject.

On Chief Executives, And The Blob

In my job I get to meet a lot of businessmen and a fair few politicians, obviously. I have suggested before that politicians generally go into politics to make the world a better place. Businessmen aim to make money. Their respective personality types may often reflect that.

What is interesting is when the two worlds interact. There have been successful businessmen, often entrepreneurs, who have done well as politicians – one thinks of Lord Young of Graffham, who supported Margaret Thatcher so loyally, or Michael Heseltine. Who often didn’t.

I struggle to think of a leading politician who then became successful in business. Most politicians have a legal background or, increasingly, have been policy wonks at this or that think tank or pressure group. This does not provide much training for the real world.

Every now and then a business type, having made his or her pile, decides to do their bit for the common good, by taking a post with government or another public role. This is generally a disaster, involving several frustrating years of being sidelined or ignored, publishing reports that no one reads.

Stuart Rose, who used to run Marks & Spencer, has popped up this week running one of the various pro- or anti-EU bodies that seem to have proliferated like the old breed of Trotskyist splinter groups, dividing over policy differences largely imperceptible to outsiders.

Rose is with one that wants us to stay in. I would have thought, until relatively recently, that an In vote was a racing certainty. Given the migrant crisis, I am less sure.

I suspect Rose will ultimately regret his decision. A chairman or chief executive has immense power, at least until the shareholders in the City lose patience, and can generally get things done. (Often the wrong things – see my recent post on Incompetent Leadership.)

The first thing politicians discover is a surprising impotence in office, against vested interests and obstinate civil servants. Michael Gove famously described those vested interests, when he was in charge of education, as “The Blob”. Chief executives don’t have to worry about The Blob.

On Grexit – A Contrarian View

I have been writing about Greece for some time now, on and off, and I am still not sure I have grasped what all the fuss is about. We are told that Grexit, the departure of the country from the euro, might be followed by some unimaginable catastrophe that could shake world financial markets to their foundations.

No one has quite explained what it might be. World stock markets have been tumbling. Even Monday’s collapse on Chinese markets was being blamed in part on Greece, a country of ten million people a large continental landmass away. Rather than China’s unsustainable asset bubble, as unsophisticated investors have borrowed billions in the hope of striking it rich buying fantastically expensive tech stocks. (Sound familiar?)

If Greece exits, what happens? I am told the event would send shockwaves through the world economy and destroy confidence. Again, given it seems a foregone conclusion, no one can quite explain why.

The obvious consequences would seem thus:

A loss of face on the part of the unelected Brussels autarchs who put the euro together in the first place, on the assumption that no one would ever want to leave. Too bad.

A hit on European banks that were foolish enough to lend to Greece, the main reason the whole affair has been dragged out for so long. UK banks’ exposure is limited, and often in areas such as shipping that will continue regardless of what happens to the Greek economy. Those European banks are in far better shape than they were four years ago, and more capable of taking the hit.

Little real pressure among other southern European countries to quit. The likes of Spain, and even Italy, are likewise in a rather better place than they were three or four years. Their bond yields, the amount they have to pay to borrow, reflect this and are at historically quite low levels. They would not be if anyone seriously thought they could follow Greece of the door.

The collapse of the Greek banking system. Widespread social disruption and suffering. Probably the need for some sort of international aid package – as opposed to more debt. Desperately regrettable, but with Greece accounting for less than 2 per cent of EU GDP, again, little relevance outside.

The loss of the bulk of savings held in those Greek banks, both from their collapse and the sharp devaluation in the successor currency, the drachma, against the euro. Imported goods will become horribly expensive, while Greece only produces two things, food and tourism. For the social effects, see above.

Tourism, though, will suddenly become much more attractive to outsiders, who will bring in hard currency, though Germans might consider going elsewhere for a while.

As to the wiping out of those savings, someone really callous might liken this to the payment of all those back taxes the Greeks have been avoiding for years. I couldn’t possibly say.

Greece has always seemed to me one of those places that, amid much that would resemble chaos elsewhere, somehow seems to muddle along.

Obviously, greater minds than mine are worrying themselves sick over Grexit. There must be something I am missing.

On Business And The EU

I was listening the other day to a businessman I know rather well avoiding a straight answer on Radio 4 to the simple question of whether he favours the UK staying in or leaving the EU.

We have more than a year of this to grind through, and you might as well ask every senior UK executive who their favourite Beatle was, for all it matters. Still, every single one will be asked. The answer is that, whatever their personal views, almost all would suffer in terms of their own business from a British exit. That is a given. Not one sector of industry, services or commerce that I am aware of will do better outside the EU.

During last year’s Scottish referendum it was different. Then, substantial Scottish employers were asked how independence would affect them, and a number pointed out that it would be a negative, to the point that several had drawn up plans to relocate south of the border if this happened.

One told me that having a tariff border between two parts of what was then, and still is, a single country would be a serious encumbrance in terms of added red tape. Other financial services companies made it clear they would much rather operate in the City than in an independent Scotland. That will have had some effect on the eventual vote.

Interesting, then, those business leaders who have emerged as part of a pressure group that wants us to leave the EU, even though, by my analysis, their firms would suffer. This must be a rare example of principle trumping economics in the business world.

It still doesn’t make them right.

On The EU, And Totalitarianism

I tweeted the other day about the rudeness and aggression of a Eurosceptic interviewed on the Today programme. An old City mate tweeted back that not all Eurosceptics are aggressive and unpleasant, just sick and tired of the huge waste of money at the EU.

Fair point, though the sceptics do sometimes descend to tooth-grinding rancour. Brussels is indeed a corrupt kleptocracy utterly immune to the normal democratic checks and balances that control the behaviour of national governments.

But I think there is one element in this debate that is often missed in the UK. We have an attachment to our body politic and belief in our democracy that goes back, rightly or wrongly, a thousand years  – look at this week’s celebrations of Magna Carta.

Almost every other EU country has, within living memory, either been overrun by undemocratic, tyrannical states from outside, fascist or communist, and seen a degree of collaboration with them, or had the same imposed on it from within. Eg the Nazis, Mussolini, Spain under Franco, Greece under the colonels. Within living memory. The only exceptions are Sweden and Ireland

There isn’t the same inbuilt trust in that body politic, especially in southern European states where government and the business world may themselves be corrupt to the core – Greece, Italy, Spain to a lesser extent.

The attraction of an over-arching supranational entity that was designed to ensure that those totalitarian regimes cannot return, and which promises to ensure the maintenance of a degree of human rights, is clear enough. If it, too, is corrupt, and squanders millions, well, so what else is new?

A point, I think, often not appreciated in the country we are fortunate enough to live in. What it says about the UK’s membership of or departure from the EU I cannot say.

On Greece, And The Greeks

Many years ago we were sitting in a tavern on one of the Greek islands, enjoying lunch and the view from its terrace over the harbour. There was a long row of boats moored in a line along the jetty.

The one furthest away caught fire. After a while someone noticed. By that time it had spread to the next boat. We watched as people ran around gesticulating and attempting to dowse the flames. The fire kept spreading from boat to boat. They kept gesticulating, and flinging on water. Eventually the fire stopped spreading and went out.

At no stage did it seem to occur to anyone to do the obvious thing, which was to move the nearest couple of boats to the fire that were not already burning, so preventing the flames from progressing any further along the harbour.

I am by no means suggesting the Greeks are stupid. Far from it, as their historical record shows. They did invent civilisation. But the incident does rather imply that organisation and cooperation are not their strong points.

Lies, EU Lies, And Double Counting

It is not often I find myself agreeing with Ken Clarke. I sat next to him at dinner once and, without breaking any confidences, he did not strike me as someone tortured with self-doubt, shall we say.

But he has been on the radio about this absurd political row over Britain’s £1.7 billion “bill” to the EU. Examine the precise sequence of events, and this is nothing but a cynical ploy by Cameron to appear tough on Brussels, and take some much-needed votes from UKIP. The “bill” was leaked to the FT by someone presumably close to the UK in a carefully timed move. You don’t have to be a conspiracy theorist to understand why.

Cue Cameron: “Can’t pay. Won’t pay.” Cue the EU, slightly puzzled: “It’s the rules and you signed up to them. What is your problem?” Cue Osborne, this week: “I’ve halved it. It’s a victory for the UK.” No you haven’t, you’ll pay it in two tranches. Not the same thing.

Let’s examine the facts. Britain’s annual contribution to the EU, from the most neutral source I can find, is about £12 billion a year. This is a net figure, taking into account what we pay and what comes back.

£1.7 billion might seem like a large increase on this. But it is an adjustment to earlier payments, taking account of the different performances of the relevant economies, and it dates back to 2002. This means the payment is actually less than £170 million a year. This may sound a lot, but in the context of that £12 billion, it is a minor rounding error, as accountants put it.

Plus, these are the rules. The EU, and God knows it hurts to defend it even more than it does to agree with Ken Clarke, is a common market, first and foremost. The individual contributions to running it are judged according to the size of the individual economies, and plainly, if one grows more than another, its contribution increases. I am simplifying here, but not by much.

As Clarke points out, if the numbers had stacked up to give the UK a £1.7 billion payment back into our coffers, do you think we would have been complaining? And for this to have happened, our economy would have had to perform much worse than it has over that period.

A cynically manufactured row, then. Mind you, if the actions of Farage, that Dulwich-educated former City bonds trader who markets himself as a man of the people, and his delightful crew threaten to hand Ed Miliband the keys to Number Ten, any number of cynical, underhand ploys might seem justified.

Bloody politicians.

On Portugal, And Our Money

The Portuguese authorities have been forced to step in and bail out what was once the country’s biggest bank. Espirito Santo was run by a powerful family for the past century, and the bank’s near-collapse has revealed some odd goings-on behind the scenes.

So? Well, buried some way behind the headlines is the fact that the rescue was in part funded by a bail-out worth 78 billion euros provided by Brussels and the International Monetary Fund in 2011. If it is EU money, then a small, indeterminate amount will have come, indirectly, from you and me, via the EU’s budget which is paid for by member states.

So our money has gone to bail out a dodgy bank on the periphery of Europe. As it happens, and as I wrote here in April, we spent last summer’s holiday in Portugal. It is not somewhere you would want to invest your life savings. The evidence of an economy that abruptly hit the buffers and ran out of money, in the form of derelict buildings and abandoned infrastructure projects, is everywhere.

There is a football stadium somewhere in Portugal, built with EU money, that had to be demolished because no one could afford to play there and they couldn’t afford the upkeep.

The bills are now coming in for this sort of waste and profligacy, and guess who will end up paying them? Those parts of Europe that had the sense to remain solvent.

Probably inevitable. The consequences of letting those crippled economies rot would probably be worse than merely sighing and picking up the tab. I suggested in April the crisis in the Eurozone was a long way from resolved. All this year the euro has been weakening against currencies such as the pound, a clear indication of a loss of confidence on world markets.

This means taking a holiday in the eurozone is now much cheaper than when we went to Portugal last year. We, however, have chosen this time to holiday in expensive old Great Britain. That will be my well-known financial skills and acumen coming into play, then.