On Brexit

Spent two days in London this week. Did a ‘huge’ sampling of five people: three said they would vote to leave; one said that he would to remain and one was indifferent. The final vote may be a lot closer and may even be in favour of Britain voting to stay in the European Union (EU). I left London on Thursday morning. So, these guys (yes, all were men) were polled before Jo Cox was killed.

The vote will remain too close to call until it is over. Even if the vote was in favour of Britain remaining in the European Union, it would not settle matters unless the vote was overwhelmingly in favour of ‘Remain’. Indeed, it would be a pyrrhic victory and could be worse than a vote to leave EU.

On the other hand, from what I hear, even those who are in favour of voting to leave concede that Britain’s financial sector would see exodus of business to Frankfurt or Paris. Well, if it happened, perhaps, that is what the doctor ordered for economic stability in Britain!

My sense is that the fallout of leaving are exaggerated. I said as much in my MINT column last Tuesday. Nor would staying inside the European Union mean that Britain’s profoundly disturbing structural economic problems would melt away. If anything, staying inside the EU had not prevented the emergence of these issues.

The UK has a 7% trade deficit. Perhaps, the ‘leave’ camp, if it won, might precipitate a recovery of British competitiveness with a collapse in the value of the sterling. Clearly, sterling would bounce if the vote was in favour of status quo but that would be fleeting.

Mervyn King, former Governor of the Bank of England, thinks that both sides have made exaggerated claims. He is happy that Britain did not join the monetary union. But, he also thinks that had Britain joined the single currency, it would have left by now and that other countries would have followed suit and the whole of Europe would be better off! He is no fan of the Euro. I am almost done reading his book, ‘The end of alchemy’.

In a lengthy post, published yesterday, John Mauldin noted this and he is right:

Whatever the result, you can bet that the sentiments being expressed by the Leave camp are not going to go away anywhere in the world anytime soon. And that you can take to the bank.

Pew Research Centre’s findings support him. He also notes that the opinion polls might be a poor guide to the final vote:

Right now “Leave” seems to have a substantial lead in the polls; but as Brent Donnelly pointed out this morning, the leave vote when Québec was deciding whether to abandon Canada and the leave vote when Scotland was deciding whether to part company from the United Kingdom were both ahead in the polls right till the very end. It seems that on big, close decisions we end up opting (if barely) for the known rather than leaping into the unknown.

You should read the full post for the points he is making and for the links he is providing.

Even though I had mentioned this already in an earlier post, I found Ambrose Evans-Pritchard’s piece in Telegraph both thoughtful and humble. Personally, he prefers to see Britain leave EU. The arrogance that is amply on display among FT writers who argue the case for Britain to remain within the EU was missing. That was refreshing.

All the same, the unfortunate murder of Jo Cox, a British MP, known for her staunch views on ‘remaining’ within the European Union, might have unexpected repercussions. People might be shocked out of their bravado of wanting to leave the European Union. Indeed, if one were cynical, one might even wonder as to who killed her and for what purpose. The stakes are very high and it would be foolish to rule out anything.

To understand this, read what John Mauldin writes, referring to the remarks of Neil Howe at his conference:

Neil Howe demonstrated at my conference that we are in the last half of what he calls “the Fourth Turning,” and he stated that the coming strife and chaos will be more than we have seen in the last eight years; so this divide is not just a passing phenomenon. It resonates with events that have happened roughly every 80 years in the Anglo-Saxon and European world for the last 400 years.



2 thoughts on “On Brexit

  1. I think you are underestimating the vulnerability of Britain – the trade deficit number you quoted is actually current account deficit : there are not that many countries in the world which run a 7% CA deficit (especially an economy like UK which is supposed to get net positive transfers due to years of overseas capital investment) – http://www.bbc.com/news/business-35931968 : on top of this is a structural budget deficit which has been running at around 4% and they have been unable to tame it : http://www.thisismoney.co.uk/money/news/article-3551419/Osborne-overshoots-borrowing-target-74bn-budget-deficit-financial-year.html : UK with a twin deficit of 10-12% is a very vulnerable economy currently : and this deficit is not cyclical.


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