a bitter melon

Brexit: six weeks on

Let's begin with a bit of soul-searching by John Lanchester:

London Review of Books -- Brexit Blues (Jul 28, 2016)

What, over the last few decades, has been the political ‘offer’ to these people? In truth, nothing much. The reality of the modern British economy is that the thriving sectors raise the taxes which pay for the rest. The old work has gone and is not coming back.


One of the things you notice, travelling around the country talking to people about economics, is that young people in particular feel they are living in an economic system rather than a political one. They think about jobs and paying the rent and whether they will ever own a home and, increasingly, about student debt, and they don’t see politics as having anything to say to them about those issues. That’s because the economics are the same irrespective of which political party is in charge.


There is a real darkness in this country, a xenophobic, racist sickness of heart that is closer to the surface today than it has been for decades. That is a direct result of the referendum campaign. The campaign’s dual legacy is the end of the idea that politics is based on rational argument, and a new permission to hate immigrants. In politics, these new realities are going to be much more important in the years ahead than the details of exactly which half-bright Tory is in charge.

Also in the LRB earlier this year, James Meek with a Robin Hood for our times:

London Review of Books -- Robin Hood in a Time of Austerity (Feb 18, 2016)

The wealthiest and most powerful in Europe, Australasia and North America have turned the myth to their advantage. In this version of Robin Hood the traditional poor – the unemployed, the disabled, refugees – have been put into the conceptual box where the rich used to be. It is they, the social category previously labelled ‘poor’, who are accused of living in big houses, wallowing in luxury and not needing to work, while those previously considered rich are redesignated as the ones who work terribly hard for fair reward or less, forced to support this new category of poor-who-are-considered-rich. In this version the sheriff of Nottingham runs a ruthless realm of plunder and political correctness, ransacking the homesteads of honest peasants for money to finance the conceptual rich – that is, the unemployed, the disabled, refugees, working-class single mothers, dodgers, scroungers, chavs, chisellers and cheats.

Legal and political wrangling

A Brexit flight check by David Allen Green:

FT -- Brexit and the challenges of reality (Aug 1, 2016)

The Canadian diplomat Jeremy Kinsman has a scathing phrase for the predicament of the pro-Brexit UK government. The Brexiteers, the former high commissioner to the UK and ambassador to the EU, observed, “are the dog that caught the bus: they hadn’t thought what to do next”.

It's a great quote that captures the sentiment immediately after the vote: if the incompetent and irresponsible Brexiteers want to leave our fabulous Union, well, get out! Invoke Article 50 and don't let the door hit you on the way out.

But -- now that tempers have subsided a little and a general morning-after confusion has taken hold -- how competent and responsible would that course of action really be?

There is no sensible reason to believe that the UK could extract itself from the EU (a more complex entity than the EEC) in the two years envisaged by Article 50.

This is no surprise: Article 50 was never intended to be a practical provision. It was there just for decoration. It was an ornament, not an instrument. [...]

Article 50 is at best a beginning and nowhere near an end. Last week Charles Grant at the Center for European Reform outlined the work that needs doing:

Center for European Reform -- Theresa May and her six-pack of difficult deals (Jul 28, 2016)

The Brexit negotiations will take much longer and be far more complicated than many British politicians realise. One set of talks will cover Britain’s legal separation from the EU, the second a free trade agreement (FTA) with the EU, the third interim cover for the UK between its departure from the EU and the entry into force of the FTA, the fourth accession to full membership of the WTO, the fifth new FTAs to replace those that currently link the EU and 53 other countries, and the sixth co-operation on foreign, defence and security policies.

Still, there are people who insist on purposeful idiocy. Conservative Member of Parliament Bernard Jenkin pretends not to understand why everything needs to be so complicated:

FT -- There is no such thing as hard or soft Brexit (Jul 31, 2016)

There are two crucial legal components of Brexit. The first is Article 50, the procedure laid down by the EU treaties by which we disapply these treaties to the UK in international law. This is implemented by an act of Parliament, which is the second component. This need be no more than a few clauses, including one to repeal the European Communities Act of 1972, which currently implements EU law into our domestic law, and another to incorporate all the EU laws that apply directly in UK law into UK statute. That is what Brexit is; there is no “hard” or “soft” option.

For Juncker's 'political commission' Brexit presents another opportunity to bully people. The beatings will continue until morale improves!

Politico -- Switzerland becomes Brexit casualty (Aug 2, 2016)

The U.K. vote to leave the European Union threatens to claim collateral damage in Switzerland, whose own negotiations with the bloc have become much more difficult as a result.


“Basically, Switzerland will get a ‘Cameron minus minus’ deal,” said an EU source close to the talks, referring to the agreement struck in February between the former British prime minister and the EU to restrict some welfare benefits for migrant workers in the (vain) hope of persuading Britons to vote in favor of continued membership.

Economic voodoo

If the legal and political implications of Brexit seem muddy, the prognosis on economic consequences is a veritable Rorschach test.

For example. On Monday, Citigroup made a regulatory filing with the SEC which touched on the effects of Brexit. Reuters reports that Citigroup experienced "no significant negative impact":

Reuters -- Citigroup says no 'significant negative impact' from Brexit (Aug 1, 2016)

Citigroup Inc (C.N) said on Monday it did not experience any "significant negative impact" on its results or client activity as a result of Britain's vote to exit the European Union.

... while Bloomberg highlights "significant uncertainties":

Bloomberg -- Citigroup Sees ‘Significant Uncertainties’ After Brexit Vote (Aug 1, 2016)

Citigroup Inc., the lender that draws more revenue from abroad than any of its U.S. peers, said it expects a challenging business environment in part because of “significant uncertainties” following the U.K.’s surprise vote to leave the European Union.

While Larry Elliot at The Guardian sees fears of economic recession confirmed:

The Guardian -- Hopes that UK business would shake off Brexit vote now look fanciful (Aug 1, 2016)

The final figures for how industry fared in July are in and they were even worse than the flash estimate released 10 days ago.


Some comfort could be taken from the fact that the drop in output and orders after Brexit was not nearly as marked as those during the recession at the end of the 2000s. But not much. The slump in the economy between early 2008 and late 2009 was the most severe suffered by the UK in the entire postwar period.

... The Telegraph reports on surging growth:

The Telegraph -- Surging world growth makes a mockery of Brexit panic (Aug 2, 2016)

Global economic growth is accelerating sharply after months in the doldrums, confounding predictions of a worldwide recession following Britain’s Brexit vote.


The Fed is in effect acting as the central bank for the whole world, giving a shot in the arm to an international financial system that is has never been so tightly-linked to the dollar or to US borrowing costs – at least since the end of the Gold Standard.

The Japanese are launching a giant fiscal package – in theory 5.7pc of GDP – while France, Italy, and other eurozone states have taken advantage of the Brexit scare to end austerity more quickly than planned and to prime pump their economies.

The net effect is double-barrelled monetary and fiscal stimulus across the world probably overwhelms any of the inchoate and mostly political worries stemming from Brexit – at least in the short-term. It is hard to see what can now justify Morgan Stanley’s decision to raise its risk probability of global recession over the next year to 40pc after the referendum.

Nouriel Roubini does a Grand Tour (of Europe's Problems):

The Guardian -- Why Europe needs new political vision after Brexit (Aug 1, 2016)

Leaving aside other global risks (including a slowdown in already-mediocre US growth, more fear of a Chinese hard landing, weakness in oil and commodity prices, and fragilities in key emerging markets), there is plenty of reason to worry about Europe and the eurozone.

First, if the UK-EU divorce proceedings become protracted and acrimonious, growth and markets will suffer. And an ugly divorce may also lead Scotland and Northern Ireland to leave the UK. In that scenario, Catalonia may also push for independence from Spain. And without the UK, Denmark and Sweden, which aren’t planning to join the eurozone, may fear that they will become second-class members of the EU, thus leading them to consider leaving as well.

Second, upcoming elections promise to be a political minefield. Austria will repeat its presidential election in September, the previous one having ended in a virtual tie, giving another chance to the far-right Freedom party’s Norbert Hofer. In October, Hungary will hold a referendum, initiated by the prime minister, Viktor Orbán, on overturning EU-mandated quotas on the resettlement of migrants. And, most importantly, Italy will hold a referendum on constitutional changes that, if rejected, could effectively jeopardise the country’s membership in the eurozone. [...] No EU program can backstop Italy’s €2tn of public debt (135% of GDP).

In light of these problems, perhaps life is better outside the EU? The Wall Street Journal considers:

Wall Street Journal -- Pro-Brexit Economists See Growth Opportunities for the U.K. (Aug 1, 2016)

Brexit presents economic opportunities, according to a small coterie of mainly British-based economists.

Britain can pivot itself away from the low-growth EU toward more dynamic economies, such as the emerging giants of Asia. The U.K. exports more goods to Ireland, with a population of 4.6 million, than to China.

Critics of the EU also argue the bloc has been particularly poor at negotiating trade deals. After six years of negotiation the EU has still not struck a trade deal with Canada.

Quo vadis?

Prime Minister May has announced that she wants to resurrect British manufacturing to provide growth for everyone -- an echo of Wohlstand für alle and Adenauer-style conservatism?

Reuters -- PM May resurrects industrial policy as Britain prepares for Brexit (Aug 2, 2016)

May will chair the first meeting of the "Cabinet Committee on Economy and Industrial Strategy" in her Downing Street Offices, bringing together the heads of 11 other ministries to set out her vision for a state-boosted industrial renaissance.

"If we are to take advantages of the opportunities presented by Brexit, we need to have our whole economy firing," May said ahead of the meeting in a statement released by her office. "We also need a plan to drive growth up and down the country – from rural areas to our great cities."