in deep trouble, but is it really in
Britain's interests to deliver the
final coup de gras? If the purpose of British foreign
policy in Europe down the
centuries has been to prevent the
emergence of a European
hegemon whether it be Spanish,
French or German dominated is this objective best served by
leaving the European Union or
staying in? New arrivals for
women Jumia I ask this essentially geo-political
question - of seemingly only
tangential relevance to the financial
pages - because the possibility of
Brexit is again said to be weighing
heavily on Britain’s increasingly turbulent capital markets. The
answer is key to any
understanding of the economic
risks around Brexit, or indeed the
likelihood of it. Over the past month, the pound
has suffered one of its sharpest
devaluations ever; in little more
than a month, it has fallen nearly
7pc on a trade-weighted basis,
which is as rapid a rate of decline as we saw both during the financial
crisis seven years ago and the
ERM debacle of the early 1990s. What has caused investors quite
so suddenly to fall out of love with
sterling assets? First (Other OTC: FSTC - news) , a little context. The speed of the fall is certainly
alarming, but the scale of it is not
yet of any great significance. The
pound would need to fall another
19pc before it matched its post-
crisis low point. Brexit fears may have something
to do with it, but it is clear that the
main explanations lie elsewhere,
and in particular in last month’s
shift in monetary stance by the
Bank of England, from a tightening to a neutral or even loosening bias.
Mark Carney, Governor of the
Bank of England, seems to have
embraced the idea of competitive
currency devaluation as
enthusiastically as any. Another cut in interest rates - or possibly
even joining the Danes, Swedes,
Swiss and now the Japanese in
negative interest rates - has been
put firmly back on the agenda. The other main explanation lies
with the low oil price, which is both
jeopardising Britain’s remaining
North Sea production and causing
some massive sovereign wealth
fund outflows. The UK’s substantial current account deficit,
which needs to be constantly
funded by inflows of foreign
capital, makes sterling particularly
vulnerable to these reversals. Set against these wider influences,
Brexit is at this stage of only
marginal significance. On any
impartial assessment of the polls
and the lie of the political
landscape, Brexit is in any case a most unlikely outcome. Some
recent polls have admittedly
pointed to a small lead for the
"leave" campaign, together with a
very substantial rump of
undecided. These would seem to indicate that there is still everything
to play for. Yet I fear this is just wishful
thinking by an ever more fractious,
divided and confused "out"
campaign. Virtually all the polls
pointing to a close result have
been online and, as we learned during the general election last
year, of therefore doubtful
credibility. If we look instead at the more
reliable telephone and face-to-face
polling, it continues to show a
substantial or even widening lead
for the remain in campaign. The
last of these polls, by ComRes for the Daily Mail, pointed to a
commanding 18 point lead for the
remain in campaign, with only 10pc
undecided. An earlier telephone
poll by ComRes for Open Europe
showed a virtually unassailable 65pc who would vote to stay in the
EU, assuming Cameron achieves
all his renegotiation aims. As we know, these aims have
been an ever diminishing and
shifting feast; allegations of deceit
are more than justified. Most of
what the Tory high command was
originally asking for such as opt out from EU social and
employment law has been dropped
along the way. As for Tuesday’s list of
“concessions”, they are about as
substantive as a stick of candy
floss; fundamentally they change
very little. Unfortunately for the Vote Leave
campaign, this won’t in itself add
much power to their elbow. To
believe it will assumes that there
was always a natural majority for
Brexit that needed to be persuaded otherwise by a successful
renegotiation. This was never the
case. Rather, the burden of proof was
always on the other side, which
needs to make a much more
persuasive case for changing the
status quo than it has to date.
Judging by divisions between the populist and libertarian wings of the
leave campaign, possibly it never
will. The outers have become like
cats fighting in a bag. No credible
leader has yet emerged to give the
argument cohesion and authority. On the other side of the fence sits
an impressively articulate prime
minister for whom there are as yet
no obvious alternatives. Despite
his sophistry, Cameron’s approval
ratings remain extraordinarily high. We should perhaps be careful not
to jump the gun. There is obviously
many a slip... Even Tuesday’s
limited package of half promises
could yet be blocked by member
states, though it is hard to see why anyone would want to if the
concessions are meaningless
anyway. It (Other OTC: ITGL - news) is never the less possible that other member states could try
to use the Brexit concessions to
negotiate their own opt outs,
throwing the EU into even deeper
crisis. For Europe, the Brexit threat is, in
any case, only a comparatively
minor part of a much wider crisis
of legitimacy. There is no knowing
how the political sands might shift
in the 16 weeks between now and the likely date of the referendum.
Any further escalation in the
migrant crisis could blow the whole
thing apart before the plebiscite is
even held. The "in" campaign is as
much a hostage to fortune as the "out". Nobody is going to want to
vote for an organisation that is
dying on its feet. Even (Taiwan OTC: 6436.TWO - news) so, the uncertainties around the vote are not nearly as big as
many in markets seem to assume.
Britain is the world’s fifth largest
economy, and the second largest
contributor to the EU budget. Yet it
would be unwise to assume, as some in the "leave" camp seem to,
that Brexit would for the EU be the
final coup de gras, dealing it a
mortal blow. Much more likely is that the EU
would survive, albeit in bruised,
battered and defensive form, and
that without the influence of Britain
to fly the free market flag, the very
worst of its corporatist, statist and protectionist instincts would come
to the fore. The European
hegemon Britain has spent the
best part of five centuries trying to
thwart would finally have arrived.
These are dangerous enough times as it is without wishing to
make them worse.
| Posted: at | |
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