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RexN Euroblog

RexN's euroblog

This has been set up with a view to the EU referendum.

My own interest derives from teaching Economics, making lessons relevant by using the various treaties to add relevance to theory.

Views expressed are my own and hopefully contribute to debate.

What will Brexit Friday REALLY look like?

Euroblog Posted on Wed, June 22, 2016 17:41:53

The decision should be known early on Friday morning. Of course it could go either way. If the country decides on Brexit, what will the United Kingdom look like?

There will of course be awkward moments. Cameron and Osborne’s bluff will have been called. After months of spreading doom and gloom, will Putin be jumping for joy? Will World War 3 break out as the mighty Russian fleet storm the Northumberland beaches? Certainly not!

What is more certain is that Cameron will have to give the news conference of his life.

Hindsight, as they say is 2020 vision. 2020 is the scheduled year for the next general election. Cameron has already said that he will not be standing. He may wish to look back at what would have led hi to this situation.

The referendum, before the end of 2017 incidentally, was a pre-election promise, perhaps a short term measure to unite his own party after a term of uneasy coalition. Conservative seats were under threat from UKIP. The promise secured a majority.

Also in the manifesto was a range of promises about what would be secured in his “reformed” EU. These were not achieved yet he called a referendum with undue haste. Do we know why?

We may already have a clue as news emerges that a meeting will take place next week to discuss Turkey’s accession programme towards EU membership. This has surely not been arranged at the last minute? Free travel has already been granted to deal with the migrant crisis. Rules have been relaxed before.

What is equally, if not more pressing, is how the markets could respond to a vote to Leave. Will we face a run on Sterling as we have been told?

Markets are sensitive creatures. They can respond very quickly. We live in a world of information technology, where billions can change hands in seconds. That same technology provides for predictive models. It also provides for finesse in decision making.

The possibility of a Leave vote winning has already been a 50/50 possibility. Experienced traders will have already incorporated different outcomes into their models. It is likely that any moves will already have been discounted or hedged against.

Markets can also be very powerful. Ironically, 2 former Chancellors who support Leave have very real experiences on how to deal with “fast” markets, Nigel Lawson and Norman Lamont.

Lawson was Chancellor for the Stock Market crash of 1987. In a stroke of genius, he undertook to guarantee the share price of the newly floated BP at 70p. This became a safe bet for the Kuwaiti Investment Office (KIO) who led the path to relative stability.

Perhaps a closer match came 5 years later when Lamont faced a currency crisis which led to withdrawal from the Exchange Rate Mechanism (ERM). Currency speculators around the world sold Sterling, effectively challenging Britian’s ability to support Sterling. After costly intervention, interest rates were raised from 10% to 12% and 15% in order to attract buyers before defeat was conceded.

The currency became free floating. Effectively, the market for Pounds became too depressed, the price became attractive enough to buy back. The market corrected itself, albeit at a lower price.

After the market had stabilised, the following day saw a rise of 8% in share prices. The market had effectively corrected itself at what many would say was a more appropriate level. Britain went on to experience more than a decade of growth.

They key was to keep a cool head. Moments of panic cost the taxpayer significantly. Dealers did what dealers do, make money. Those who sold at the wrong time lost out.

In the heat of the moment, the message should be clear. Markets correct themselves, particularly those markets with a free flow of accurate information. Those who could lose need reminding of the broader picture.

So what should Cameron be saying in the event of a Brexit vote on Friday morning?

He and Osborne are in a difficult position, brought about by their own short term agenda. They have predicted economic collapse. It will obviously be time for a more balanced approach.

Britain will have voted to be a land of opportunity, choosing to be free from the constraints imposed by membership of a customs union that puts up barriers to the flow of goods from around the world. Asset prices may suffer in the very short term but markets will need to be reminded of the longer term prospects. In a moment of uncertainty, the path ahead should be certain.

The process for Brexit is covered by Article 50. This provides for a two year period to negotiate terms of exit. The time to panic is not now but at some stage within 2 years of that process beginning.

That process should not begin immediately. Parliament will have to vote and we should build up to the vote in an orderly way. A cross party committee, similar in structure to a Select Committee, should be assembled to consider priorities and process. The time to give notice under Article 50 will be when that committee has reported, perhaps 6 months from now.

A further provision from the Lisbon Treaty also provides guidance. No apologies are made for presenting Article 8 in full:

1.The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.

2. For the purposes of paragraph 1, the Union may conclude specific agreements with the countries concerned. These agreements may contain reciprocal rights and obligations as well as the possibility of undertaking activities jointly. Their implementation shall be the subject of periodic consultation.

Investors, dealers and speculators may need reminding of Britain’s strengths. We are next door to the EU. We have a history of diplomacy and working with friends around the world.

Britain would still be a member of G7, have a permanent seat on the UN Security Council, and regain a seat on the WTO. We will still be an advanced economy, leading the way in services and with hi-tech opportunities and a liberal market.

We would have to recognise that alternative opportunities include an EU with uncertainty, particularly around the southern fringes. In the spirit of Atricle 8 we intend to cooperate fully, supporting where we can and determined to negotiate an appropriate free market without “free movement”.

Cameron would certainly have to remind us that he has already pledged not to continue as Prime Minister beyond 2020 and that he will be standing aside to allow his successor to take the reins for the whole period from when Article 50 negotiations start.

Yes, there may be very short term instability in the market place. If Sterling were to drop, perhaps we could start to look forward to a decade of growth, as we did after 1992.

He need not admit that he got his tactics totally wrong. He can withdraw gracefully, having led Britain to a landmark in her proud and innovative history. The people will have given the British government a mandate to negotiate on their behalf, to be a strong, independent nation, maintaining friendly relations with our neighbours whilst seeking opportunity elsewhere.

Compared with Cameron’s and Osborne’s Doomsday scenario, the reality should, in fact, be a typically British understated signal to a bright new future.



Remain, Leave or undecided, please vote

Euroblog Posted on Wed, June 22, 2016 11:43:28


With one day left before being able to vote in the referendum this is a plea for you to vote, whatever your position.

We have a choice as to what sort of future we see for our country. A century ago, British, Commonwealth and other European troops were battling in the trenches to give Europe a free future. Just over 2 decades later, the same nations were fighting to free Europe from Hitler’s conquests.

Democracy is a valuable gift, paid for around the world with lives.

Since the Maastricht Treaty, the EU has been a cause of great debate. Bill Cash founded the Maastricht Referendum Campaign (MaRC). Sir James Goldsmith founded the Referendum Party which contested the next general election.

In their own ways, both saw that Maastricht was a turning point in history. What had been labelled as a Common Market became more. Countries across Europe were starting to agree to constrain economic policy. What was an obscure group of paragraphs (article 109 and protocol J) provided not only a path to monetary union in Europe but limitations on how a country could manage itself.

A system was created which expanded influence into foreign policy, military, criminal justice, and judicial cooperation. The middle word was dropped from the title of European Economic Community.

The Referendum Party included candidates and campaigners from all walks of life, all political parties and perhaps most importantly, those who either wanted to stay or leave the new structure. The decision was so big that we believed that the public should have the right to decide our destiny.

Several more integrating treaties and 24 years later, Cameron has given us the opportunity finally to have a referendum. He is asking us to vote to Remain in or Leave a “reformed” EU, before those “reforms” have been ratified.

In order to honour his manifesto pledge, the referendum could have been held any time until next year. Cameron opted to bring this forward with undue haste. His “reforms” amount to mere tinkering around welfare for migrant workers. History will show why he has acted so quickly on “reforms” that do not meet his manifesto pledges.

Did he bring the referendum forward to hide new measures? Did he act quickly to ambush opponents of EU membership? Did he intend to show himself off as a statesman when the United Kingdom hold the presidency of the Council of Ministers in 2017?

In reaching your decision, please remember that this is a vote on whether we see our future on an EU that is committed to ever closer union. This is not a vote on the policies of Cameron/Osborne or Johnson/Gove. It is a vote on whether we wish to share our decision making with the EU or whether you trust our democracy to provide for our future.

Let’s have a look at the arguments:

Vote Remain

We could start at a number of points. Since Cameron made the focus on his “reform” as welfare benefits for EU migrants, this seems somehow appropriate. If you believe Cameron, those reforms will limit immigration. If you believe Corbyn, we have to embark on infrastructure development to cater for uncontrolled migration. You have the best of both worlds.

The main thrust of the argument in favour has been Project Fear. If you believe that uncertainty will lead to reduced public expenditure, increased unemployment, reduced income (or at least not growing as fast as otherwise), inflation and more, then that is a powerful set of fears, if true.

To believe in Project Fear then we would have to believe that by leaving, our neighbours would oppose a trade deal which maintains the status quo. We have to believe that they would not seek to preserve jobs in their own countries, that they wish to put up barriers to selling us wine, cheese, cars and much more besides.

There are many sound motivations. The argument has existed for years that the EU ensures peace in Europe, after all, the roots of the EU come from linking economies to prevent war. It is legitimate to believe that this has more relevance than the United Nations or NATO.

You may believe that the EU will successfully negotiate trade deals on our behalf and that TTIP will protect the NHS. You may agree that EU regulations are designed for our protection. You may believe that the EU acts as a brake on unprincipled domestic politicians.

On balance, it is your decision to agree that the cost of membership provides enough benefit to ensure that we Remain. You may wish to validate an unreformed EU. Fear is a powerful weapon.

Vote Leave

There are so many reasons to justify your decision. First and foremost, perhaps you believe that, however flawed the British political system may be, it is democratic and transparent. We have the choice in changing the direction of our government.

It may be that you have a global outlook, combined with a faith that an innovative culture will allow us to thrive in a bigger society, that by regaining our seat at the World Trade Organisation, we can break down barriers for developing nations and provide markets and relieve poverty. We can even work with Russia on getting Tim Peake into space.

There is also the possibility that you value links to the voluntary Commonwealth, including respect for the lives of those who contributed to freedom in Europe and elsewhere. Indeed, the Commonwealth account for 1/3rd of the world’s population and 1/6th of the world’s economic activity with potential for growth.

You might be voting to Leave despite political bullying from Cameron and Osborne, showing the sort of fighting spirit that Britain is renowned for, the belief that Chariots of Fire, the medal haul from London 2012 and more represent what makes Britain still great.

You may recognise that as, what one authority rank as the 2nd “global” power, the 5th largest economy, G7 member, WTO member, UN Security Council member, the most widely spoken language, we can lead by example, alongside Europe but with a worldwide reach. We have much to offer.

Whether it is the legacy of all that is represented by the Woolsack, pluralist society, the Industrial Revolution, economic thought of Adam Smith, John Maynard Keynes, Patrick Minford, even home to Engels and Marx, Britain has always provided a stimulating and radical environment.

Whether it is innovative technology, thought or the quest for the perfect Norfolk Black turkey, Britain has potential and passion for excellence that you can set free. You can be proud to seek opportunity.

Undecided

Your vote is important. The higher the turnout, the more legitimacy the country gives to whatever decision is reached.

You may wish to consider the mechanism of Article 50. In short, when Parliament passes the decision to Leave, there is a provision for a 2 year transitional period to normalise trading and institutional relationships.

It could be that EU members play hard ball, that they insist on freedom of movement as a part of any deal. Our representatives will have a mandate to work on our behalf. We know that job for job, the EU has a more vested interest in our trade deficit than we do.

Project Fear has ramped up the pain factor by saying that this is a one time only vote.

If the EU does reform to become more liberal rather than more centralised, we will have at least 2 years to change our minds. A majority of MPs, who could have a future career in the European Commission, are in favour of remaining. Do we honestly think they would not bring a motion for another referendum if the EU were to offer genuine change?

There is history in Europe. Ireland has voted against measures and achieved reform, Denmark has voted against and achieved reform. France voted against a constitution and achieved a step back.

Britain is far bigger and far more global influence than Denmark or Ireland. We also pay in 14% (plus retrospective budgets) of the net contribution.

There has never been a 2nd vote when an electorate has agreed to an EU proposal.

In conclusion, we live in a fantastic example of democracy, where MPs are approachable, where we can watch government being scrutinised by backbench MPs on select committees, even if that does not happen in the EU. Please support the democratic process for which millions have died. Their lives are important to our vote. Our vote should honour their lives.

It’s your choice, fear or freedom.