Email of the day on Brexit
Comment of the Day

October 16 2017

Commentary by Eoin Treacy

Email of the day on Brexit

I guess the young voted for Corbyn out of a form of rebellion because they feel they got screwed by the old with Brexit? that's very much my take on those election results... I also think that another Labour, with an explicit no Brexit agenda, not feeling compelled to ratify the referendum result in Parliament (effectively abdicating to the Daily Express and such-likes) would have wiped away the Tory easy. 

Re the difficulty of leaving the EU: that had been made abundantly clear by the so much derided experts. Shame they were not listened to, maybe risks and rewards would have been weighted more accurately. 

For the rest: we live in highly structured and complex societies with sophisticated regimes (governments and central banks) that accommodate and fulfil the needs of most people through an apparently undisputed economic model; with much to lose and - as you say - a full belly it is hard to see revolutions erupting across Europe as we have seen in e.g. Northern Africa. This is an extraordinary achievement, although it presents some obvious risks: institution will still need to continue to innovate and change, and what will prompt innovation if not even a financial crisis such as the one endured 10 years ago prompted significant change? 

Democratic regimes - almost by definition - have resisted reforms implying austerity (e.g. cost cutting, restructuring of debt, tax increases) and have often diverted from putting in place measures to improve productivity (rather than it being - as it should - their everyday obsession). Monetary policies have dampened the effects of the crisis, yet the QE presented its collateral effect (in the case of the UK: inequality). 

Various detours were offered as distractions to the voting public, and the illusion of revolution via direct participation was a perfect cathartic offer to make to the electorate after such economic shock: change everything (to not change anything). The whole digression of the idea of sovereignty we have seen in the UK and the willingness of the ruling party to push the narrative of the evil enemy EU should be seen in this context, with the tragedy (I can't stress this enough, as it has been badly overlooked) of the misuse of the referendum and the permanent damage this inflicted to the very core of the democratic process. 

As for Catalonia, or Scotland, the desire to join the EU does not derive by the fact there is no other choice, but by the desire to fall back into a set of regulations that allows to operate internationally with highest degree of freedom and protection, while dissociating from their enemy entity (be it Spain or the UK); the EU on the other hand has done nothing to promote or aid these attempts of independence, as it represents the sovereign states these regions are part of.

?It may sound simplistic or a bit of a conspiracy theory. But I find impossible to see the EU is as a superstate (why did we have a Euro Crisis then? and it could potentially still happen! spreads still open from time to time); it may become one (extremely unlikely after the last elections in Germany), and it is still very open to debate whether this is appropriate or not. Also, assuming it has taxing power because it is asking what is due is forgetting a much more simple fact: what is not paid by the UK will be paid by the citizens of other countries (that simply won't happen, hence the mandate to solve this issue given by the other governments: the UK government voted for those expenses, hence it will tax its citizens - and me - to pay for them... anything different may not be exactly like a classic default, but it is very very close to it). Sadly, the current attitude on this matter suggests no deal is the most likely scenario yet. I think however that the UK stance is untenable, and that we will see a capitulation on the GBP before being confident support has been found: a change of government may provide the trigger?

Eoin Treacy's view

Thank you for this additional email which highlights a number of additional points. The difficulty of leaving the EU is not an argument to support the current structure. Which of us as a child was not told that persevering in a difficult pursuit will allow us to reap outsized rewards in future? The very fact that the UK is willing to forgo short-term gain for the opportunity to achieve long-term benefit is a powerful example that democracies are in fact capable of choosing delayed gratification. Germany’s labour market reforms and reunification are another example, as are India’s market reforms of the last few years. 

If, as you contend, the decision to leave has resulted in a veiled decision to calcify the status quo, then separatist movements in Scotland and Catalonia are very much in the same vein with their first instinct being to fall back into the fold of the EU. However, we cannot be lured into the comfort of linear thinking. These reactionary movements did not evolve for no reason, and if current administrations do not understand that they are unlikely to survive their next elections. 

The harsh reality from the perspective of establishment politicians on both sides of the aisle is people have had enough of having their personal wellbeing subjugated to the interests of anonymous politicians, businesses and globalisation. The polarisation in politics is likely to be amplified until a crop is elected who understand that disaffection.  From a wider perspective that is as true of the USA as it is of the UK and we see emerging reactionary parties emerging all over Europe, not least in Austria just today. Depending on the tone of emerging political realities it could be either a positive or negative influence on markets so it is worth monitoring. 

Throughout history when empires stop expanding they stagnate and fall victim to hubris. Constitutional democracy has challenged that paradigm for the last hundred years and is a viable solution because it allows for the possibility of constant renewal, even if that doesn’t happen fast enough for many of us. The problem the EU faces is that it is not a constitutional democracy in the same way its member states are. More than any other factor that represents an existential challenge. I believe that is well understood by the Eurozone’s elite which is why they continue to pursue closer integration despite the obvious opposition of an increasingly large proportion of the population.  

Theresa May is in Brussels this evening in an attempt to break the negotiation impasse. I continue to believe the most likely scenario is a deal but also contend that the UK has plenty of options should talks break down; should they wish to pursue them.  

The Euro posted a downside key reversal against the Pound on Thursday from the region of 90p but that area will need to hold if the benefit of the doubt is to be given to Pound dominance. 

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