WEDNESDAY 29th JUNE, 2016-There is a shift this morning (JUNE 282016) in the thinking on Brexit – led by commentators such as Gideon Rachman in the FT who does not believe Brexit will happen, one of my favourite independent analysts at Ecstrat Emad Mustaque, Jolyon Maugham in a good piece here, as well as Europhiles on twitter. Coincidentally markets have steadied today – but after the steep falls since Thursday this was likely anyway.
All agree that we are in for months of uncertainty, but the argument broadly goes like this …. A new Conservative party leader negotiates with the EU and comes up with 3 choices
1) The EU agrees to give the UK more rights to restrict the free movement of labour and lets the UK stay in – which is what Brexit leader Boris Johnson was suggesting was the ideal course of action in February 2016 (a no vote, followed by a new deal which lets the UK stay in). For the 3m EU nationals living in the UK – this is clearly better than option 3.
2) The EU agrees to give the UK more rights to restrict the free movement of labour, but the UK leaves, while still paying money to the EU and still having to abide by EU regulations to trade with the EU, but losing its place at the negotiating table to decide on how its money is spent or what regulations will affect British banks and companies. This is a relatively worse deal for the UK than option 1.
3) The EU and UK fail to agree on access to the single market, which damages London as a financial centre, and the wider economy in both the UK and the EU, but reduces immigration. Bad news for any ruling party in the UK which wants to win another election, because the economy will suffer.
In the end, either via a second referendum, or an early parliamentary election, the UK in the end chooses option 1.
This may in fact be wishful thinking – the authors are presumably all part of the metropolitan set which generally voted Remain in the UK referendum. It may be they are all in the first “denial” phase of the five stages of grief. Anger, bargaining, depresssion and acceptance come later.
But if they are correct – how will the voters who voted “Leave” feel – and how will they react?
Many of those voting for Brexit did so to limit immigration, and they are a similar voting base to those who back Trump, Le Pen in France, the far-right guy who nearly became president in Austria, Wilders in the Netherlands, and would include the charmer who told me on twitter he’d like to see me move into the Islamic Ghettos of London. They share some similar views to PM Orban’s Fidesz party in Hungary – a member of which told me they were rejecting the pro-pornography, pro-transgender atheistic thinking of the liberal metropolitan elite, including vampire bankers. The PiS in Poland, Putin in Russia and to some extent Erdogan in Turkey might all be classed as sharing some views with this grouping.
The shift in politics is disruptive because it is does not straddle the common right/left divide, but might instead be called up/down politics. 1/5 of Bernie Sanders voters are expected to vote for Trump. UKIP has taken votes from the euro-sceptic right, but also from the working class voting base that might vote for UK Labour leader Jeremy Corbyn if he was less “metropolitan”. As a consequence, it has been pointed out here that politics does change, political parties do die, and we should not assume that the political status quo of the last 50-80 years is maintained. It is interesting to note that after the big crash of 1929,voters that could back the communists could swtich to vote for “national socialist” parties of the far-right. Times were tougher then – and political parties are generally less extreme now – but again, politics changed after a big stock market crash.
So to conclude –
Brexit might be avoided – although I’m personally cautious on this (75% Brexit, 25% stay in??).
Western politics should continue to produce negative surprises, as it did in the Greek elections for Syriza, and the UK Brexit vote.
The backlash against globalisation and integration is likely to continue.
We still think – as outlined in March – that income inequality is a key aspect in what will change. As we wrote in March “the tone of Trump’s remarks is far more in tune with the shift in the pendulum. In September 2015 he said “when you have a hedge fund guy who’s making $200mn a year…and he’s paying a very low rate of taxes, it’s not fair and I think it says a lot” and “I know people making a tremendous amount of money and paying virtually no taxes, and I think it’s unfair”. After the global financial crash of 2007-2008, many Americans will be agreeing with him, and we believe this explains why Trump is leading in the Republican primaries.”
We still think we will see a shift towards more Keynesian style spending.
From: Robertson, Charles Global Chief Economist Renaissance Capital Twitter @Rencapman
