Saturday, 28 May 2016

UK Parliamentary Treasury Committee: a report well worth reading

On 27 May 2016, the Treasury Committee published its findings about:
  • the the misleading nature of the two campaigns;
  • and a coherent summary of the economic impacts (and only the economic impacts, as befits a committee scrutinising Treasury policy) of both EurIn and Brexit in both short-term and long-term.

This report is well worth reading, even though it seems to have missed the Flexcit plan.

The mass media [e.g. Guardian] mis-reported the report as being primarily a critique of the campaigns, and nothing else.  A good example of how the mass media is there to mislead and disinform its readership/viewership.

My notes about the Committee’s report complete this blog entry.

Introduction

Para.8: “The public debate is being poorly served by inconsistent, unqualified and, in some cases, misleading claims and counter-claims. Members of both the ‘leave’ and ‘remain’ camps are making such claims.”

Para 9-11: relating to the non-economic impacts of Brexit/EurIn, beyond the scope of the report.
“For many, the case for staying in or leaving turns on more than economic logic: as Arron Banks, co-founder of Leave.eu put it, “This is not about pounds and pence. It is about our democracy.” …

“Staying in or leaving the EU will also have political consequences. Indeed, for some, it would seem that the true prize of leaving the EU is the opportunities it might create to change how the country is governed …

“Many leave campaigners also hope that Brexit will be a catalyst for what they see as desirable changes to the way the EU operates, while many remain campaigners hope that a vote to stay will achieve much the same thing. …

“But neither detailed programmes of national renewal, nor likely changes to the EU’s institutional architecture–beyond the Government’s renegotiation package–have yet formed a major part of the campaign.”

Section 2 (Claims made by the campaign groups)


Section 2: all 76 paragraphs are worth reading, they cannot be easily summarised.  Good technical analysis.  Basically, any headline number blasted on the mass media from either campaign is a pack of lies.

Para 59 is a key paragraph to understand.  It shows just how complex an attempt to unbundle the compliance cost of regulation would be, especially when the UK has its nasty habit of gold-plated implementation.  The paragraph ends with, “In some cases, such as maternity rights and bank capital requirements, the UK currently regulates beyond the minimum EU standards. Realising gains from deregulation in such areas would require the Government of the day to muster support for a new domestic approach. However, as already noted, a future government would undoubtedly judge that the compliance costs of some, perhaps many, EU regulations are more than offset by the benefits.”

Para 76 demonstrates that the Committee report is imperfect.  The report is a political tool itself, of course!  Para 76 says, “What is clear from all serious studies of the economic impact of Brexit is that the UK’s future trade relationship with the rest of the EU, and with non-EU countries, matters a great deal.”  This is itself misleading, because it is equally true that the impact of EurIn on UK’s future trade relationships with the rest of the EU, and with non-EU, countries, matters a great deal too.  This is why trade is irrelevant to the referendum debate.

Section 3 (The short-term effects of leaving the EU)


Section 3 addresses the short-term risks of Brexit, studies of which assume that an economic shock shall happen and this is going to be bad news.

The Committee did not challenge this assumption, but took very weak evidence to justify the assumption (para 86; and I think the Committee has mis-used Lyons’ evidence).

Moreover, the Committee did not consider existing Bank of England policy to keep sterling competitive (i.e. massaged devaluation) viz-a-viz exports, so therefore did not consider how ludicrous it was for anybody to suggest that a) we want a low currency to facilitate exports!; and then later b) and if we Brexit our currency will go low and cause economic disaster!

Ultimately, however, section 3 paras 97-100 point directly at too many levels of uncertainty relating to fact and to timing.  In other words, any study that tries to assess the short-term economic costs and benefits of Brexit is pissing in the wind.  Such studies are therefore de facto misleading, because ultimately, no matter how reasonable their assumptions might sound, the assumptions are still guesswork without rational basis.  The Committee should have been bold enough to say this in the report.

Section 4 (The long-term risks of staying in the EU and the Government’s renegotiations)


Section 4 addresses the long-term risks of EurIn.  This is by far the most interesting section.

The Committee deconstructs the Cameron deal of 19Feb2016 (paras 101-105) concluding that enforcement of the Cameron deal is fundamental to support a EurIn vote (para 106).  But the Committee does not comment on how enforceable the deal would be, or whether the European Parliament would enact the deal into European law, or reject it on the grounds of inconsistency with the Treaty of Lisbon.

Paras 110-113 correctly identify that shoddy regulation (and poor policy choices) is the number one risk coming from a European Union whose members need to integrate in order to make their Eurozone workable.  Non-Eurozone members - including the UK - would become ‘collateral damage’ to those shoddy regulations.

Para 119 sums the political reality very well indeed:

“The pursuit of further economic and financial integration within the Eurozone, including the development of a banking union, could threaten the UK’s influence over how single market regulation develops, its access to EU financial markets, and the flexibility of its financial regulators to respond to risks. It is the single most significant risk to continued membership, and the Government was right to make it a focus of their renegotiation.”

So, if Britain votes EurIn and the European Parliament rejects the deal, then what does UKGov do?  Hold another referendum in one year’s time?  The Committee doesn’t say.

At least UKGov has finally realised that it cannot hold up the European Union’s integration train (para 120).  This is good news.  All UKGov needs to do is to protect UK economy from the negative consequences of the EU’s subsequent policy choices relating to the Eurozone.  But there’s no clear evidence that UKGov can, or will (paras 121-122) and a clear need for UKGov to keep on supporting the regulatory frontline, to ensure no encroachment or Eurozone integration by stealth (para 123).

Almost as a bootnote, the Committee noted that UKGov’s approach to welfare, minimum wage and immigration is as dysfunctional as ever (paras 136-137).

Section 5 (The long-term impact of leaving the EU: the economic relationship between the UK and the EU)

Section 5 assesses the long-term impacts of Brexit.

This is a disappointing section, because it tries to re-invent the wheel that is already well-designed in the Flexcit plan.  That said, section 5 focuses on financial services, beyond the scope of the Flexcit plan.

The Committee correctly identifies that if UK wants access to the Single Market, then it has to obey the rules of the Single Market, whether or not it stays or leaves the European Union.  But there is a catch.  Compliance with Single Market rules is insufficient.  The other 27 countries must unanimously agree to open the Single Market in any way to a non-EU member (para 149).  I would expect 26 of them to be rational, even the Greek government, but I would expect the French government to play politics even at the cost to its own economy.  Remember that France torpedoed the transatlantic trade deal to protect its own agricultural sector, which the EU protects generally (para 162).

The Committee correctly identifies that the Single Market has stagnated, particularly for services.  For services, barriers to trade continue to thrive (para 171-172).

Overall, section 5 sets out regulatory challenges, none of which should ever be allowed to escalate into show-stoppers.  Section 5 amounts to a list of negotiating points, but falls short of realising that even if Europe says no, Europe would still need to trade in financial services beyond its borders.  Take insurance as one example: European insurers cover their local markets (often national, sometimes European, typically ‘general liability’ and ‘pension scheme’ insurance, new risks such as ‘cyber’ insurance is very hit-and-miss).  But what have European insurers got to offer outside of Europe?  Would their own national/European regulations allow them to do so?  And how reasonable is the enforcement of an insurance contract under UK law compared to non-UK law?

Section 6 (The long-term impact of leaving the EU: the economic relationship between the UK and the rest of the world)


Section 6, like section 5, is disappointing, but at least offers some additional evidence about the additional workload of UKGov in the event of Brexit.  This at least goes in the same direction as the Flexcit plan.

Paras 224-226 point to the slowness of EU trade deals, and how that lack of speed is potentially a threat to UK interests, particularly in respect of trade in services.  UK therefore finds itself held back by a sort-of European solidarity.

Is breaking the game worth it?  The Committee seems to understand the question: it writes, “Were the UK to vote to remain in the EU on 23 June, it should be a priority of the Government to seek to exert greater influence on the efficiency and quality of EU trade negotiations, which are currently unduly protracted, even considering the need to get 28 Member States to reach agreement.”

And in para 233, the nub of the issue: “But [UK] eliminating tariffs would leave very little incentive for non-EU countries [to engage in trade deal negotiations], and particularly emerging markets that export large volumes of manufactured goods to the UK, to grant preferential access to their goods and services markets.”  My emphasis added.  “Preferential access” means “selective protectionism”.  Nice to have, but is it really necessary?  A country exporting to UK needs to be paid, so if it obstructs opportunities to the UK to fund payments in the exporters’ own currency, then the exporting country would have negotiated a deal that chops its own nose to spite its face.  That would be irrational.  So again, trade looks irrelevant in this referendum debate.

Section 7 (The conduct of the Committee’s inquiry)

Para 240: “It is highly unsatisfactory that the Committee was unable to scrutinise the Government’s analysis of the short-term economic impact of Brexit in time to consider its findings in this Report. The delay in the Treasury’s publication is inconsistent with the commitment made to the Committee by the Chancellor. It is to be hoped that scrutiny and transparency have not in this case been subordinated to the imperatives of the Number 10 ‘media grid’.”

The contempt in which UKGov holds the demos and its elected representatives is crystal clear.

Sunday, 22 May 2016

Interim reflections on the referendum campaign

Here are my interim reflections on the state of the referendum campaigns and their salient arguments. It is neither a strategic nor a tactical view of the European Union and the choice of the voter (that’ll be another post).

Status of the EurIn argument & campaign

The EurIn campaign of 2016 has actively chosen not to make the case in favour of a fully-integrated federal Europe.  This is also consistent with the facts of previous campaigns/debates 1971, 1974, 1986 and 1992.


Having justified the referendum by means of an election manifesto promise in 2014/2015, Cameron negotiated a very weak deal to which all 27 other European Union national governments agreed.  Since announcing it on 19Feb2016, it has completely disappeared from the public debate.


The EurIn campaign seem to think that UKGov’s mid-air position is tenable.  The mid-air position is a long-standing one, broadly codified by Cameron’s deal of 19Feb2016.  The mid-air position is one of not-quite-in, not-quite-out, somewhere-in-between, focussed only on trade, everything else (including consequences) apparently irrelevant.


The EurIn campaign has chosen not to state how the Cameron deal of 19Feb2016 is supportable by the European Parliament and therefore enforceable by the European Commission.  The EurIn campaign has chosen to remain silent about the risk to the deal - and therefore British interests - if the European Parliament chooses to reject the deal.  Worse, Project Fear wrongly portrays a vote for EurIn as “business as usual”, when, in fact, it fundamentally undermines the tenability of UKGov’s mid-air position, increasing UK’s exposure to being dragged into the Eurozone and a federal Europe, contrary to UKGov’s stated objectives.


As part of carefully avoiding any debate about the tenability of the Cameron deal of 19Feb216, the EurIn campaign has studiously avoided the comparable question of whether UK would seek to join the European Union on its current membership terms (as offered Eastern European countries Estonia, Poland, Hungary, etc) and current half-hearted applicant Turkey.


The EurIn campaign of 2016 - like its predecessor in 1974 - has presented only Project Fear, forecasting a whole series of economic catastrophic doom - to the point that the UK’s own Chancellor and his ‘independent’ pet a.k.a. The Bank of England are prepared to perform publicly a scorched-earth policy -  that just won’t happen if UK votes Brexit.  Any fool can rig a spreadsheet to say that the economy will tank if something totally nonsense is going to happen.  To take exports as a key example, there is no evidence to demonstrate that withdrawal of UKGov from the European Union shall result in any change in trading patterns, not even if there is a short-term (<48 hours) shock to exchange rates.  Project Fear is economically illiterate in this respect.  In an era where central banks engage in a currency war to depreciate their fiat currencies to favour exports, to claim that Brexit would tank the currency thus tank the economy is just a blatant lie… Were we to believe it, we would need to consider whether our central bank is treacherous.


Aside from anything else, to fulfil the economic doom as forecasted by Project Fear would require Cambo, OsBo and Carno respectively to negotiate deliberately for losses as part invoking Article 50.  That would be treachery in public office, and harming their own respective private business/family interests to boot, thus nonsense.  Therefore, none of EurIn campaign’s rambling about economics is credible.  All of it can be ignored.


By deploying Project Fear, the EurIn campaign has deliberately chosen to avoid the technical aspects of the debate, instead playing on raw emotions of those with relatively weak (or zero) understanding of what distinguishes European Union from Single Market, from NATO, from foreign policy and so on.  Project Fear deliberately misleads the electorate into thinking that the European Union is one single blob.  In fact, the European Union is merely a broker, a middleman, between functions within Europe (mainly inter-governmental treaties) and beyond Europe (more inter-governmental treaties).


Project Fear implies more than just deceit of the voters.  It also implies a “cynical herdsman” approach to democracy.  The current president of the European Commission Jean-Claude Junckers personifies this view of the plebs who, without informed consent, pay the salaries of the self-serving publicly-funded governmental elites (“If it's a Yes, we will say 'on we go', and if it's a No we will say 'we continue’.”).  It is a disgusting attitude, but one which won’t go away.  And the peddlers of Project Fear carry on regardless, because they know it will work for weak-minded voters, whom they hope represent the majority of the electorate.


The EurIn campaign has made no attempt to paint a picture of the world, and a federal European Union’s role within it, in 10 years time, in 20 years time and 50 years time.


The EurIn campaign has chosen to remain silent about the international regulation that more-or-less regulates the European Union.


Therefore, the EurIn argument is substantially vacuous.  There is nothing in the EurIn argument to vote for.


Status of the Brexit argument & campaign

The case in favour of an independent Britain is plenty debated, but the lack of credible story makes the case still wide open.  For Brexiteers, their debate must conclude quickly and soundly.


The Brexit campaign has one major advantage over the EurIn campaign.  The Brexit campaign has a Flexcit plan.


The Flexcit Plan is a great plan, but it suffers one major flaw.  It needs a competent UKGov to implement.  In all of my years of studying policy choices, I see no consistent evidence that any part of UK public sector is capable of competent, joined-up thinking.  As if the exit negotiations and the replacement trade negotiations were insufficient, Flexcit’s phase six (domestic reform, ensuring that the 1971 accession cannot happen in the same way again) is vulnerable to all sorts of incompetence and corruption.  UKGov is likely to be dominated by a fairly cynical two-party system for the foreseeable future.


The Brexit campaign overall is confused about many things that might be possible were UKGov independent of the European Union.  Undoubtedly, these might all be possible, but the issue for voters is twofold:
  • a) whether these things are probable (the mere possibility isn’t sound enough); and
  • b) whether the accomplishment of these things amounts to any material beneficial change to UK taxpayers.


On both accounts, the Brexit campaign has largely failed to make the case in favour of Brexit.  As a result, the campaign amounts to Project Fantasy.  These untested elements of Brexit’s campaign are incredible, and can be ignored.


Specifically, the Brexit campaign has sought to conflate inward immigration with the European Union, ignoring the usefulness of largely unlimited immigration to both i) the Single Market; and ii) Britain’s own demographic time-bomb, embedded deeply from within its own Ponzi-scam welfare state.  This matters, because emotional confusion and general hostility against immigration of any variety is the root cause of support for this wing of the Brexit campaign.  The issue of immigration also demonstrates that Project Fantasy also deploys the “cynical herdsman” attitude, except that it has explicit support from some voters.  The root cause of the public’s resentment of immigration is a perception that the welfare state gives taxpayers’ money to immigrants freely and without qualification.  This perception is probably valid; I refer again to the lack of joined-up government in the UK.


Sovereignty is another area where Brexit campaigners present a story as if it were black-and-white, but in fact the issue is actually a moribund blend of multi-coloured grey.  The ability to hold public sector officers responsible for the consequences of their decisions is worthy, as is a decision-making body to be physically representative of its demos.  But there’s a problem.  No modern Western democracy achieves these two objectives.  Worse, voter turnout in the UK is on a long-term trend of decline (apathy).  There’s no evidence that the Brexit campaign will change democracy in the UK.  Moreover, there’s even less evidence that, were the UK to change the nature of representative democracy, international regulation would be any more influenced by the British demos than it is now.


However, security is one policy area where Brexit campaigners have largely won credibility on the issue, if not the full argument.  Security policy is substantially outside the scope of the European Union. Under no circumstances would America share sensitive military intelligence with most members of the European Union.  Yet, there is evidence that a proposals for a Single European Army are being warmed up, waiting for the Americans to tire of funding NATO, feeling that Europe is free-riding off American taxpayers.  Unfortunately, the Brexiteers have yet to spell out what the Single European Army means for European citizens, British taxpayers in particular.  Whether in or out of the European Union, it is unlikely that UKGov would have much influence in the Franco-German preferences for a Single European Army.  The implications are stark… and there’s over 1,000 years of history to serve as a template.  Unlike stocks and shares, past performance is generally a very good indicator of future human behaviour.


Economic policy - trade in particular - is one policy area where Brexiteers don’t need to argue with EurIneers, because a half-decent Brexiteer will be an internationalist (and not an isolationist).  EurIneers hide a major implication of their argument, which is that they choose to put most (if not all) of their trading eggs in one basket (the European Union).  Internationalist Brexiteers have failed to point this out, but instead tacitly admitted that negotiating trade deals outside of the European Union will be a struggle.


Ultimately, such debate about trade is irrelevant anyway.  Trade will continue with or without the European Union, with or without trade deals.  Volumes and profits might fluctuate over a 5 year period post-Brexit relative to post-EurIn, assuming that a EurIned UKGov successfully stays out of the Eurozone.  On the other hand, if a EurIned UKGov cannot resist the legal obligation to join the Eurozone, then debate about trade is fundamental to this referendum, and the Brexit campaign has failed to vocalise the secondary and tertiary consequences of EurIn into the mass media.


To demonstrate why the trade issue is irrelevant post-Brexit, a trade deal may be preferable to no trade deal, but by their nature, a trade deal is only hard to negotiate where one trading partner is loathe to remove its technical barriers to trade.  Would the European Union have an advantage in such negotiations?  Theoretically, yes.  But in reality, the European Union is effectively abandoning TTIP for the sake of protecting particular vested interests (French agriculture, in particular).  The European Union has concluded that no trade is better than managed trade: rational or irrational?  So, for a UKGov, a focus beyond the European Union is fundamental for the medium-term,  whether Brexited in EurIned.


Therefore, the Brexit arguments are still largely half-baked.  Although there is one credible plan, the environment it needs is hopelessly idealistic.  That said, Flexcit is head-and-shoulders better than anything EurIn has mustered since the 1960s.  At the same time, there is an awful lot of nonsense from Project Fantasy that needs to be ignored.  There is insufficient basis to vote confidently for Brexit: the Brexit case is work-in-progress, and time is running out.

Saturday, 21 May 2016

Miscellaneous reading list


Profile - Farage has had a material impact on British politics, arguably European politics, yet the Vote Leave campaign doesn’t understand the issues that motivate its otherwise-support base.

Analysis: Jeremy Paxman demonstrates once again the blogosphere’s deepest ignorance about how the international regulatory world actually works, and the EU’s role in it.

Opinion - the ruling elite(s) want to block the plebs out of life and neuter democracy. http://peterjnorth.blogspot.co.uk/2016/05/the-last-thing-our-rulers-want-is.html

Opinion - why UK democracy is a sham.

Sunday, 15 May 2016

Review of the week: Project Fear Max

Well, what an amazingly tedious week it’s been!  Project Fear Max, with a guest appearance from Project Fantasy.


And still no FlexIn plan.


I’ve had to work hard to find anything remotely useful for the referendum debate.  The mass media is giving us only bullshit.


With one month to go before the referendum, it’s time to start closing down the process of collecting data, and start the process of evaluating data and forming conclusions.  For me, last-minute ‘news’ will be inadmissible.  Those who have wanted this referendum have had nearly 40 years in which to make their respective cases, and that’s long enough.  As a consequence, this (far too long) post shall be my last of documenting reaction to mass media.


The lack of FlexIn plan is going to be a material, and desperately regrettable, omission.  The proponents of European federalism seem not to be bothered to do proper job, preferring instead to stoke fear and manipulate emotions, deploying traditional left-wing ‘campaigning’ methodology.


It’s looking like my choice in the referendum is going to be based on an incomplete set of relevant facts, swamped by a tsunami of irrelevant politco-emotional bullshit.

In this far-too-long post:


  • Brexit will lead to war!!!!
  • Brexit will lead to house price armageddon!!!!
  • Brexit will lead to the complete destruction of the British economy and still immigrants will queue to get into Britain!!!!
  • The European Union is for the privileged only!!!! (let’s ignore demographics)
  • Brexit just isn’t British!!!
  • Telecoms: the European Union blocks one merger of telecom firms, but not another
  • The British Chamber of Commerce begins to hedge its bets… presumably before its membership revolts?
  • European ex-pats in Britain: their stories
  • One insider’s view
  • What the markets might think, via technical analysis
  • Other Europeans want an in-out referendum too
  • Friends note
  • Does Eurovision give us a good example of how European democracy really works?

Brexit will lead to war!!!!

Reuters, BBC, Telegraph (amongst others) covered Cameron’s suggestions that, geo-politically, Britain was safer within the EU, invoking the image of the Third World War following a Brexit, apparently ignorant of the forces of civil war currently building within member states (specifically of the people against their ruling elites; see also the Ipsos-Mori poll below).  My view: it’s bullshit, ignore.


Nato also got wheeled out to say how awful Brexit would be, too.  No idea why!  Objectively, Nato’s whole purpose is to protect Europe from both itself and the Soviet Union, allowing the American’s to intervene should the need ever have arisen.  Therefore, Nato’s existence is wholly irrelevant to the existence of the European Union.  Nato would continue to exist whether Britain was in or out of the European Union.  At the same time, Nato gives the Americans a fiscal headache: the price to pay for being the referee of Europe is that the European security free-rides off the American defence budget, funded by American taxpayers.  This is unsustainable, and always was.  When the Americans realise this - as some American policy-makers have done so, and said so publicly - Nato’s withdrawal will unleash European vested interests to resume their “politics as normal”, irrespective of whether Britain is in or out of the European Union.  My view: Nato’s opinion on Brexit is bullshit, ignore.


An analysis by Col R Kemp comprehensively demolishes Cameron’s scaremongering.  Entitled, “It is an EU army that could bring about war”, the article says:


“A German defence white paper, leaked last week but supposed to be kept under wraps until after the referendum, leaves no doubt of Germany’s intention to drive through the merger of Europe’s armed forces “and embark on permanent cooperation under common structures”. Germany has begun to combine substantial elements of the Dutch forces with their own.”


“Funds will be diverted from Nato combat forces as the EU army lavishes cash on costly new command structures, including a surfeit of generals with expensive headquarters.  Indeed, reducing the influence of Nato and the US is the aim for several EU members, especially France and Germany. And if we undercut Nato, that aim will succeed, leading to US retrenchment.”


My view.  Brexit’s relevance?  Zero.  If Britain votes EurIin on 23Jun2016, it will end up endorsing the federalist project - whether it likes it or not - meaning that membership of the Single European Currency and Single European Army will happen anyway, and Britain will get roped in whether it likes it or not.  If Britain votes Brexit 23Jun2016, it will save itself permanently from the Single European Currency and Single European Army, but will probably end up having to defend itself from both anyway.

Brexit will lead to house price armageddon!!!!

The Week and the Business Insider (amongst others) covered Osborne's claim in interview with Peston on ITV that Brexit will cause house prices to slump.  Clearly aiming at older voters who quite like having their kids still living at home because the kids can’t afford to buy or rent a place of their own, Osborne blagged the classic psychological pincer-movement, claiming further that mortgage products will become more expensive because, apparently, banks would need to do something that they should have been doing for years, but haven’t really done so because Osborne’s pet central bank is bailing them all out with zero-percent interest rates.  Wow, that was a long sentence.  Anyway, it’s all Project Fear.  Ignore.


Brexit will lead to the complete destruction of the British economy and still immigrants will queue to get into Britain!!!!

On 10May2016, the Guardian covered an analysis by National Institute of Economic and Social Research that Brexit would be terrible.  Apparently, Brexit would cause inflation, a slumped currency, slumped investment, slumped consumer spending, lower economic growth and so on.  Inexplicably, however, the same report says that Brexit won’t stop immigration.


Hold on… immigrants are more productive than the British, and they come to Britain not because of the benefit system, but because there are jobs here.  And the jobs are here because the British prefer to not to work (best examples: the agriculture and housebuilding sectors).  And because immigrants are therefore productive, they generate economic growth.


And, in any event, UKGov would love to see some inflation, to erode the value of public sector debt.


“But in all possible scenarios, our simulation exercises show a substantial loss of export trade.”  Yeah right.  Was the loss of export trade an input parameter, or an output calculation?  I’ll guess that it was the former, because Brexit has no impact on trade.


So, this sounds like the NIESR is just talking Project Fear.  Ignore.


On 12May2016, the Governor of the Bank of England appeared to advocate a “scorched earth” policy, talking down the economy as a consequence of Brexit still with zero evidence to justify his assumptions input into his economic models, effectively inviting currency traders to short the Bank’s own currency.  It turns out that Carney’s Bank didn’t bother doing the numbers: the Bank just tried to play theory - as academic economists do, with equally useless results, hence why they choose to remain in academia instead of making money for clients - and did it deliberately with wonky thinking.  It seems that Carney might be begging the markets to become the tail that wags the dog (the British electorate).  Chancellor Osborne, of course, lapped it all up: Carney has now given him a report that ticks one of his little boxes (“Look, it’s in writing, must be true!”).  On 13May2016, the International Monetary Fund rubber-stamped the Bank of England’s silly little games, deliberately attempting to conflate “risk” with “loss”, and participate fully in Project Fear.


Ultimately, the Bank needs to plan in advance for likely outcomes, whether its political masters like the outcome or not.  So it’s fine for the Bank to forecast a recession triggered by the repatriation of power from one jurisdiction to another.  I’m fine with that.


But Carney’s intervention is not so.  Project Fear.


On 13May2016, the Bundesbank published data to show that German investment into Britain is falling.  It fell by 40% in 2015, and again by 6% in 2016Q1.  Uncertainty about the British referendum is said to be the key cause, but I suspect that this is just a smokescreen for a more realistic, cash-based harsh truth, i.e.  that the Chinese just aren’t buying as much as they used to.  The referendum and its consequential effects are too trivial and too short-term.  England demographics are far more important to anybody investing into something that English consumers are set to buy, and Chinese demand is way more important for any investment into a cross-border supply chain.  So to claim that the referendum delays investment plans, I say Project Fear.  Ignore.


The European Union is for the privileged only!!!! (let’s ignore demographics)

On 10May2016, Iain Duncan Smith said that the European Union favours privilege.  The full text of the speech is here.  One extract:


“[The Euro] has greatly favoured already wealthy Germany and its export industries at the expense of southern Europe. The euro has meant serious unemployment for millions of young Greeks, Portuguese, Spaniards and Italians and has produced political extremism. The EU is also working well for big banks. The bailouts being financed by extreme levels of austerity in countries like Greece have largely benefited financial institutions that lent irresponsibly before the crash. The EU is also working for big corporates that benefit from mass immigration. Businesses that have under-invested for decades in the productivity and training of their own and local workforces have no reason to mend their ways so long as cheap labour can be imported from abroad.


“But if the EU is working for Germany, for banks, for big corporates and for the public affairs companies with large lobbying operations in Brussels, the EU isn’t working for over regulated small businesses and lower-paid and lower-skilled Britons.”


Whilst I recognise this description - and read similar themes very often in Moneyweek - there is a hard question to answer first.  Is IDS describing the root causes, or the consequential effects?  Is ISD attacking the symptoms only?


Just as Project Fear falsifies economic models to sketch as deliberately misleading picture of ‘consequences’, is Project Fantasy sketching out a current outcome as if it is a direct consequence of the European Union? (i.e. conflation of relevance?).


Project Fantasy is likely doing just that.  IDS said:


“The construction of the Olympic Park was a powerful illustration of the way in which immigrants undercut UK workers through their willingness to endure family-unfriendly living conditions. Visiting job centres in East London at the time I met both skilled and unskilled workers who struggled to get work on the site. When I asked why they said that people from Eastern Europe, often living in bedsits, without UK housing and family costs, hugely underbid them for their work. Since then those stories have been borne out by the facts. Despite the all the statements about the Olympic Park helping British workers, we now know that nearly half of all the jobs on the site went to foreign nationals.”


Strategically:
  • if you want to live in a free-market, than open immigration is part of the deal, otherwise you have no free-market in labour.  That means accepting competition, in which sellers (workers) make themselves more attractive to buyers (employers) in any way they see fit, ethical, politically-correct or otherwise;
  • if not, then you must choose to live in a rigged market, where i) barriers to entry into the labour market; and ii) a requirement to discriminate on racial grounds; must exist;
  • Either way, you shall live with the consequences of your choice; you are entitled to no exemptions from the consequences of your choice.


Immigration is a red hot issue for the masses, and IDS verbalises it excellently, gliding over the two strategic points above, as if they don’t matter.  IDS then attributes ‘under-cut immigration’ to the European Union, and that a Brexit would enable us to prevent ‘under-cut immigration’.  IDS’s case looks plain misleading.  Having been a minister of welfare, IDS should know better than anybody else that Britain is unable to afford the cost of becoming Fortress Britain.


IDS also looks to ignore the root cause of his story: ageing demographics.  British jobs go to immigrants not just because they can successfully (and rightfully) avoid the bloated overhead (the Ponzi welfare state) that Britain has voted for itself.  British jobs - especially in building sites and farm fields - go to immigrants because they are often the only people willing to apply for the job.  Although the an opinion of NFU is that the British are lazy, it’s equally likely that British workers are just too old to do manual work!  (but note that measuring the percentage of jobs taken by immigrants is hard, as a study in Herefordshire shows).


The comments on the conservativehome.com page are also very illuminating, in particular about how confused even the politically-motivated really are.  Some think that equality can happen only via benefits (a falsehood).  Others think that workers’ rights originated exclusively from the European Union (a falsehood, e.g. Health and Safety At Work Act 1974, being nothing to do with Europe at all!).


Brexit just isn’t British!!!

Gordon Brown has waded into the debate on the EurIn side.  On 10May2016, he wrote and spoke about why Britain should remain in the European Union.  He has a book to plug, “Britain: Leading, Not Leaving: The Patriotic Case for Remaining in Europe”.


I don’t often agree with Brown - I shall never forgive him for allowing the Bank of England to follow a 0% interest policy and the devastation that it (and his other policies) wrought on my pension by 2005/2006, long before the big crash - but I do agree with his rejection of Fortress Britain that Project Fantasy tends to portray.


About the evolution of the European Union, Brown writes:
“And the right balance between autonomy and cooperation can be struck without putting our national identity at risk. The past decade has seen the one-time fashion for harmonising laws and practices across Europe yield to the mutual recognition of each country’s distinct standards and traditions. Exchange of information between independent tax authorities now takes precedence over attempts to create a uniform European tax rate. And, most important of all, intergovernmental decision-making by 28 leaders in the European council has been taking over from the centralised diktats from a once overbearing European commission.”


Brown is basically saying that Cameron’s mid-air position - the deal of 19Feb2016 - is not just tenable, but also a preference for the other 27 governments of Europe.


Do I believe that?


No.


For Brown & Cameron to believe with justification that the mid-air position is tenable, we need fundamental treaty reform, for which the European governments have repeatedly said they have no appetite.  The treaties still point towards a single, unified, federal country of Europe.  Until those treaties change, any appeal to UKGov’s half-in-half-out mid-air position is nonsense.  Elsewhere in this post, I refer to the Single European Army.  So I would go so far to say that any appeal to UKGov’s mid-air position is politically suicidal.


Telecoms: the European Union blocks one merger of telecom firms, but not another

On 11May2016, the BBC reported the European Commission has blocked the sale of telco O2 to CK Hutchinson.


This is a normal function of the European Commission and is allowed by treaty.  The idea is to ensure competition in the marketplace by preventing oligopolies from forming, using market abuse to constrain consumer choice, and profiteering excessively at consumers’ expense.  It is inherently interventionist and has equivalence in American anti-trust law.


But there are two problems with the European Commission’s decision.


First, it looks like double standards.  The takeover by BT of EE has resulted in 40% of the mobile market controlled by BT.  This means that competition law was not enforced on that transaction.  Why?  The excuse given was that BT wasn’t then a player in the mobile market, apparently ignoring the fact that giving 40% of the mobile market to BT would make it a player, whether BT it likes it or not.  BT also controls the overwhelming majority of the fixed broadband market prior to the takeover of EE.  So, after the takeover, BT’s power in the telecoms marketplace is vast, and substantially primed to abuse.  The UK regulator had flagged this concern to the European Commission as part of the process.  The European Commission took no action.


Second, it looks short-termist.  Networks of any description need a lot of resources to build and to maintain, so their builders will seek to protect its use from competitors who have no such overhead to fund.  The parallels in the labour market - with immigrants not needing to pay for British infrastructure - are striking.  But with the regulators enforcing competition to regulate prices downwards and therefore also profit margins, the regulators are effectively making investment into improved telecoms unaffordable.  Worse, the regulators are putting the network operators into a position where they need to borrow money just to incur a cash cost of interest to prove to regulators that they aren’t profiteering.  This is a major issue for any economy with ‘too much private debt’ (assuming that is measurable).  The balance between monopoly profits and tomorrow’s investment looks out of kilter, and the regulators seem not to have a commercial clue about where the balance should lie.


So, what we’re basically looking at here is that the European Commission delivers the same sort of hackneyed ‘regulation’ so disgustingly typical of our little, national tin-pot regulators.  There is no improvement in quality arising from the uplegation of regulation to the federal level.  We still end up in the situation of same-circumstances-different-outcomes.


There is a whiff of corruption here, whether it be wonky-thinking, vested interests, corporate racism or brown paper envelopes stuffed full of cash.


Corruption.  Hmmm… That’s another can of worms that David Cameron opened this week.  I think the world’s political establishment is going to have Cameron’s historic role written down as a random weapon of mass self-destruction with unlimited collateral damage.


Meanwhile, other European regulation is biting into companies listed on junior exchanges (in the UK, the Alternative Investment Market).  This particular regulation is primarily the reporting of stricter corporate governance, but its implementation just commits our economy to yet more valueless overhead resources, that - like welfare states - an economy with an aging (and therefore shrinking) taxable workforce simply cannot afford.  Whilst the objective is to enforce transparency - a noble end in all cases - it doesn’t pass the sniff test, or the “so what?” test.  It also seems to duplicate Cameron’s Register of Beneficial Owners, which itself appears to be a duplicate dataset of Companies House.


The British Chamber of Commerce begins to hedge its bets… presumably before its membership revolts?

On 10May2016, the British Chamber of Commerce, having dumped its Eurosceptic leader at the start of the referendum campaign, reported that its members would prefer to stay in Europe… but the gap between EurIn and Brexit preferences amongst the membership was apparently narrowing.


My view: the CofC is re-positioning itself to preserve the small residue of its credibility it might still have with its members.  It’s a damage limitation exercise.  The damage was self-inflicted: firing your leader at the invisible behest of politics is a costly business  The announcement is all part of Project Fear.  Ignore.


European ex-pats in Britain: their stories

I know quite a few expatriates living and working in Britain, so I was happy to see the Guardian cover the Brexit issue from their perspective.  This is all good stuff, extolling the virtues of an open economy with a relatively open door at the border, with some honest truths about the English to boot.  Brexit, of course, has no impact whatsoever: Britain can’t afford to turn migrants away, because it has an over-committed, bloated, Ponzi-style welfare state to pay for.


One insider’s view

Crispin Blunt - our German-born chair of Parliament’s Foreign Affairs Select Committee, which recently published a relevant report - opined in favour of Brexit.  “I witnessed the all-consuming battle to protect our view of the EU against those of our partners”, he writes.  “This long defensive bureaucratic battle has been draining. It consumes the energy of ministers and officials, even if our position has been defended over three decades with typical British grit and determination and quite a lot of skill.”


My view: quite.  A lot of employees paid from the public purse rather like this state of affairs, because it ‘justifies’ their income.  Personally, I can think of many better uses for public money than talking for the sake of talking.


What the markets might think, via technical analysis

On 08May2016, the Market Oracle - a technical research outlet for financial markets - published an opinion by Austin Galt.  Having performed technical analysis on currency pair EURUSD, he believes that Brexit is more likely than not.  A quick Google search on the Market Oracle suggests a general disposition against the disinformation of Project Fear, and a similarly general disposition to forecasting a Brexit vote.  For example:
  • “The UK media is out in force to scare Brits from voting to leave the European Union… The Lords of the Crown are saying that they prefer their privilege within the EU super elites, and fear that ordinary Brits might take measures to liberate themselves from the bureaucratic regulatory dictates of unelected continental overseers.” (article)
  • “For some reason the dozen or so eastern european block nations led by Poland imagine that the British electorate are just as naive or stupid as their own recently emerged from totalitarianism electorates…” (article)
  • “For its critics, Brexit would lead to increasing nationalism and protectionism. Nevertheless, those same critics forget the European Union is not a free-trade area. On the contrary, Brexit could open new perspectives for the old continent, not by bringing more protectionism but by bringing more competition between governments.” (article)
  • A fairly brutal undermining of Osborne’s treasury report (article).
  • And somebody else has twigged that the Financial Times isn’t a credible witness (article).


Other Europeans want an in-out referendum too

On 09May2016, the Daily Caller reported an Ipsos-Mori poll that surveyed 6,000 Europeans from eight countries, and from the survey guessed that 45% of Europeans want an in-and-out referendum too.  The survey reportedly noted that those who want to leave the EU amounts to >40% in Italy, France… and Sweden!


Friends note

On 09May2016, I met up with friends and discussed Brexit.  One of them, who is wholly disinterested in politics, said many of his other friends dismiss the referendum, wrongly referring to the European Union as a trading thing only.  “It’s all about trade,” he said, “all about trade.”


Zoiks!  The depth of ignorance out there, with a month to go to the referendum, sounds like it could be very, very deep indeed.


Does Eurovision give us a good example of how European democracy really works?

On 20Apr2016, Cameron did admit a limit to his Project Fear.  He admitted that Brexit would have zero impact upon Britain’s ability to pay into the Eurovision fund.  That’s because the European Broadcasting Union has nothing to do with the European Union.


On 14May2016, Ukraine won the Eurovision song contest with a very personal, emotional and political song about Stalin’s ethnic cleansing in Ukraine.  It beat the bookies’ favourite Russia - a classic euphoric club theme - and the superlative vocal performance of Australia.  (Yes.  Australia.  In Eurovision.  Also broadcast live in America and China for the first time in 2016.  Go figure!).


2016 was another Eurovision contest in which the all of the finalists and semi-finalists were all solidly strong technical and creative performances.  They just get better and better.  I perceive this trend being the case for about 5 years, prior to which too many competitors still lampooned themselves and Eurovision by submitting the campest possible entry to represent their nation!  Even the French and British take Eurovision seriously nowadays, and they were amongst the last to do so.  For 2016, it is alleged that France even took scientific measurements to determine what a song needed to be a regular appearance on radio playlists (answer: in a united Europe, sing in English).  Similarly, Britain submitted a boy-band duo with a seriously good grip of harmonics.  So seriously is Eurovision taken, that the 2016’s Swedish hosts satirised - in immaculate English, complete with semantic jokes -  the whole contest in the only way that works, and bolstered its reputation (entertainment value) in so doing (and did so in two big song-and-dance numbers to explain how Eurovision worked for the benefit of the new audiences in China and America).


For 2016, the Eurovision contest changed the weightings it gave to the votes of each participating country’s jury and the plebiscite telephone vote.  And in so doing, Eurovision breathed transparency into the process by presenting the jury votes first, then presenting the plebiscite telephone votes second.  The result was a nail-biting conclusion, truly gripping stuff that demanded quite a few gin-and-tonics to get a grip of the nerves.


A quick glance at the scores for 2016, compared to 2015, revealed a particularly interesting pattern.  The votes of the juries looked substantially de-politicised, and followed a reaction to the overall performance of the song, and the quality of its writing and its originality.  But was the telephone plebiscite vote truculent, nationalistic and tribal?


The votes of the United Kingdom in particular seemed to point to this possibility.  In both 2015 and 2016, the UK telephone vote gave 12 points to Lithuania and 10 points to Poland.  Similar patterns existed in the UK telephone vote for the semi-finals from 2014 to 2016 (where applicable).  Yet, in 2015 and 2016, songs from both countries were completely different and consequently evoked different votes from other participating countries.  So why was the UK plebiscite vote so consistent?


I shall leave that question to the Eurovision psephologists.  All I know is that Eurovision seems to comply with Churchill’s law: “The best argument against democracy is a five-minute conversation with the average voter.”  So, for the Brexit referendum, I can well understand why the ruling elites just want the demos to keep paying and shut up...


Roll on 23Jun2016….