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Emrys's Journal
Emrys's Journal
August 25, 2016

May's silly season honeymoon may soon be over

Two Months On From EU Referendum Result - And Still No Brexit Plan

Two months on from the tumult, it might seem that calm and normality has returned to British politics.

The referendum rollercoaster is merely in service and the Thrills and Spills have been on a brief summer break.

Fundamentally, this arises from the fact - as I found out within 48 hours of the result - that "there is no plan".

And two months on, that remains the case.


What "plans" there are so far seem to be flailing fuelled by delusional wishful thinking:

Tory dream of a short, sharp Brexit

LONDON — Theresa May began the summer reiterating that “Brexit means Brexit.” She will return to work on Wednesday under pressure to explain what British withdrawal will look like.

In her absence, a chasm of expectation has opened up between increasingly hardline expectations in Westminster, where Euroskeptics believe their plan for a short, sharp Brexit is well-received by team Theresa, and established opinion in Brussels and other European capitals about what is politically acceptable and legally possible.

The boldest option on the table — and that favored by the hardliners — is for an immediate snap Brexit, dubbed “unilateral continuity” by Tory MPs. Under this proposal the U.K. simply informs Brussels that it has left the EU and does not impose trade tariffs unless the rest of the EU does so first.

The radical plan, which veteran Euroskeptics believe is being studied seriously in Whitehall, would see May trigger Article 50 and then pass an act of parliament to annul the 1972 European Communities Act, unilaterally taking the U.K. out of the EU.


I smell end-of-silly season kite-flying. Or maybe May's Brexit team really is this naive and desperate.

While the media have focused on frontpaging cheap, easy headlines about the disarray in Labour ranks, the currently papered-over divisions among the Tory top brass and efforts to keep patching them up have much more serious ramifications for the country's future. The article mentions the centralization of the government's Brexit drive, channeling all policies related to it through May's joint chiefs of staff, Nick Timothy and Fiona Hill, while looking over their shoulders at creeping impatience among Brexiters in and out of government. We've seen the results of such approaches in the past.

Meanwhile, this from earlier in August is no less relevant:

The Brexit Hangover Just Got Worse

Theresa May has left London with her husband, Philip, for a walking holiday in Switzerland, a country that is not a member of the European Union, although it does allow the free movement of people—even British prime ministers. May has said that she enjoys the peace and quiet of the Alps, which she will certainly need before the Brexit phony war ends in September and her government faces the challenge of extricating the United Kingdom from the European Union—an operation that will likely be worse than amputation without anesthetic.

Right now, I can report no advance in the understanding of what Brexit actually means, or what the three ministers charged with overseeing the surgery—David Davis, Dr. Liam Fox, and the buffoonish Boris Johnson—are planning. What is becoming clear, however, is that the U.K. is much more entangled with the European Union than the Brexit campaigners ever admitted, or even understood, at the time of the referendum. And as with any amputation there is never a plus, only one very large minus.


There is nothing to give us confidence that anyone in the U.K. government fully comprehends the reality of the situation. After all, the government minister in charge of Brexit, the aforementioned David Davis, only realized in the last few months that it would not be possible for the U.K. to forge individual trade deals with different E.U. member states. As an old debating partner of mine—we have shared many platforms on civil liberties—I hesitate to be too brutal about Davis’s failure to grasp that E.U. countries cannot make discrete trade deals. But, frankly, it beggars belief that he lived for so long under this illusion, and that these wildly optimistic fantasies weren’t challenged.

The Brexit camp, as represented by The Spectator magazine, which proclaimed “Out—and into the World” when it endorsed the Leave campaign, seems to have absolutely no understanding of international trade or Britain’s dependency on Europe. For instance, the E.U. takes 39.4 percent of the U.K.’s service exports, which is more than the next nine trading partners—the U.S., Switzerland, Japan, China, Canada, Russia, India, Hong Kong, and Brazil—combined (38.4 percent). If Britain were to lose access to the single market, or British-based banks were stopped from trading freely in Europe through the “passporting” arrangements with the E.U., it would take very little to end the City of London’s reign as the de facto financial capital of Europe. In fact, Britain could pretty soon be broke on account the enormous tax revenue the City produces.


Just one of the many recent headlines overshadowed by the burning question of whether or not Jeremy Corbyn could have found a seat on an overcrowded train, and yet again the issue of freedom of movement appears as an obstacle to any mutually acceptable solution:

UK financial sector targets Swiss-style deal for EU market access

The City of London has given up hope of universal access to the EU single market and is now seeking a bespoke deal for its different sectors to trade with Europe, with similar but stronger ties than Switzerland.


Officials and representatives from the financial sector are getting ready to present their policy ideas in time for them to be considered by the cabinet committee for Brexit, chaired by Theresa May, the prime minister, when it meets in early September, people involved in the preparations told the Financial Times.

The City has come to the conclusion that a deal for the UK to emulate Norway’s relationship with the EU is very difficult both politically and practically. Norway has access to the single market but no say in how regulations are set. It must both accept free movement of people and make budgetary contributions.


A task force of grandees, chaired by Shriti Vadera, the chairman of Santander UK and a former Labour minister, is close to embracing this judgment. The group has already been provided one blueprint, a 110-page document prepared by the British Bankers' Association, advised by Clifford Chance and Global Counsel, the advisory outfit founded by Lord Mandelson, the Labour peer.


And the post-Olympics euphoria may not last long:

The sharp costs of Brexit will be felt soon enough
Britons will get poorer through prices rising more than wages, writes Rupert Pennant-Rea

If Britain in August participated in anything resembling political debate, “What was all the fuss about?” would probably have been the prevailing argument. The only honest answer to the question of Brexit’s effects is “Don’t know”, at least with any precision.

But the strongest clue has not come from the stock market or July’s unemployment and retail sales but from the currency markets. There, the message has been consistent and its implications have still to sink in.

On June 23, the day of the referendum, sterling reached a high of $1.50 and €1.31 shortly after polls closed. It then plummeted, and has since averaged at about $1.30 and €1.18. In trade-weighted terms, the pound is down more than 15 per cent from its level a year ago, when David Cameron, then prime minister, started the renegotiations that would lead to the referendum.


Why do these international valuations matter to the average British household? Not many people are old enough to remember Harold Wilson’s fallacious message to the electorate when his government devalued sterling in 1967. “The pound in your pocket”, he claimed reassuringly, would not be devalued. Of course it was, and it has been again in the past two months, as every British holiday-maker abroad has already discovered.


Some of the big financial organizations on which too much of the UK's manufacturing-depleted economy depends aren't hanging round to see how this all pans out. This from late June:

Banks begin moving some operations out of Britain

Banks have already begun to take action to shift operations out of the UK, but most of their staff will have to wait several months to find out how many thousands of them will be asked to move to fledgling financial hotspots like Paris, Dublin and Frankfurt.

Investment banks, who donated heavily to the Remain campaign, have reacted immediately to Britain’s referendum result, with some of London’s largest institutions approaching regulators to secure licences and lining up executives to relocate.

The big US banks — JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley — have large operations employing tens of thousands of people in the UK. They have historically set up their regulated businesses in Britain and then used its right to “passport” into the rest of the 28-member bloc.

But lawyers are warning that after Brexit, they would likely need a new legal home base, so they are preparing to shift at least some work to cities such as Dublin, Paris and Frankfurt.


And if the banks themselves don't go, their major depositors' money may do:

Companies Are Planning to Move Their Money From UK Banks After Brexit

British banks could lose a good number of European and domestic corporate customers in the aftermath of Britain’s vote to leave the European Union in June, known as Brexit, according to a private study released on Tuesday.

About 40% of European companies and nearly 25% of U.K. companies already have or are planning to reallocate their banking business due to Brexit, the survey from Greenwich Associates showed.

Some European companies plan to shift their business to larger global banks from U.K. ones, the Greenwich, Connecticut-based consulting firm said.

“Since the vote, the biggest winners are the global banks, with 20% of continental corporates planning to increase business with these banks and U.K. corporates staying net neutral,” Tobias Miarka, the Greenwich managing director who wrote the study, said in a statement.


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