Now the Vote Is Over, Let Us Move On With Six Steps to a Bright Future
Date
6/30/2016 6:40:36 AM
(MENAFN- ProactiveInvestors - UK) Fuller Treacy Money, Wed
Now the Vote Is Over, Let Us Move On With Six Steps to a Bright Future
Here is a middle section of this upbeat column by Matthew Lynn for The Telegraph:
It is easy to see what a messy, bad Brexit looks like. The UK gets shut out of a huge market. Inward investment gets put on hold amid months of uncertainty. The trade deficit starts to blow out, the pound keeps sinking, and joblessness rises as the economy tanks. But what does a good Brexit look like? Here are six key demands business should make of new prime minister as he or she negotiates with Brussels, Berlin and Paris.
First, don''t obsess about access to the Europe market. In the first instance, Britain should go for the Norwegian model, with full access to the single market, in return for accepting most of its rules, and paying a more modest financial contribution to Brussels. But if Angela Merkel and Francois Hollande want to be difficult about that, then forget it. Our trade with the EU has been sinking like a stone for the last decade - down from 55pc of our exports to 44pc over the last 10 years. The very worst that can happen is the EU imposes tariffs of roughly 4pc on our goods. But since the pound has just devalued by around 8pc, companies exporting to Europe can easily absorb that and still cut prices. The most important move is to get the new trading arrangement sorted quickly and to start focusing on the rest of the world.
Two, let''s prepare our application to join other trade blocs. We are on the North Atlantic, so there is no reason we shouldn''t join the United States, Canada and Mexico in Nafta (its combined GDP is $3 trillion more than the EU, by the way). There is no reason why the rules shouldn''t be tweaked to allow us to join the new Trans Pacific Partnership as well. Switzerland has signed a free trade agreement with China, and why shouldn''t we - surprise, surprise, but Swiss exports to that country have quadrupled in a decade. The sooner we build alternatives to the EU market and forge our own trade agreements with economies that are growing far faster, the quicker the world will be convinced Brexit doesn''t matter much.
Thirdly, push through a wave of deregulation. The Left will hate it, but Britain''s economic future is now clear. We will be a free-wheeling offshore state that acts as a bridge between Europe and the rest of the world. Think Singapore, except bigger and with worse weather.
We should scrap EU-mandated labour market regulations and social protections as fast as possible. There is no reason why we should accept European limits on how many hours people do in the office - so long as we have a minimum wage in place, which we do, then it is up to every individual how long a shift he or she wants to put in. Issues such as parental leave can be freely agreed between companies and staff. Employers who want to hire lots of young women, the best educated, most skilled part of the workforce, will be generous; others less so. But business can decide for itself.
Fourthly, drop specific taxes. The City faces a huge challenge in adjusting to Brexit. There is no point denying that a lot of mainstream corporate business will start to move to Frankfurt. One move that would help it a lot would be scrapping the bank levy - it is currently forecast to bring in more than 900m a year, cash the industry could use to get it through a difficult period. Next, we should scrap energy taxes and rules that have made power more than twice as expensive in Europe as it is in the United States. That will help the manufacturing industry as it battles with the potential loss of some orders from Europe. The more help we can give to specific sectors of the economy, the faster it will recover.
Fifthly, upgrade our infrastructure. The cost of government borrowing has dropped to record lows and the Bank of England may need to print more money to stimulate the economy. We should relax on austerity and spend some money on better transport links and rebuilding roads, water and power systems. A flash new London airport would make us far more open to the world than anything the EU has done in the last decade - and send out a great signal that the UK was still open to international business.
David Fuller''s view
These are positive suggestions for not only economic recovery but also prosperity. Matthew Lynn is correct to start with saying we should not be obsessing over access to the EU market. Some EU leaders may be difficult to negotiate with, not least Jean-Claude Juncker whose appointment as European Commission President was opposed by David Cameron. Junker strongly favours ''more Europe'', if only to deter member countries from pushing for their own versions of Brexit. However, the EU has far more to gain from keeping trade terms open with the UK, given the trade imbalance. Germany''s automobile manufacturers would be among the most aggrieved if they did not.
Parliament Must Decide What Brexit Means in the Interests of the Whole Kingdom
Here is a latter section of this topical column by Ambrose Evans-Pritchard for The Telegraph:
The cacophany of voices from EU capitals is hard to filter. A joint paper by the French and German foreign ministers is calling for a great leap forward to "political union", but neither have the support of their own leaders - let alone the Dutch, Nordics, Poles, Czechs, and others. The proposal seems surreal at a time of rising eurosceptic revolt everywhere.
Jean-Claude Juncker, the Commission''s president, is clearly bitter. "Brexit is not a friendly divorce, but then it was never a roaring love affair," he said.
"Whatever Juncker and a few federalist diehards in Brussels may think, most EU governments have woken up to the reality that the more Europe the push, the more euroscepticism they get," said Charles Grant from the Centre for European Reform.
"The knee-jerk reaction of the Commission is always to try to seize on any crisis to try to push for more Europe and closer integration, but they can dream on this time," he said.
German Chancellor Angela Merkel matters most and she has held out an olive branch to London, calling for patience - within limits - and talks conducted in a civil manner. "There is no need to be nasty," she said.
In essence, EU policy will be forged by an emerging "directorate" of Mrs Merkel, French leader Francois Hollande, and Italy''s Matteo Renzi. But they are at odds with each other. The French and Italians want a radical shift in economic policy in response to Brexit, calling for a reflation blitz to break out of the low-growth trap. Germany will hear none of it.
What is clear is that two cardinal objectives of post-Brexit policy are hard to reconcile: the EU cannot impose a harsh settlement on the UK, to prevent a "domino effect", while at the same time nursing the eurozone economy back to health.
Failure to mend fences with London risks an economic crisis that would expose the long-festering pathologies of monetary union. "There is a cocktail of factors that could lead to disintegration," said Pier Carlo Padoan, Italy''s finance minister. "We face a double reaction from Brexit: financial and political."
David Fuller''s view
David Cameron, in discussions with the leaders of 27 other EU countries, has attributed his inability to lead Remain to victory in the referendum, to Europe''s failure to control the migrant crisis. Cameron may have felt that was the most tactful criticism. However, Brexit was the eventual response to myriad EU policies which stealthily removed national sovereignty over several decades.
The European Elite Forgot That Democracy Is the One Thing Britain Holds Most Dear
Here is the opening of this thoughful column by Charles Moore of The Telegraph, posted without further comment:
A friend in Oxford was puzzled to receive a last-minute leaflet which said: ''Don''t let someone else decide your future: Vote Remain.'' He obeyed the first demand, and not the second, since it flatly contradicted the first. He voted Leave.
If, like me, you feel a bit numb this morning, it is because we British actually have decided our own future. We have not been allowed to do this since 1975. It is a slightly frightening, wonderful feeling that the people can, through the ballot box, set their country free.
More people 17,410,742 voted Leave on Thursday than have ever voted for anything in British history. As David Cameron wisely and firmly acknowledged in his resignation speech yesterday, the result, with its very high turnout, is decisive: our decision must be enacted.
The Leave campaign was assailed for scorning the advice of experts. Experts should, of course, be respected for their expertise. But no one is an expert where democracy is concerned. Each of us is worth only one vote. It took enormous courage for the majority to refuse to be cowed by bankers and archbishops, prime ministers and presidents, scientists and economists, the BBC and the CBI, Richard Branson, Peter Mandelson and David Beckham, but it was not rash to do so. It was the mass assertion of a right which, over the years, we had been losing.
Democratic self-government parliamentary democracy is what the modern British nation is founded on. As Boris Johnson put it yesterday, in his restrained and generous speech, it is also ''the most precious thing'' we offer to the world. It was slipping away from us. Now we have reclaimed it. The Vote Leave campaign began and ended with the slogan ''Take Back Control''. This not ''the economy versus immigration'' is what our decision is about.
David Fuller''s view
A PDF of this article by Charles Moore is posted in the Subscriber''s Area.
Email of the day
On keeping in touch:
I''ve been on a global walkabout with my wife for the past three and a bit years, and just trying to settle down, not easy!
Throughout, I''ve kept in touch with the world via your fine service, for instance, albeit a staunch Brexiteer (my out vote was my first UK vote in 11 years of being expat, but I felt compelled to vote for change in Europe and my duty to participate), FullerTreacy publication of balanced Articles and comment helped me to understand more, think a little deeper and placed a solid scaffold around my existing uneducated beliefs.
So thanks for that.
Long may you continue.
David Fuller''s view
Thank you for this thoughtful email.
I imagine that your ''global walkabout'' has been an interesting further education, increasing your global perspective. I am sure that if you ever wrote about your travels, or just recalled a few memorable experiences and locations, I would not be the only person interested in your views.
A Not So Cheery Cheerio as the UK Votes to Leave the EU, Yet the Outcome a Marked Positive for our Precious Metal Co''s
Thanks to a subscriber for this report from National Bank which may be of interest. Here is a section:
While the S & P/TSX Gold Index closed up 7.3%... with upside. Importantly, the repercussions of the LEAVE vote present a notable benefit for our Au and Ag co''s beyond a higher gold price. That is, a further improvement in the outlook for operating costs on currency weakness (CAD -2%; MXN -4% and poised to weaken further per the updated forecasts of NBF''s Economics and Strategy team) and on weaker pricing for key input such as steel and oil. With operating margins, FCF, and balance sheets poised to get a lift, the net effect should broaden consideration and application of multiples more typical of tailwind periods rather than inappropriate comparison to the last four years where the industry was mired in persistent headwinds. Consistent with prior benchmarking exercises, we point to the 2007 to 2011 period and corresponding valuations as a guide to the upside. We do not subscribe to the idea that all companies warrant valuations typical of this period since the complexion of the industry is now one of unavoidable production declines for many whereas before the majority of co''s offered production growth or the impression thereof. That being said, for the time being and until cost pressures trigger heightened differentiation we expect even our growth-challenged producers to benefit from heightened interest in the space. This will likely continue until cost pressures start to bite or valuations approach benchmark levels. Bottom line, the benchmarking exercise highlights that most of our Au co''s (less so Ag equities) offer significant upside to 2007 to 2011-type valuations even with scaling back benchmarks to capture scenarios with production declines.
Eoin Treacy''s view
A link to the full report is posted in the Subscriber''s Area.
The response of gold prices to the Brexit vote was knee-jerk but understandable considering the desire for safe haven assets that have a history of performing during times of market stress. Of course Brexit is not the only reason gold prices have been rallying. The intensification of the negative yield environment that resulted from the vote is perhaps a better explanation of the surge that took place last week but the relative lack of supply is also important.
UK homebuilders
Eoin Treacy''s view
The homebuilders sector has reacted more violently to the UK''s referendum result than just about any other sector. The conclusion many have jumped to is that with the decline of the Pound and, seeming inevitability of recession, demand for UK housing will plummet and may in fact act as a catalyst to high priced London property finally rolling over.
Everything Just Changed
Thanks to a subscriber for this report by Anatole Kaletsky for Gavekal Research which may be of interest. Here is a section:
Finally, and perhaps most disturbingly, the British referendum has produced an extremely fractured and polarized societywith huge majorities for Brexit among elderly and poor voters and in relatively under-developed rural regions vehemently opposed by almost equal majorities that supported EU membership among young and highly educated voters and in the prosperous citiesnot only London, but also Manchester, Bristol, Newcastle and the whole of Scotland. This extreme polarization on a national issue of existential importance would raise risks of social and political tension even in benign economic conditions. If, as is likely, Britain now suffers some kind of financial crisis and recession, the people who voted for Brexit will discover that leaving the EU has not resolved any of the economic problems and social grievances that provoked their protest against the political establishment. If this happens, public anger will presumably intensify, rather than calm down. A similar disillusionment is likely in other countries whose voters decide simply to overthrow political elites and dismiss the analysis of economic ''experts'', without having any serious alternatives to put in their place.
Eoin Treacy''s view
A link to the full report is posted in the Subcsriber''s Area.
Populist nationalism is a theme which is gaining adherents all over the world. Xi Jinping''s appeal to nationalism in order to inspire support for economic reform and to sustain the Communist Party''s monopoly on power is an example in China. While I personally support the UK''s decision to leave the EU, because of the democratic deficit evident within the political union, there is no doubt that there was a populist tone to the rhetoric that presaged the decision. The growth of similar movements in the Netherlands, Finland, Denmark, France, Italy and Spain suggests this is not simply a UK phenomenon. The surprisingly large support base both Donald Trump and Bernie Sanders appealed to in their respective campaigns for Presidential nominations are also evidence of populist nationalism in the USA.
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