Friday, 23 September 2016
Of all the world's passports a British Passport provides visa-free access to more countries than any other, to 186 countrie, which is most of the world. The next best Visa-free passports provide access to 170 or less. When the UK resigns its EU membership it conceivably risks losing access to 27, supposing the rest of the EU plays hardball in retaliation for the UK restricting the free movement of EU nationals to come to the UK? British Passports will eventually require a re-design to remove references to EU membership. While that and any travel restrictions in EU may be irritating, to go where currently far more British citizens travel to than elsewhere in the world, perhaps less irritating than loss of "passporting" rights to UK based businesses. Insurers, banks, and other financial services, half of whom are UK domiciled, that account for nearly half of the UK's trade, many rely on passporting rights to do cross-border business in the EU. Loss of EU membership and of The Single market would frustrate UK based goods manufacturers, who account for the other half of the UK's trade, of which 60% is currently with the EU, also ony half of whom are UK-domiciled. Ten per cent of UK trade in goods and services is with Ireland. Maybe there will be special arrangements in this case, but possibly not any longer allowable post-Brexit. Companies can re-register their domicile in say Estonia, Cyprus, or Malta and manage their business remotely from the UK. That may not work for very large companies who may have to genuinely move their head offices into an EU country, which then becomes their principal tax jurisdiction. Ten per cent of British citizens in the UK may qualify for Irish passports and thereby gain EU and or dual citizenship. Others sufficiently desperate can take up residence in another EU country and gain citizenship after five years or marry an EU citizen. Irish dowry prices just went up? It has to be a curious exchange that fifty million British citizens will lose a large amount of their freedom of travel only so that they in turn can restrict that of a few hundred thousands of foreign visitors to the UK and perhaps impose irritating visa requirements on 22 million visitors from the EU. They may feel some compensation, however, because of the lower pound exchange rate. Brexiteers argue that free access to EU markets will most likely continue because the EU has a large trade surplus with the UK. That cannot continue, however, if EU imports into the UK will become, as they already have done, 10 per cent more expensive. Hence, there is already less to lose by not granting the UK full or free tradeing rights in the EU, which anyway will thereby save itself much or most or all the UK's trade surplus in financial and other services. The UK has a trade surplus with Ireland in both goods and services. ireland a large trade surplus with the rest of the world but a deficit in capital flows with the UK, and may therefore improve its balance of payments by no longer permitting either of the UK's surpluses to continue, on top of which it stands to attract a lot of UK businesses seeking to re-domicile within the EU? While the sovereignty of borders in today's globalised world can offer little or no political-economy protection when there is free movement of capital across borders, sovereignty can make a difference to trade. The UK already has a high trade deficit of about 6% ratio to GDP in goods with very few sectors earning a significant or any trade surplus except finaancial and related services. The UK therefore will have to rely far more than in the past on voluntary inflow of private capital than annually for decades has been wporth about 2% ratio to GDP. But that is equivalent to borrowing and to selling net financial and property assets. For UK trade to take advantage of lower exchange rate and balance its external account better will require exports of goods to grow much faster than not only imports of goods but much faster than the likely shrinkage in UK exports of financial and related services. It is not hard to imagine the UK having to increase its borrowing (in hard currencies) from the rest of the world for years at an annual rate of about 5% ratio to GDP, and especially if UK banks persist in their four decades old habit of not growing lending to businesses but only to property and for mortgages such that today for every £1 lent to businesses, UK banks lend £6 for mortgages! If this continues there will be no prospect of the UK outside the EU becoming better able to pay its way in the world. It will become a massive nebt debtor, hardly a good foundation or recipe for economic independence and negotiating trade deals?
Wednesday, 29 June 2016
The Referendum voting 52/48 for Brexit (UK giving up its EU membership and its special privileges within it) was intended to restore full sovereignty to Parliament, but may yet find Parliament is indeed sovereign and not the people. There are many examples of parliaments overriding EU referenda results. But, so far all MPs who are asked state they will totally respect the poll result. Brexiteers may soon learn they are not getting what they hoped for and were promised by their unelected leaders. And further that they'll get the opposite of what they expected? Our MPs and voters cannot claim to be experts about trade, economics, immigration and international politics, but that does not restrain their sense of political certainties. They believe in democratic votes and majorities and sovereignty of the people and forget the elephant in the room is international big business who clearly said they don't want this. If voters don't take care to care about business, will business feel a duty of care for them? The Spectator magazine thinks Tories were never more divided since the Corn Laws. But Brexit is also a rural revolt and cities versus their hinterlands, and Little England versus Great Britain. Rioters attacked one of my great great grandparents, Prime Minister the Duke of Wellington, in his carriage and at his home in 1830 for his opposition to electoral reform (conceived partly as a solution to rioting by rural workers). he granted full civil rights to Catholics. The Iron Duke was so-called after he erected iron shutters at no.1 London to defend against stone throwing mobs. A similar mob who stoned Apsley House, voted on 23rd June mass against class and small towns against big cities. Our British love of irony is now being fully tested - possibly to destruction. Brexit's English supporters paradoxically say they want "Independence" without immigrants sounding just like Scottish Nationalists in 2014 except for the latter saying they need more immigrants. We will find out in coming months how much independence Europe will decide it wants to have from an anti-communitaire UK. The irony of this? It is that Brexit lost. Brexiteers don't know that much yet because Remain also lost big time and most people foolishly imagine that if one side lost it means the other side has won? I'll try to explain why Brexit has also lost, and done so bigtime?
Saturday, 25 June 2016
Voters on all sides of the EU vote including those who did not vote are in shock at the unexpected result – a majority of 52/48 for ending UK membership of the EU – and the rest of Europe and much of the rest of the world are also stunned. In any major question it is realistic to begin with one third for, one third against and one third undecided. In the outcome of the UK referendum only 37% of the UK electorate was sufficient for the 52% majority for leaving. 34% of the electorate voted to remain in the EU. 29% of the electorate did not vote. The political campaign of Leave and Remain failed to sway more than 15% of undecided or indifferent voters? Many of them may have been voters who felt unable to judge the complex question and who felt they could and should leave the decision to others who apparently did know what way to vote? The older the voters the more they voted to leave and only the oldest segments, those over 50 and over 65, voted in majority to leave but this was sufficient for a simple majority gained by 1.9% or 634,000 voting to leave instead of voting to Remain. Older voters had the least to gain or lose for themselves and perhaps felt freer to vote according to their gut-feel rather than according to any hard-headed assessment of consequences.
Sunday, 11 January 2015
"At long last, the United States is showing signs of recovery from the crisis that erupted at the end of President George W. Bush’s administration, when the near-implosion of its financial system sent shock waves around the world. But it is not a strong recovery; at best, the gap between where the economy would have been and where it is today is not widening. If it is closing, it is doing so very slowly; the damage wrought by the crisis appears to be long term. Then again, it could be worse. Across the Atlantic, there are few signs of even a modest US-style recovery: The gap between where Europe is and where it would have been in the absence of the crisis continues to grow. In most European Union countries, per capita GDP is less than it was before the crisis. A lost half-decade is quickly turning into a whole one. Behind the cold statistics, lives are being ruined, dreams are being dashed, and families are falling apart (or not being formed) as stagnation – depression in some places – runs on year after year." It is less that the damage is long term than that the efforts at recovery are the wrong ones. Europe's combined national governments could not agree on a communitaire coordinated responses that would mitigate the extreme imbalances, and so the job became perforce delegated to the ECB. The ECB had to replace Eur1.5tn roughly three quarters of bank deposits including inter-bank loans that afrom 2010 fled 'north' out of Portugal, Italy, Ireland, Greece, Spain. Two third of this has returned or been replaced. But, the renewed anxiety about Greece is causing a another phase of capital flight. Germany and other net exporters and UK (the first economy to benefit from US recovery) are not throwing money at the Mediterranean economies in crisis; the net flow is the other way about. The EU differes from USA insofar as extreme trade and payments imbalances are explicit within the EU and Euro Area without sufficient compensating rebalancing transfers as in the USA. Stiglitz sounds non-plussed by the EU's ineffective or negative action given that it at least has - "The EU has highly talented, highly educated people. Its member countries have strong legal frameworks and well-functioning societies. Before the crisis, most even had well-functioning economies. In some places, productivity per hour – or the rate of its growth – was among the highest in the world. But Europe is not a victim. Yes, America mismanaged its economy; but, no, the US did not somehow manage to impose the brunt of the global fallout on Europe. The EU’s malaise is self-inflicted, owing to an unprecedented succession of bad economic decisions, beginning with the creation of the euro. Though intended to unite Europe, in the end the euro has divided it; and, in the absence of the political will to create the institutions that would enable a single currency to work, the damage is not being undone. The current mess stems partly from adherence to a long-discredited belief in well-functioning markets without imperfections of information and competition. Hubris has also played a role. How else to explain the fact that, year after year, European officials’ forecasts of their policies’ consequences have been consistently wrong? These forecasts have been wrong not because EU countries failed to implement the prescribed policies, but because the models upon which those policies relied were so badly flawed. In Greece, for example, measures intended to lower the debt burden have in fact left the country more burdened than it was in 2010: the debt-to-GDP ratio has increased, owing to the bruising impact of fiscal austerity on output. At least the International Monetary Fund has owned up to these intellectual and policy failures." There tends to be an asymmetry within cycles, in that US downturns are transmitted faster to the euro area (and the rest of the world) than upturns: it takes around two quarters for downturns to be transmitted from the United States to the euro area, while it takes around six quarters for upturns. Second, taking into account estimates of potential output and output gaps (using those provided by the European Commission), the euro area as a whole tends to exhibit milder downturns, but also slower rebounds compared with the United States. A third important stylised fact is that recessions associated with financial crises, as well as those associated with credit crunches and house price busts, have typically been particularly severe and protracted. japan is a ood example where government recovery measures focused on refinancing the banks rather than refinancing the underlying economy. Arguably much the same has been occurring in the EU post-2008. Similarly, refinancing government and or the banks combined with austerity measures in government programmes and no effective pressure on banks to maintain and grow but not shrink bank lending to the rest of the economy is not a recipe for boosting general GDP growth. Stiglitz goes on to say: "Europe’s leaders remain convinced that structural reform must be their top priority. But the problems they point to were apparent in the years before the crisis, and they were not stopping growth then. What Europe needs more than structural reform within member countries is reform of the structure of the eurozone itself, and a reversal of austerity policies, which have failed time and again to reignite economic growth. Those who thought that the euro could not survive have been repeatedly proven wrong. But the critics have been right about one thing: unless the structure of the eurozone is reformed, and austerity reversed, Europe will not recover. The drama in Europe is far from over. One of the EU’s strengths is the vitality of its democracies. But the euro took away from citizens – especially in the crisis countries – any say over their economic destiny. Repeatedly, voters have thrown out incumbents, dissatisfied with the direction of the economy – only to have the new government continue on the same course dictated from Brussels, Frankfurt, and Berlin. But for how long can this continue? And how will voters react? Throughout Europe, we have seen the alarming growth of extreme nationalist parties, running counter to the Enlightenment values that have made Europe so successful. In some places, large separatist movements are rising. Now Greece is posing yet another test for Europe. The decline in Greek GDP since 2010 is far worse than that which confronted America during the Great Depression of the 1930s. Youth unemployment is over 50%. Prime Minister Antonis Samaras’s government has failed, and now, owing to the parliament’s inability to choose a new Greek president, an early general election will be held on January 25. The left opposition Syriza party, which is committed to renegotiating the terms of Greece’s EU bailout, is ahead in opinion polls. If Syriza wins but does not take power, a principal reason will be fear of how the EU will respond. Fear is not the noblest of emotions, and it will not give rise to the kind of national consensus that Greece needs in order to move forward. The issue is not Greece. It is Europe. If Europe does not change its ways – if it does not reform the eurozone and repeal austerity – a popular backlash will become inevitable. Greece may stay the course this time. But this economic madness cannot continue forever. Democracy will not permit it. But how much more pain will Europe have to endure before reason is restored?" Austerity policies are intuitively chosen by politicians who do not grasp how piublic and private sectors interact and who assume they can act significantly independantly of each other. There is limited understanding of how the public sector has sole responsibility for dragging national GDPs out of recession and how in EU especially this has to be an EU-wide effort. yet, the smaller the European economy the more it is assumed to be less dependant on EU-wide policy when the opposite is true.