The Dreaded Contagion Effect
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Referendums are tricky in the EU. This time around, a referendum will be held in the UK, the EU’s second biggest net provider of funds — and most importantly, not a member of the single currency. The vote in all likelihood represents the biggest political decision British voters will make in their lifetime.
Feeding the Fear
The fear on both sides of the English Channel is palpable. Brexit panic has sent the pound sterling spiraling to 2009 lows against the dollar. It didn’t take long for the UK’s business elite to begin sounding the alarms: 200 CEOs, chairmen and chairwomen, representing 1.2 million employees and 33 FTSE 100 firms, put their names to a letter warning that “British business needs unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs.” Or else.
The fear mongering has only just begun. In the coming months all manner of doom and gloom scenarios will be paraded to cajole British voters into voting the right way. Almost all of Britain’s elite institutions, including the two main political parties and, most importantly, the City of London Corporation want Britain to remain in the EU.
But the genie is already out of the bottle. Now it’s just a question of waiting to see how the popular mood in Britain evolves over the next five months of intense electioneering. By this stage in proceedings, with Europe facing rising political divisions and instability, economic upheaval, a refugee crisis and possibly even a full-blown banking meltdown, the only emotion the EU has left to play on is fear.
That’s not to say that Brits don’t have reason to fear the potential consequences of leaving the EU. For example, pro-EU pundits have argued that trade with the EU could suffer a heavy setback, meaning lower growth and fewer jobs. But the argument ignores a glaring fact: the UK has a large and growing trade deficit with its EU partners. Hence, companies “on the continent” will be even worse affected, at a time when global trade is already slowing.
The Doomsday Scenario
To add to the sense of doom, the US Trade Representative Michael Froman just waded deeper into the debate, reiterating remarks that the U.S. would not sign a separate trade deal with the UK. As a result, British firms could face “crippling Chinese-style tariffs outside the EU.” As WOLF STREET reported last year when Froman fired his first warning shot about Brexit, the U.S. has plenty of reasons to be worried, chief among them the potential disintegration of its biggest trading partner, the European Union.
No less concerned is the City of London, which risks losing a hefty chunk of its business to Frankfurt. Most in danger is its dominance of the $5.3 trillion-a-day foreign exchange market. This dominance, including euro trading, “would gradually decline and then end as the flows moved to Asia and other European capitals,” Jim Rogers, who co-founded the Quantum Fund in 1973 with George Soros, told Reuters.
When it comes to Brexit doomsaying, no one can hold a candle to HSBC, the money laundering specialists that just decided to stay in London, despite the prospect of Brexit. In a new report, it predicts that Brexit will have almost apocalyptic consequences for the UK economy, including the potential loss of 20% of Sterling’s value against the dollar; the destruction of almost all expected GDP growth for 2017; the loss of hundreds of thousands of jobs; cost inflation and reduced demand in the retail sector; a housing slowdown in London; problems for air operators as people stop travelling between the UK and the rest of Europe; a prolonged period of stagflation; and to top it all off, increased emissions.
The Contagion Effect
This endless parade of doom-and-gloom scenarios is an essential part of Europe’s extortion game. The name of the game is fear. Its ultimate aim is to ensure that the bloc gets ever larger and is more centrally controlled. In the case of Brexit, the EU has every reason to be concerned: the same forces that are now spreading the fear about Brexit were unable to browbeat the British public into joining the euro ten years ago, despite all the biblical consequences they foretold.
Brussels’ biggest fear is Brexit’s potential for contagion. Last week Britain’s pro-EU foreign secretary Phillip Hammond warned of a “real fear” in Europe that “if Britain leaves, the contagion will spread.”
In the Netherlands, a new poll found that 53% support a an in-out referendum in the Netherlands, while 44% are opposed. If there were a vote, 44% would vote to stay in the EU and 43% against. This April, the Netherlands is holding a referendum on the EU’s trade treaty with Ukraine. While the referendum is not binding, it is widely seen as a test of public support for the EU.
None of this has gone down well with the EU’s unelected five presidents and commissioners. Jean-Claude Juncker recently warned that a Dutch ‘no’ in the referendum on the Ukraine deal “could open the doors to a continental crisis.”
The problem for Juncker and the bureaucratic super structure he represents is that the Dutch are not alone. Other countries are beginning to question the wisdom of sacrificing their sovereignty.
In a recent referendum, Danes voted against forging closer ties with Brussels. And the Czech prime-minister Bohuslav Sobotka has warned that if Britain votes for Brexit, it may be shortly followed by a “Czexit.” The Czech Republic only joined the EU in 2004 and, despite receiving billions in development funds, has some of the most hostile public opinion.
As the countdown to the Brexit vote begins, Europe finds itself at the mother of all crossroads. The decisions the people of Britain take in five months will have an indelible impact for decades to come, not only in Britain but across Europe. By Don Quijones, Raging Bull-Shit.
But wait – Natixis, the French investment bank and one of the largest money managers in the world, sides with the rebellious islanders: Brexit won’t be a big economic hit, it said. Read… Stunning Blow to EU Scaremongers over Brexit
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