Brexit Panic Sets In

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

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  35 comments for “Brexit Panic Sets In

  1. While Brixit *MAY* have significant short-term adverse effect on the financial sector, much of this sector is not British but rather foreign subsidiaries, and in any event the financial services sector contributes little to the “man in the street,” nor to the SMEs which provide jobs and produce real goods/services for the real economy. Indeed, when everything is considered, the net aggregate economy may well be better off with out the “contributions” of this increasingly parasitical sector.

    The framework of an alternative economic community already exists in the Commonwealth.

    It is well to remember that Briton existed in the time of the Romans and will not sink into the sea if she withdraws from the EU, which she only joined in 1973, and that the greatest period of growth occurred under a policy of “splendid isolation,” backed by innovation and industrial output, not financial engineering or “rent seeking.”

    • Nicko says:

      The Commonwealth? Dreaming! Canada is on track to surpass the UK in GDP in a few short years. If the UK leaves the EU, it would be nothing short of economic suicide.

      • Jonathan Vause says:

        … there is no obvious logical connection between these three points?

      • Jonathan Vause says:

        not to mention that the UK has a GDP of nearly US$3 trillion, while Canada has a GDP of US$1.7 trillion :-)

  2. Christoph Weise says:

    The arguments employed by the elite are flawed: UK would greatly benefit from a BREXIT and a devalued currency would spur exports. Whatever the outcome maybe, the whole discussion is weakening the EU considerably. More and more people all over Europe doubt the benefits of the system. And one day the electorate of one of the member states will pull the ripcord and then the house of cards will collapse. The first country to exit will be the first to prove to world the advantages of being out. Greece did not take the chance. The next ones to decide are now the Brits. Let us see if they can muster more self-confidence.

  3. Vespa P200E says:

    Brexit may result in the demise of EU and Euro but protect UK from the modern day “golden” horde from the East as it’s not the Mongol horsemen this time but unarmed trojan horse of mostly young Muslim cowards fleeing for cushy welfare to bring havoc to old Europe. But UK won’t be ran over thanks to the “moat” around it.

    Brexit must be a good thing for UK if the banksters and corporations are resorting to scare mongering the sheeples and pull the strings behind some of its politician puppets.

    • Nicko says:

      The Brexit has really brought out the racists from the woodwork. Point of tact, half of UK population will be first generation migrants in about a decade. UK needs to drop the nostalgia of empire and realize they live in the post-globalized age.

    • Petunia says:

      The first world is being sacked by the third world, the politicians are getting rich doing it, and the voters are letting it happen. The UK, US, and Europe are now being invaded by the hoards. It is the fall of the Roman Empire all over again.

      • Jonathan Vause says:

        … or, it’s the migration of the labour resource from areas of low demand to areas of high demand, increasing economic efficiency, output and overall living standards?

        • Markar says:

          So you approve of the coordinated destruction of the middle class throughout the West

        • Petunia says:

          All the manufacturing and service jobs in the first world require first world skills, speaking the native language, literacy, and the ability to function seamlessly in the environment. The cheap immigrant labor provides none of this. Mostly it cheats the consumers and the rest of the taxpayers out of quality service, quality products, and tax resources.

          I see it here in Florida. The cheap labor comes with having to educate their children at 12K per child. They qualify for all govt benefits and they get the earned income credit per child if they work on the books. If they work off the books they get govt benefits and the extra income. We all have to pay for their kids, the emergency room visits, the inferior work, and the loss of a real tax base. And the media wonders why the voters are supporting Trump’s anti-immigration rant.

        • Oleaginous Outrager says:

          By what magic (other than magical thinking) does the importation of cheap labor “increase overall living standards”? There’s no shortage of labor available in the UK, there’s a shortage of dirt cheap labor.

          The real issue, which is very rarely mentioned because it so damn scary, is that human society is now undergoing the greatest secular change since the Industrial Revolution, maybe even since the Agricultural Revolution, and nobody knows which way things are going to break.

        • Very astute observation and one that people should heed.

  4. Spencer says:

    The Brexit won’t happen. They rubes can vote all they want, it’s who counts them that matters, always. If voting mattered the powers that be would not allow it.

    Go, Diebold , go!

  5. Paulo says:

    Canada is the US biggest trading partner. Followed by Mexico.

    • Wolf Richter says:

      Only in terms of “countries” are Canada and Mexico the top trading partners. But the EU isn’t a country. So all EU countries combined give you the total trade figures for the EU, and that’s what the article was talking about. In 2015:

      The US imported $426.0 billion from the EU and exported $272.7 billion to the EU, for a bilateral trade in goods of $698.7 billion.

      The US imported $295.2 billion from Canada and exported $280.3 billion to Canada, for a bilateral trade in goods of $575.5 billion.

      So in 2015, the EU was by far the largest trade partner of the US.

  6. Jungle Jim says:

    The economic consequences of Brexit are important, but they may not be the determining factor in the referendum. It seems to me that the biggest issue in the EU is the refugee question. The EU doctrine of open borders never envisioned the kind of mass movements that are happening now. And from all appearances, this is only the beginning. To make matters worse, the refugees are in search of jobs. In a number of EU member states, jobs are not plentiful, so the refugees will be competing with the natives for what jobs there are. And, if the refugees don’t quickly find employment, they will have to go on welfare. That is a formula for trouble and the Eurocrats do not seem to have a clue how to deal with it.

  7. Mad Max says:

    Great Article.
    For those that support the Brexit, I fear that framing the debate in economic terms is a losing battle. Not because there isn’t a true economic case, but because the uncertainty is perceived to be high, economic conditions are not desperate enough, the points are nuanced, and the burden of proof lies with those who want change. Seems better to focus on the cultural, democratic, and institutional benefits, and most principally, the value of sovereignty

  8. T Arthur says:

    Always enjoy Don’s articles. But, I am trying to understand the climate angle. Destruction of GDP, Job losses, reduced air travel, downgraded economic activity, yet, increased emissions? Or just part of the fear mongering?

  9. ML says:

    Here in the UK we were never asked if we wanted to join, but a couple of years later a referendum enquired if we wanted to stay in. I voted against but stay in majority won. This time we are being asked if we want to leave.

    My first thought was to vote not leave – when I told my wife (who intends to vote to leave) she said she’d respect my decision but would not be talking about the subject again: phew!

    I don’t usually give reasons for my decisions but this being a comment/contribution forum it would be pointless my doing so without giving a reason. I tend to think long-term. In 50-100 years hence future generations of people would look back on a vote to leave as one of the biggest mistakes of the early 21st century.

    I have since changed my mind. (My wife is talking about the subject again!) The reason for change of mind is that I’ve realised I don’t know enough about the subject to make an informed decision. So rather than wade through the ensuing mire, I need the answers to these 4 questions:

    A = vote to leave:
    Q1. What are the advantages of leaving.
    Q2. What are the disadvantages of leaving

    B = vote to not leave
    Q3. What are the advantages of not leaving
    Q4. What are the disadvantages of not leaving

    Both A and B should proffer their own answers to each of Q1/Q2 and Q3/Q4 respectively.

    What I don’t want are the answers to Q2 to be answered by B or for the answers to Q4 to be answered by A

  10. rusfos says:

    The EU has stolen the French referundum. Each passing day brings its lot of more agressive supranational dictatorial laws from the non elected EU technocrates.
    This referundum isn’t an economic matter, Island feels a lot better since it slamed the door, it’s a question of FREEDOM.
    EU is before anything else a collectivist organisation and european peoples feel it more and more in every country.

  11. Jonathan Vause says:

    I think it’s fair to say that a drop of 20% in the value of the pound would more than compensate for any loss of price competitiveness due to imposition of EU tariffs, and should go some way towards eliminating the UK’s structural current account deficit as well. The problem with the potential downsizing of the financial services industry is obviously lower tax revenues rather than loss of jobs, but given how not joining the euro made absolutely no difference to london’s dominance of European financial services, it’s hard to see why an EU exit automatically would. In short, its hard to see brexit as an apocalyptic event, beyond the inevitable short term market hysterics, which can be safely ignored?

  12. Julian the Apostate says:

    Hmm. Where is that spirit that whipped the Spanish Armada? Fortune favors the bold. Playing it safely almost never is safe. The West is staring at a tsunami that is about to engulf them. AT LEAST run for higher ground.

  13. mike smith says:

    The EU as currently constructed has always reminded me a little bit of the old “Confederation of States” the United States operated under between 1776 & 1791. Prior to the adoption of the constitution.

  14. RD Blakeslee says:

    If Britons decide to leave the EU, it won’t reflect abstruse financial analyses.

    It will be the same phenomenon giving rise to Donald Trump’s political success.

    Electorates simply want to break up the power structure, which they feel prevents them from making the economic progress enjoyed by the very wealthy and other elements of the international corporatocracy.

    The desire for greater sociopolitical autonomy and increased personal liberty also plays a role, as does a desire to preserve national identity and social norms.

  15. Julian the Apostate says:

    ML, I have given some thought to your questions. Keep in mind I’m coming from a Midwestern US perspective and may be all wet.
    The advantages of voting to leave would include a restoration of Sovereignty, a concept much maligned by the globalists these days. They would prefer a consolidated Europe, one neck ready for one leash. It is much harder to herd cats.
    The disadvantages of voting to leave would include a probably short term disruption in the value of the currency. I don’t see a long term problem with trading Euros but it would be treated like any other foreign currency instead of “in house”. Draghi’s abuse of the Euro might make Brexit rather like a break shot in pool, in which case the Sterling would be sitting pretty.
    The disadvantages of not voting to leave would include you being sucked down the drain when the Euro goes to zero. The advantage of voting not to leave is maintaining the status quo. But who, if I may borrow a British turn of phrase, bloody wants to??

    • ML says:

      Thank you.

      Although we have a reigning monarch, HM The Queen Elizabeth II is now the longest reigning since Queen Victoria, I’ve noticed a trend over the decades for more and more people in UK to consider themselves to be citizens, rather than subjects. Even so there doesn’t seem to be any suggestion we are losing our Sovereignty, more that we have lost the right to make some of our own laws and to adopt a harder line than the EU allows, particular over who should qualify for social welfare benefits. There seems to be a view in some quarters that we are not getting as much out of the EU as we are putting in.

      UK history is one of invasion and trickle immigration. We are not geared to a flood of immigration and following a period of economic austerity, which at least for the state/public sector is continuing, a gamut of resentment is festering.

      I think the referendum will be a close run thing. It’s forecast older people and people in poor areas will vote to leave, younger people (millennials) and more affluent to stay in. As an older person myself, I think the younger people are right. It is after all their future that’s at stake.

  16. Julian the Apostate says:

    A quote from a nineteenth century British Colonial bureaucrat just surfaced from something I read long ago, and might give you a chuckle: ” The wogs begin in Calais.”

  17. pirate3012 says:

    We are asked to believe that Cameron’s deal is legally binding but it is not:

    #davesdodgydeal is an intergovernmental deal. It does not, therefore, come within the purview of the ECJ, but of the International court at The Hague. In treaty law, Article 34 of the Vienna Convention states that “a treaty does not create either obligations or rights for a third State without its consent”. So an intergovernmental body outside the EU treaty framework cannot make any commitment which is binding on the EU.

    People should be informed that to be in the single market (EEA) you do not need to be in the EU. The UK should leave the EU and rejoin EFTA to retain EEA access and lose the political and judicial interference. Polls have shown that this is what people want, but most politicians, the MSM, the BBC and big business are all on the remain side as they’ve a vested interest so it’s very hard to get the message across that this route provides the desired option. The remain side have only FUD to offer and should be ashamed. Brexit need not be a shock but a ripple as trade does not need to be affected.

  18. charles says:

    The flow of business to “other european capital” will essentially go to Dublin. City bankers will have a dual contract with an Irish Branch of the main City office and will show the business card of that Branch when travelling in Europe.
    For good measure, they will travel through Dublin Airport. Expect an A318 from City Airport to Dublin every 30 minutes…

Comments are closed.