Another €20 billion in aid to the EU

This morning’s headlines are all the same. Prime Minister Theresa May held her cabinet together. Despite dissent, another €20 billion will be offered to the EU.

Is it a bribe for Britain to be left alone? Is it tribute to our presidents in the EU? Maybe an independence fee? Does it buy a free-trade agreement? Is it meeting our financial obligations? Or is it charity?

Quite frankly, this is the diplomatic opportunity of the century for Britain. Utter humiliation of Europe beckons. Imagine if Theresa May interrupted EastEnders with a national announcement and framed the payout in the following way:

“My fellow Britons. This morning, the cabinet decided to approve a further $20 billion in aid to the EU. Today, I come to you with an explanation for this increase. It is, after all, your money.

“Our efforts to support Europe financially for decades have failed. They continue to need our money each year to survive economically. But, in a referendum, Britain has decided to look to its own financial means. The government respects this decision.

“However, Europe is on the cusp of failure. Already, divisions inside the EU are growing about the budget fallout from Britain’s departure. Like drug addicts, they seek our funds and break into panic if they are no longer forthcoming. Spain alone stands to lose more than €36 billion in EU funding.

“Thus, political turmoil has struck from Greece to Germany. Economically minded separatist movements are growing in many regions of Europe, putting our own Brexit into perspective. Populism is on the rise, threatening the very existence of the euro in Italy and other nations. Euroscepticism of a dark kind is growing in the East. Government budgets are straining, despite years of British aid.

“Given the failure of the European project, some want our money back. This is understandable given how it was spent. But to avoid being blamed for a serious crisis inside the EU, Britain must live up to its outstanding obligations – the promises we made in the past to help Europe in the future. This nation is not a saboteur of the EU project. It merely seeks to be a left a spectator rather than a victim.

“The increased aid payment of $20 billion not only fulfils these obligations and promises, but proves our good faith to keep the EU project alive a little longer.

“They will have no one to blame but themselves.”

Can you imagine how the negotiations would go down after that speech?

Unfortunately, Nigel Farage no longer gives the speeches the prime minister should have –check video below. So we won’t be hearing anything about foreign aid for the EU. At least not anytime soon. The way it’s heading, it’ll have to ask for some eventually.

But back to our original question. What is the payment for? Does it buy us something?

Perhaps it buys a decent trade deal. That’s the condition dissenters in the cabinet supposedly demanded for the €20 billion increase. “Money for nothing and ships for free” is the new negotiation position of David Davis.

Most likely, Brexit isn’t really about the UK for the EU negotiators. It’s about all the other countries inside the EU, watching closely. But even there, the EU is stuck between a rock and a hard place.

What if a net recipient of EU funding seeks to exit the union? Will the EU meet its financial obligations to that nation, just as Britain had to settle its bill?

Who is worse? Westminster or Brussels?

Back to Britain’s Brexit bill. You have to ask, is the payment good value for money? Buying off the bully boys of Brussels is only half of that equation. We’re still stuck with a bunch of politicians leading us, just in Westminster instead of Brussels.

Some days that makes me terribly pessimistic. There are signs Brexit was the right move every day too though.

For example, the EU decided where to move its banking and medical regulator by vote, not logic, common sense or economics. Three rounds of voting didn’t produce winners, so there was a drawing of lots. Paris and Amsterdam won over Milan and Dublin. This is how the EU makes decisions…

“You could not make it up if you tried,” said one EU diplomat to the Financial Times. The far more sensible choice of Frankfurt was passed over, probably because the European Central Bank is already there. It’d be unfair to have both, or something like that. Meanwhile, Vienna’s offer of 25 years’ free rent and the best staff failed to sway votes, despite being the obviously economic choice.

In a world where decisions are made based on political motives, it’s no wonder EU negotiator Michel Barnier thinks he can tell London that its financial sector is in trouble under Brexit. What the financial companies of Europe actually want is completely forgotten about in EU policy. Luckily, they can still raise funds overseas and investors can still keep funds overseas. Between the two, London will be just fine.

If the EU makes its decisions based on their political criteria instead of economics, the whole pace is doomed. Brexit seems to have hardened its resolve to do so.

But there’s something I’d like to know. Why didn’t the author of article 50 mention anything about how much it costs? How that would’ve changed things…

Totally lost the financial plot

The financial market calm of the last few months has been struck down by the last few days of trading. Stocks don’t just go up each day any more. It’s like waking up from a dream.

It’s tough to point out what went wrong. Angela Merkel’s failure to form government is just one of a list of events that the media points to. Most are political in nature – the only source of market fragility when the market is ruled by central bankers.

But don’t think the recent market wobbles represent some sort of return to normality or reality. It’s far from a reckoning. Utterly bizarre financial situations persist. Here’s one I honestly thought was close to impossible.

According to this chart, the yield on European junk bonds is lower than on US ten-year Treasury debt. That means European companies likely to default on their debt are paying less interest than the US government.

High risk in Europe offers less return than no risk in the US. The world has been turned upside down.

Until next time,

Nick Hubble
Capital & Conflict

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