The losers of globalisation are in the EU

Government shutdowns are practically tradition in the US. They never impact anything in the end. I think it’s some sort of deal between politicians and the media to manufacture some airtime.

So let’s look at our neighbours on the other side today. Far more significant changes are afoot to our east.

The EU’s ramshackle shackles are looking fragile this week. Remember, as each month passes, the EU itself weakens. And with it, so does Britain’s negotiating opponent.

If you think like this, it buys into a false narrative. Trade is by definition mutually beneficial, otherwise it wouldn’t happen. So the Brexit negotiations are not actually antagonistic. Only in the minds of politicians looking for a show. To the rest of us, the story is simple. The more restrictions, the less well off we are.

Unfortunately, most people do buy into the false narrative. As though one side’s gain is another side’s loss. And that widespread belief is what makes the EU’s weakening position relevant to negotiations. Because the British are pushing for trade while the EU is against it.

The inconsistencies to total confusion. One minute the French president says “Britain will secure a bespoke trade deal after Brexit,” and the next ”EU sources have warned of bureaucratic delays, legal questions and political opposition from France, which wants to drive home its Brexit business advantage, delaying an early deal.”

The current sticking point in the negotiations is incredibly ironic. The EU says Britain can’t have close trade ties without accept freedom of movement. That’s precisely the issue which is causing enormous trouble in Europe as it is. Freedom of movement has been suspended on many borders. And the political change favouring less movement continues.

French President Emnmanuel Macron admitted that the French would vote for Brexit. This is a terrible twist of his words, by the way. His actual point was that, if the French were in the position of the British, they would vote to leave the EU. But they’re not, so they won’t.

Still, the admission signals several important things. The people of Europe do not blame Britain for wanting to get out. They just begrudge them having the opportunity to do so. Hence the desire to punish Britain. Jealousy.

Macron explained that the British had voted for Brexit because “a lot of losers” of globalisation had “decided it was not for them”.

Huh? That makes no sense. The EU is a protectionist bloc, not a pro-trade one. It has extraordinarily high barriers of trade, which the British want to escape. The EU is trying to prevent the UK from making trade deals with countries. The EU is rejecting the UK’s desire to continue trading.

The British people want to be part of the world, not just part of the EU at the expense of everywhere else.

The real reasons for Brexit are all over the news. And they’re from inside the EU.

A blundering EU means Brexit was no blunder

Two German newspapers are reporting on the state of EU government employee pension schemes. They’ll be broke within eight years according to internal estimates.

The EU blames low interest rates. The newspapers blame pensions of €4,400 a month on average for more than 21,000 retired EU employees. That’s ÂŁ3,800 a month…

With the pension funds expected to go broke, EU taxpayers will be footing the bill instead. It’s €63 billion…

Given the drama over the British divorce payment, about the same amount, you’d hope this causes a drama in the EU.

But once again the whole context is terribly misleading. Whether taxpayers pays the EU politicians to contribute to a fund to pay EU politicians in retirement, or they just pay EU politicians in retirement directly, it makes no difference. It’s taxpayer funds flowing either way. The pension fund just sounds good. In the end, only the pension amount matters. It’s a simple government expense.

Over in the US, the Social Security Trust Fund has suggested the correct solution. The fund keeps more than 20 million Americans above the poverty line, but will be broke by 2035. The trustees have suggested an “immediate and permanent reduction” in benefits. Good luck seeing that at the EU pension.

But pensions are far from the only debacle.

There’s mixed news for the EU out of Germany. The mainstream left party, which had ruled out another coalition with Angela Merkel, approved a new coalition with Merkel. The agreement had been in doubt because some politicians bizarrely expected their party to stand by their promise not to form another coalition with the enemy.

The good news for the EU is that a former EU president (I can’t remember which of the three presidential positions he held in the EU) is now in government in Germany. The bad news is that Germany’s government is weak on policy with such a large grand coalition.

For example, Merkel will find herself pressured by coalition partners to take a tough line against Austria’s anti-immigration government. But she’ll know doing so risks strengthening similar movements in Germany. The more she moves left to appease her coalition, the more votes she loses to the right at her own party.

Meanwhile, in Italy, the 4 March elections are shaping up to be a nightmare for the EU. Anti-EU parties put together hold a comfortable 2/3 lead in polls. If they can get together, they’ll form government.

Why the popular support? The Telegraph summarises the Italian economic nightmare and how it’s being framed:

The eurosceptic revolt should come as no surprise. Economic recovery in Italy is a relative term. Output is still 6pc below the pre-Lehman peak. The tangible reality for most Italians is even worse since real disposable income per capita has not yet returned to the levels of 1995, when the lira was fixed in perpetuity against the D-Mark. A quarter century of depression explains why the pro-European centre is withering on the vine.

These people have lived through the Brexit we were warned about by Remainers, but inside the EU.

The consensus of Italy’s rebels seems to be to remain in the EU and eurozone, but ignore its rules. They all have their wacky ideas on exactly what to do.

In Greece, the opposite policy seems to be working, or not working, depending on how you see it. The country is in for another bailout. Two in fact.

The upcoming one is for €6.7 billion to help pay its debt. Thanks to excellent cooperation with the International Monetary Fund and EU authorities, the Greeks are to be rewarded with more money from their overlords. Funnily enough, the French have floated a plan to forgive debts if the Greek economy disappoints in coming years. Getting paid to do badly is what got Greece into this mess…

After eight years of this bailout nonsense, you have to wonder whether it was worth it. The Greeks must look at places like Iceland and Ireland and wonder what they did to deserve the troika for so long. It would’ve been better to default, devalue and begin afresh.

Bregret will slowly die out

Amid all this news, it’s no surprise YouGov’s tracking of Bregret has hit new lows. The number of people who think Brexit was the right decision topped the number who think it was wrong for the first time since summer. I wonder if Britain’s success or the EU’s mess generates more support.

But nothing in the news tops this story about the EU’s sponsorship of terrorism. Not only does it do so by arming and funding rebel groups around the world who inevitably turn on it, but it makes their advertising videos too. The Telegraph reports:

European Union funded videos meant to combat radicalisation and foreign fighter recruitment have been accused of encouraging young people to join Isil and other terror groups. 

MEPs, think tanks and NGOs have said that some of the videos in the counter-terrorism campaign were so glamorous they “could be considered a recruitment tool” for the Islamic State of Iraq and the Levant (Isil).

I don’t know what the families of British military personnel will think of this one…

Until next time,

Nick Hubble
Capital & Conflict

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