Brexit’s chaos is always just around the corner

A medical emergency left my keyboard out of reach yesterday. I was unable to write to you on one of the most interesting days in British politics for many months.

After six attempts to take a blood sample by nurses from four different nationalities, my wife decided the NHS is as bad as Japanese media had warned her about. But she did finally learn what Brexit is from the waiting room TV.

Apparently I’m not good at explaining it.

The time in waiting rooms made me realise something. Nothing actually changed yesterday.

The FTSE100 was unchanged on the day. The pound’s fall was fast but not far, barely taking us back to the end of October’s level. The whole drama was about the backstop, not the Brexit deal.

Brexiteers keep getting asked whether they regret the referendum yet. The almighty chaos it has caused is a total nightmare. The Brexiteers counter that they are hardly in charge, so it’s a bit dodgy to hold them accountable for the mess Remainers have made of Brexit. Yet was it realistic to expect Brexit to go smoothly, whoever’s in charge?

But don’t get caught up in this false drama. What chaos has Brexit caused? Turn off your TV and the chaos is gone. Your wealth, your income and everything else you care about seems mightily unchanged to me.

GDP growth is good. Wage growth is better. Inflation is low.

You might’ve noticed by now that Brexit’s chaos is always in the future. That’s why there are so many transition periods, backstops and extensions. If Brexit actually happened, and not much actually happened as a result of Brexit, the whole furore would look rather silly.

But what about all those warnings of what could happen?

Like the recession the Bank of England forecast after the referendum? It had to reverse its interest rate cut when nothing happened. The pound absorbed the shock. Which proved the currency eurosceptics’ point about joining the euro nicely.

Italy should take note. And do this.

Admittedly, there are problems with Brexit. But they are not problems that need a grand bargain to resolve. No bargain at all, in fact. Just common sense.

One such solution has already been put in place. The EU was worried its financial firms would lose access to UK derivatives markets as a result of Brexit. So it passed a law allowing EU firms to continue to use them.

Done. Solved. No drama. No deal. No negotiation. Barely any news coverage.

Meanwhile, the headlines continue to report on how the City of London is going to be dismantled and shipped to Frankfurt, Paris and Milan.

Maybe not Milan.

Now extend this solution out to every other aspect of Brexit.

If we fear a hard border in Ireland, don’t impose one. Allow trade to flow. As it does now, between nations with many regulatory and tax differences.

If we fear planes not being able to fly between the EU and UK, legalise flights between the EU and UK. Not in an agreement or treaty. Just legalise them.

If we fear the rights of EU citizens in the UK and UK citizens in the EU, whatever that is supposed to mean, then guarantee those rights. Don’t treat these people as hostages in a poker game.

If we fear business being disrupted by tariffs, just don’t impose them. Not with a free trade agreement. Just with a law. As they did with financial derivatives.

What about the EU’s four freedoms? The EU has long argued that you can’t just pick and choose between freedom of movement, capital, goods and services. The EU has its integrity to protect. What’s left of it.

If you believe this argument, have a quick look at history. Or even the current set of relationships the EU has. The EU’s history of expansion has been full of bespoke deals. The UK being just one example.

Not to mention how quickly borders pop up inside Europe when mass migration takes place. And how quickly capital controls were put in place when countries started going broke. And how trade and migration is possible from outside the EU too.

The EU’s four freedoms are flimsy. Something else is at work in the way the EU has negotiated Brexit. A panel from Sky, Bloomberg or CNN stumbled upon the real reason yesterday. I can’t remember which of the three it was.

While trying to admonish Brexiteers for thinking leaving the EU would be easy, they came to the conclusion that, “If it was easy to leave the EU, everyone would go.” They didn’t realise the irony.

What does this make the EU? A prison that keeps your trade, capital, and migration rights if you try to leave?

Isn’t this an admission that each country believes the EU would be better off as a free trade area and nothing more? Which is what Brexit was supposed to be about.

The EU further undermined its own position by demanding a border down the Irish sea. As if smuggling is harder by sea than land…

More to the point, the EU solution would’ve split up the UK in precisely the way everyone was bemoaning the need to split up the island of Ireland. As the EU sees it, there should be borders within nations, but not between them…

The false frenzy

The funniest thing about the media furore over Brexit is how it is framed. As a battle between the EU and Britain. As if it is a zero-sum game. One side’s victory is the other side’s loss.

The same people who think Brexit is a bad idea tell us that Britain has lost terribly in its battle with the EU under the deal because we’ll remain tied to the EU. They should be happy about this outcome if they believe being in the EU is a good thing for Britain.

My point being that we can’t agree on what’s good and bad when it comes to how we evaluate Brexit. Is free trade good or bad? Is regulatory alignment good or bad? Is migration good or bad?

People within the Remain camp and Brexit camp can’t agree on the answers to those questions. So when a deal hits the news, how can they possibly describe whether it’s good or bad? Their outrage or support is really just a desire to have an opinion and pass judgement. Which gets people in a complete mess on substantive issues.

If you point out to a Remainer that May’s deal is Brexit in name only, they still argue Britain has lost in the negotiations… What are they, a Brexiteer?

The fact that Brexit Britain could increase free trade and immigration after leaving the EU makes things even more confusing. Brexit is about who makes decisions on UK policy, the EU or the UK, not what direction that policy will take.

Remainers say Brexiteers never presented a plan about the future of Britain. As though Brexit was about the direction we would take. It wasn’t.

It was about deciding who has the power to decide what direction Britain should take. Should that power rest with British voters and the British parliament? Or increasingly with the EU voter and the EU parliament and the EU commission?

Under Brexit, we could continue to mirror EU policy for the rest of history if we wanted to. Or diverge. Or out trade and out migrate the EU. Brexit means it is up to us.

The point I’m trying to make is apparently highlighted in Tim Shipman’s book “All Out War: The Full Story of How Brexit Sank Britain”:

“The real punch in the guts for a pro-European like Cooper was ‘that’s what you don’t like [but] what are the positives? You’d usually get silence’.

“The focus-group members would look at each other sheepishly and someone would say ‘well there’s the trade’ but Cooper could tell their hearts were not in it.”

If trade within the EU is good, imagine what trading with the rest of the world can do for you. Brexit merely opens up choices, it doesn’t make them for us.

Some people imagine a destitute and unemployed Britain if we open up trade to the world. Some envision an economic boom of unimaginable proportions.

It’s far from clear what trade policy Brexit might deliver. That’s completely up for grabs.

The drama in the news carefully avoids all this. Because if the Brexit debate was framed as a simple “who should rule Britain” question, Brexit would be favoured.

But Brexit campaigners ran on the idea of policy instead. They promised less immigration instead of the ability to decide on whatever immigration policy we want.

Political drama is not national drama

The only place Brexit chaos really is playing out is in UK politics. That’s where all the drama has been. Not that this matters to us.

As an Australian, I’m deeply unimpressed by leadership challenges. We’ve had seven prime ministers in ten years after 24 in the previous 100 years.

Air New Zealand’s Twitter battle with Australia’s national carrier Qantas featured this beauty: “We’d like to make an official complaint. Who’s your PM this week?”

Australia stumbles along just fine while few of us know who is running the country at any given time. Just as Belgium did well without a government for over a year. And just as UK economic growth has recovered thanks to Parliament being so busy with Brexit it’s unable to meddle in the economy as much as it usually does.

I hope I’ve armed you with the ability to ignore Brexit news in coming days. Or enjoy it purely for the meaningless entertainment value it is.

If all this drama is over just the backstop, can you imagine what’ll happen when we do a trade deal.

Not that this is likely.

Why would the EU negotiate with us when the backstop is what they want in the first place?

The only truly worrying thing about that backstop in the news is that it does not allow Britain a mechanism to escape. Even the EU rules allowed for Brexit.

Under May’s Brexit deal, we are checking out, but we can no longer leave.

Let’s hope the Italians do better with their effort.

Until next time,

Nick Hubble
Capital & Conflict

P.S. Before I forget, you have only hours left to consider joining the most promising trading system from the most prominent trader I’ve come across. And by trade I don’t mean fiddling about for hours in the market each day. Just four assets and four trades a month are all it takes to generate extraordinary returns. Find out more here.

Category: Brexit

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