EU consolidates into the void

Both Deutsche Bank and Societe Generale reversed their bets on the pound in the wake of the election news. They now think the pound is on the way up.

That’s bad news for the FTSE 100 and its companies with foreign earnings. But good news for importers.

It’s funny how an election with a predictable outcome and no change in power can move markets so fundamentally. Prime Minister Theresa May isn’t expected to make any major changes that would move the pound.

The French vote next

Another vote is just what Europe needs. The Dutch, Turks, Germans, Hungarians and French are all spending valuable hours standing in line too this year. So far, only last year’s Brexit proved to be an upset. And the UK election isn’t exactly on a knife edge.

The Turkish referendum was though. The Turks voted to give their president greater powers recently. At least the genuine and counted ballots from those who were able to vote, by the slimmest of margins, will give him those powers. What the Turkish people actually want is another question.

President Recep Tayyip Erdogan has been threatening Europe with a flood of refugees in cruel unmanageable doses, but with buses provided. He wants the benefits of Europe without the oversight in return for holding back the Syrians.

The Dutch vote a few months ago confirmed euroscepticism is strong in Holland, but not unexpectedly so.

All eyes are now on France. In three days’ time, the French vote for their new president. And the race recently hotted up. But it’s all very confusing just how things are playing out.

You probably know about the far-right candidate Marine Le Pen. Then there are two centrists in Emmanuel Macron and Francois Fillon. But the action is on the far left.

The rabble rouser Jean-Luc Melenchon is surging from obscurity. He pointed out just how corrupt the other competitors are during a brilliant performance in a TV debate. He’s almost doubled his share of voting in the first round to 20%, according to a Deutsche Bank summary of polls. In a fairly even four-way race, that’s not bad.

It’s never straightforward in elections though. The French will have two rounds of voting. In the second round, the top two candidates from the first round are on offer. That means, despite potentially winning the first round, Le Pen will lose in the second to whatever centrist opponent she faces.

But that’s also the catch. What if the far-left Melenchon is her opponent in the second round? What if France faces a choice between a far-left candidate and a far-right candidate instead of having at least one centrist to default to? Deutsche Bank explains it’s a statistical possibility:

[…] the top four candidates are within a 5pp range which makes any second round combination statistically possible. As a result, a Melenchon – Le Pen second round is technically within the range of historical polling errors.

If Le Pen and Melenchon face off, Melenchon is expected to win because Le Pen is seen as racist. But here’s the interesting bit. Both politicians want dramatic changes to the European Union, potentially leaving it and reinstating the franc. Their policies aren’t that different, which won’t surprise anyone who has compared the far left and far right before.

But all the polls agree it’s still unlikely Le Pen or Melenchon will be president in the end. They’re all consistently showing the same information. Then again, that’s suspicious too. Journalists at the statistical analysis website are sounding the alarm.

Normally, there are at least some outliers in any group of polls. It’s a statistical certainty. So what can you make of polls that are all too similar? Nobody wants to show what they’re actually polling. An unexpected result is more likely than it seems.

The French election campaign looks like a bundle of fun no matter the result. After she refused to be on TV with an EU flag in the background, Le Pen’s assistant tweeted to the EU that the French would “be sticking your oligarchic rag in the cupboard.” It’s almost sad there was no British politician to reply on the behalf of the EU with some smart comment.

Bordering on the insane

Meanwhile the details of Brexit are emerging. And they’re fascinating.

Take for example, enforcing UK migration rules against EU citizens. Welcoming EU citizens used to be a good thing. We got to steal Europe’s most productive workers for our financial services industry, legal industry and much more. Some of my friends are among them.

But once we leave the EU, we have to enforce migration laws against these people. The German students graduating from our universities can’t stay. Any unemployed financial whizz kids must go back to France. Polish cleaners must be sent home unless they’re officially employed by a compliant company willing to sponsor them for a visa.

But why?

Why do we have to prevent EU citizens from coming to the UK? Leaving the EU does not immediately force us to have an anti-immigration policy to EU citizens.

We might want to disagree with EU refugee policy. Or we might want to stop welfare migrants from EU states with smaller benefits. Or we might want to ban criminals from migrating to the UK. But it’s completely stupid to prevent the right sort of person from coming to the UK.

Just think about the number of highly skilled British workers who are in a relationship with an EU citizen. We risk losing these workers to other countries that make it easy to be together. I was one of them, but refused to move to France…

What’s even stupider than enforcing restrictive immigration policies against EU citizens is the idea that the Home Office has come up with to deal with the increased workload this entails. It wants UK employers and institutions to make sure people leave the UK.

A British university might have just trained up the smartest cancer researcher in the world, but if they don’t get a visa they have to go back to Austria. And the university has got to make sure of it!

This is utter nonsense. I hope universities and employers break the law and keep EU citizens in the country in secret.

It simply does not follow that having control over your own immigration policy must mean having a restrictive one. Especially against people we used to welcome with zero fuss. EU migration into the UK is needed to continue to create jobs, innovation and for us to remain the world leader in areas we have a competitive advantage.

We should steal Europe’s smartest, hardest working, and entrepreneurial citizens, not chuck them out. Enforcing bad immigration rules against these people is a terrible idea and does not follow on automatically from leaving the EU.

If we turn into a smaller version of the EU, with anti-trade and anti-migration policies, we might as well stay in it. The reason to leave was to open borders to places other than the EU. For trade and migration.

Until next time,

Nick Hubble
Capital & Conflict

Category: The End of Europe

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