Yelling “fire” in a crowded political union

What if the EU falls apart before we get to vote on staying in it? Britain could end up the only country in the EU if we get the timing right. That would probably keep both sides happy…

Things are looking dicey on the continent. But before we cover the latest incidents of rape, border mayhem and refugee waves, let’s put the EU referendum in the proper context for you – the Australian context.

Why was Britain urged to join the euro? Do you remember? Trade, investment, influence, the City will be isolated if we don’t…

Why should we join the Schengen Zone? Trade, investment, influence, the City will miss out on clever clogs if we don’t…

Why should we stay in the EU?

To be fair, I wasn’t really around for the first two debates. I was at school in Germany when the euro came in. It was all sunshine and rainbows over there. But I’d love to hear how you remember the euro and immigration debates of yesteryear.

If my suspicions are correct, the Brexit referendum must be déjà vu for you. Were all the arguments the same? Will trade with Europe, our international clout, and the city be in trouble if we don’t do what Europe wants?

Of course all those arguments do make sense. It all boils down to transaction costs. Trade is easier in one currency. It’s easier to invest in the same currency. The city can move money around easier in one currency. People can move to where they’re most useful in one immigration zone. Europe, as a bloc, has more political clout than the sum of its parts. One government is less confusing than dozens.

These things are logical. And that’s the end of an argument right – if one side has presented a good case. From here on in anyone who doesn’t agree is racist, nationalist and dumb. They must be given they disagree with perfectly sound arguments.

That’s the way it works for most people. But obviously there are plenty of counterarguments.

A bush fire without containment lines

If you bring in an Australian analyst to look at things, the flaw in the EU stands out like three feet of brush accumulated on a forest floor. Without containment lines, a cigarette can burn down a city instead of just an empty forest the size of England.

Borders can act like bush fire containment lines. They keep Greek crises in Greece. Whether it’s financial integration or border controls, Greece has illustrated the importance of this nicely in the last few years. The Greek debt crisis and now the unfolding immigration crisis both stopped at Calais, to a great extent anyway.

Being outside the Schengen Zone has suited Britain rather well on this. Now that the winter is no longer coming, the migrant wave is. For Game of Thrones fans, the image of refugees climbing the wall of ice known as Austria is pertinent. But things just got real. Yesterday the EU migration commissioner Dimitris Avramopoulo stated the EU has 10 days before its entire immigration system breaks down given the new influx of refugees. The result could be a disintegration of the EU.

Yelling “fire” in a crowded political union

Threats from national governments who will bear the brunt of a migrant wave are coming thick and fast. Luxembourg’s foreign minister is worried about “anarchy”. Norway’s Prime Minister is considering a state of lockdown after seeing what happened in neighboring Sweden. Greece’s Migration Minister has a problem with the idea of Greece becoming “a warehouse of souls” for the rest of Europe.

Greece and the Balkans are getting swamped first now that migrants are on the move again. Then the Germans and Scandinavians end up with disproportionate amounts of refugees. For now much of the problems stops at Calais for the UK.

The Austrians organised a secret meeting with the EU’s eastern border states and didn’t invite the Greeks, causing uproar and an ambassador sent packing from the world’s recently voted most livable city, Vienna.

Then again Europe doesn’t seem so livable since I moved back. The news site Russia Today reported “a 16-year-old Afghan refugee, who had recently taken a course on how to behave towards women, has been charged with raping a female employee at a refugee shelter in Belgium.” My mum recently helped out at a refugee centre in Austria.

Do you remember the outrage when Nigel Farage told the world he would be concerned if a bunch of Romanian men moved in next door? Someone should ask him whether he would be concerned if a bunch of refugees moved in next door. See if he gets lambasted again.

But it’s not just Schengen the UK avoided. As for the euro, the idea that one interest rate should apply between countries with wildly divergent everythings, including government budgets, unemployment rates and inflation rates, is patently absurd. The eurozone is simply getting what it asked for there.

But enough Europe bashing. You already know what to do about it by now. What of financial markets? Things are just as bizarre…

Hedge funds aren’t buying it

The price of natural gas has tumbled to 17 year lows. America’s Kansas City Fed Composite index is at -12, the worst since early 2009, suggesting American manufacturing is in deep trouble. An index for European economic confidence also came in below expectations this morning.

And so everyone looks to the central banks once more. The ECB is expected to come up with something early next March. The Wall Street Journal has proposed the Bank of Japan start buying oil instead of just purely financial assets. Martin Wolf suggested the central banks should do a helicopter drop and stick some money in everyone’s bank accounts.

Intriguingly, hedge funds aren’t buying it, pun intended. They’re betting on a surge in volatility and expect a crash in equities, especially tech stocks. That’s according to a chart from Societe Generale, which compiled the positions of hedge funds in different asset classes.

So for now the central banks aren’t committed. They will be eventually. The question is whether they can save markets again. And whether markets will even be topical as Europe struggles to keep it together long enough for the UK vote.

Category: The End of Europe

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