AN AMERICAN EXPAT'S TAKE ON WORLD POLITICS: PART 2 - BREXIT

I've chosen Brexit for PART 2 rather than THE UK or something similar because, as an English-speaking expat in a region whose English-speaking expats are primarily English, the UK's march out of the European Union dominates English-language political discourse...until Trump is mentioned. I'll get to Trump in Part 3.

For the uninitiated, a brief lexicon:
European Union (EU) - 500,000,000 Europeans in 28 countries in a political and economic union.
The Four Freedoms - The free movement of goods, capital, services, and labor within the EU. 
English - The language spoken in the UK coloured by the whimsical use of the letter u. 
Brexit - Shorthand for the United Kingdom's (UK's) withdrawal from the European Union.
Remainer - Those who advocated for the UK to remain in the EU.
Leaver - Those who advocated for the UK to leave the EU.
Boris - Euphemism for "I lost my hairbrush."

I admit that the politics of Brexit had me stumped for quite a while. To some extent, it still does. Why did Remainer David Cameron call for the referendum in the first place? How did the ensuing closely-contested, nonbinding referendum become The Will of the People? And given that we now know that such claims of the Leavers as the claim that leaving would instantly and completely shore up UK's ailing and failing healthcare system are fraudulent, why is the UK still sailing headlong into financial purgatory with seemingly no one at the wheel?

To this American looking in from the outside, that last phrase holds the key. No one is at the wheel.

Why did Cameron call for the referendum? Apparently, because the Conservative Party that he led had made the referendum a plank in its platform during the Parliamentary elections of 2015. When the Conservatives won a relatively decisive and somewhat surprising victory, Cameron felt compelled. Why a politician should feel compelled to follow a party platform after an election is beyond my American comprehension. Platforms are put aside after elections in favor of the reality of governance. But for some reason, Cameron decided to put the Conservative platform ahead of his own best judgement and called the referendum. In other words, Cameron chose not to lead.

No one was at the wheel.

The natural ally of Remainer Cameron in the run up to the Brexit referendum should have been the Labour Party and its leader Jeremy Corbyn. But Corbyn was not a fan of the UK's entrance into the EU in the first place, opposed many aspects of membership, was at best a lukewarm Remainer, and went on vacation during the run up to the referendum. Even had Corbyn been more enthusiastic, he is neither a charismatic leader nor a dynamic speaker. With Cameron's own party advocating leaving the EU; without any committed, articulate, charismatic politician/public figure making the case to Remain in the EU; and with voter apathy brought on by polling that may have depressed Remainer turnout, the Leavers won by 52% to 48%. Cameron, having presided over the debacle, resigned. Theresa May took over as Conservative Party leader and Prime Minister.

After following Theresa May for several months, I think that I can safely say that I know Theresa May well enough to judge and I feel confident in saying that Theresa May is no Margaret Thatcher.

No one is at the wheel.

The EU has been very clear from the beginning of this process. In order for the UK to enjoy the benefits of the lucrative single market that 500,000,000 consumers in the EU represent, the UK must honor the Four Freedoms. The EU will not allow an outsider to benefit from the free movement of goods and capital without also allowing for the free movement of labor. If they did, other countries antithetic to free movement of labor - and other aspects of the Union - might peel off as well.

No free access to the single market? If such is the result, Brexit leads to disaster. The UK would have to negotiate with the EU, paying a stiff price for access, or else spend the next several years in uncertainty while negotiating 27 individual trade agreements with 27 individual European countries whose main interests lie within the EU. Major business sectors headquartered in the UK might find it necessary to move to the Continent in order to continue to benefit from the single market. Some have already announced such a move. A brain drain going out, or a failure to be able to attract the best and brightest coming in, might further depress the business climate in the UK.

There are those who insist that through Brexit, the UK can return to past economic glory. I don't see it. In a multi-polar economic world that includes such concentrations of population and wealth as the US, China, India, Russia, and yes, the EU, the UK becomes a minor player. Can the UK claim to have even the same economic prospects as Japan, with half of Japan's population and half its GDP? The entire UK auto industry manufactures one-third of the total number of cars that Honda alone sells annually.


So, in this American's estimation, Brexit has left the UK with a rudderless ship and bad hair. But given a liberal democracy that can hold elections at any time if Parliament expresses no confidence in its leadership, and with backbench members of both major parties expressing dissatisfaction with the current state of affairs, methinks that there are acts yet to unfold in the drama known as Brexit. It may well take a talent as bold as the Bard to complete the script.

Click HERE if you missed PART 1 - FRANCE.

GREECE AND THE EURO - TAKE TWO

OK. Let's revue.

A couple of weeks ago, I predicted that the Europeans understood that a major portion of the Greek debt was going to have to be forgiven, that European banks would have to begin printing money if they wished to make the holders of Greek debt whole, and the Euro would hold at its floor of $1.10 or thereabouts given that such a result had already been figured into its value.

It now appears that the Germans have convinced the Troika (the EU, European Central Bank, and International Monetary Fund) to hold firm and require that Greek debt be honored in full by Greece by itself, that the money to do so could be squeezed out of a Greek economy that would grow in spite of harsh austerity measures imposed by the EU, and as a result of that (and other factors) the Euro has popped up by about 3% against the US dollar.

Was I wrong? No. My timing was just a bit off.

The idea that the Greek economy can grow sufficiently to pay off its debt is simply ludicrous, whether it succeeds in restructuring the public and private sectors of its economy or resorts to the practice of sacrificing virgins. The idea goes beyond ludicrous and approaches insanity...insisting that what has not worked in the past will somehow become the solution in the future. Cynically kicking the can down the road, extending the terms of bad loans to a bankrupt government that has no hope of repaying them, will only heighten the crisis. Eventually, a combination of private and government investors will have to take a hit. Given the apparent reluctance to simply write off a portion of the debt, that hit will probably be in the form of receiving their payoff in Euros of reduced value. The European Central Bank will have to print Euros, whether Merkel likes it or not.

And Portugal, Italy, and Spain are still watching. They would be the next dominoes to fall in a Europe that makes austerity the only tool that it's willing to pull out of its toolbox to counter sovereign debt. I cannot believe that Germany would be willing to see the entire Mediterranean tier of states leave the EU for the sake of adherence to the primacy of the single economic principle of austerity. (The United States has pretty much debunked the primacy of austerity with the relative success of its stimulus. In doing so, it began outgrowing Europe early on and continues to do so.)

And the Euro? I think that its current rise is temporary and related more than anything else to the retrenchment taking place in the international equities markets. Currencies have become more attractive than equities for the moment and, for those who like currencies, the Euro is cheap. But being cheap is not a strength when it comes to currencies. Exactly the opposite. The Euro is cheap because the underlying European economy is still questionable. So $1.10 remains a reasonable long-term price for the Euro.

Could par with the dollar be looming for the Euro? I wouldn't have thought so just a few weeks ago. Now, even given the Euro's current rise in value, I'm not so certain.

GREECE AND THE EURO

Yesterday, I posted that I was convinced that Greece would vote NO.

They did.

Yesterday, I said that the repercussions would depend on the bankers and on the oligarchs who own them. One of the determining factors, I said, would be the effect of the Greek vote on the euro. After a small, brief dip, the euro has held steady against the dollar. This tells me two things.

First, the financial markets have already taken into account the vote with the tanking of the euro by about 20% late last summer. After a few panic trades that dropped the euro by less than 1% against the dollar early on today, the euro bounced back up to its current floor price of $1.10. My guess is that it will stay at or near that level at least until the Fat Lady sings.

Secondly, the markets are also convinced that, when the Fat Lady does sing, Greece will remain in the Eurozone. The early general consensus being reported is that the Troika (the EU, European Central Bank, and International Monetary Fund) will come to a settlement near enough to Greek's terms to acknowledge Prime Minister Alexis Tsipras' victory and to cement Greek firmly into the fold.

On the surface, this might mean that there's more trouble ahead, that Italy and Spain might adopt the Greek tactic of threatening creditors and the stability of the Eurozone in order to work out a better deal on their debt. But I don't see it that way. If the Eurozone has backed down in the face of the relatively insignificant Greeks, can it afford to show backbone against more crucial Italian and Spanish economies, as weak as those economies may be? I doubt it. (Portugal? Too small to matter. GDP about the size of Greece. Spain's is 5 times Greece. Italy 8 times.) So now that the German-led program of austerity as medicine has taken one hit, it will almost certainly take more. And Merkel will put on a happy face and pretend to like it.

So there you have it. Greece stays in the Eurozone, as do the other debt-ridden economies. Once the banks begin printing money to ease Greek austerity and make good at least a portion of Greek debt, (and then perhaps Portuguese, Spanish, and Italian debt) the euro may indeed sink to parity with the dollar. But that's a story for another day.