Monday, June 27, 2016

As the political vacuum in the UK continues, the markets are filling the gap

The UK fiasco has continued unabated. Neither the Conservatives nor the Labour party have any effective leader. It is quite clear that the victorious Leave camp is totally divided as to what should happen next, and there is no clear plan as to what level of engagement or disengagement the UK will have with the European Union.

The market collapse that is taking place is the responsibility of the utterly irresponsible leaders of the Leave campaign. So, it could well be that having wielded the knife against David Cameron, Boris Johnson may yet go the way of a previous Tory challenger: Michael Heseltine. Perhaps Theresa May as leader could provide some reassurance, but in the face of economic meltdown, the calls for an early general election -which under the circumstances is clearly necessary- may create an untenable situation for any party. The fractious and divided body politic of the UK is on the brink of collapse. The cowardly, but sullen and determined Jeremy Corbyn is facing the total breakdown of his leadership, but there are few amongst the Labour leading lights who can inspire in the face of the national catastrophe that we now have to face.

Into this chaos the markets are injecting their own commentary. Despite the brief reemergence of the Prime Minister and his Chancellor, the market collapse is now assuming a very dangerous shape. Some are suggesting that the cable (USD/GBP) rate is now headed to parity, which implies a fall of one third from Thursday night's close. The implications are startling. The UK will fall from the fifth largest nominal economy to eighth, just above Italy. The recession that this implies is into double figures. It implies the implosion of the UK property market, it implies cuts in the government budget of the order of 10-15% across the board- a level of austerity that could seriously test the social order of the country. All of the gains made since the early 1990s will have gone over the course of a few weeks. UK bank stocks are now in deep decline- over a third of the value of the UK banking sector has gone in two trading days. The rout is expanding into construction, property and any business that relies on imports, which in the UK is pretty much all of them. The Brexit shock could push inflation very sharply higher. The scale of the meltdown is mind boggling and since there is still no clear plan emerging in London, there is no bottom on the market.

Nor have other European markets been immune- there remains considerable uncertainty as to how the impact of the UK exit can be contained. Wisely, Mrs. Merkel has shown a cool head, suggesting that there was no immediate hurry and that it would be counter-productive to seek to punish the UK for this disaster. She is, of course, right: the punishment being meted onto the UK already is severe enough. However within a few days London must set out a timetable for what is going to happen next- and there is no such timetable. It is not even clear if any new Prime Minister would be able to enact an article 50 notice without a new general election. Paradoxically this chaos may stabilize the European Union itself, as other nationalist movements see what could happen to them, if they push things too far. 

Yet even if the UK general election chose a solidly remain government and the referendum was indeed rescinded, the damage and humiliation being visited on the UK will not go away. Even though Scottish separation in the immediate future would be an economic neutron bomb if it was done too soon, there are hot headed calls for an immediate rerun of the independence vote: and the only leadership in the UK at the moment is coming from those who want to destroy it. 

Personally I think that a lot of people now want to the Conservatives destroyed- they and their UKIP cronies are responsible for this catastrophe. Yet the pathetic response from Labour reminds us that politics as usual is not an option. Any election, however necessary, could throw up a Parliament that can not form a government of any kind.

The fact is that we may still not have reached any understanding of where the bottom of this crisis is going to be, and for as long as that remains the case, the markets will be in turmoil. 

Sunday, June 26, 2016

Leadership vacuum

In the three days since the UK's referendum it has become clear that the Leave campaign were not merely lying about the impact of the EU, they literally had no idea about what would happen if they won.

The backlash has been enormous- I think the level of "buyers remorse" is now so severe that if the referendum was now re-run, that Remain would utterly crush the Leavers.

The problem is that even if the referendum could be re-run, the damage is already done. The differential vote, with Scotland strongly supporting the EU, and England voting to leave has restarted the divisive and difficult argument over Scottish independence. The economic damage is already in the billions, and the next week will see further carnage in the markets.

From the point of view of the EU, there is a clear temptation to push the UK out and try to reconfigure the Union without the uncertainty. In my view this would be a disaster, not just for the UK, but the EU itself. I have never been impressed by the leadership of Mr. Juncker, but I had hoped better of Donald Tusk, the President of the European Council.

The problem now is the total leadership vacuum in the UK. The political system is going to be shaken to the core, and it is entirely possible that the Conservatives and Labour could both face existential challenges. London is in no position to trigger article 50, and will not be able to do so for some time.

Previous referendums in the EU, in France, Ireland, the Netherlands and Denmark have been rerun, and there is now significant pressure inside the UK, that this happens in Britain too. This is something that the EU leadership should welcome and tacitly support.

If they do not, and Brexit actually happens then, as George Soros forecasts today, we could be looking at the total breakdown of the EU. 

The leadership vacuum in London must be met with understanding in Brussels, otherwise the crisis in the markets in the coming week could finally destroy not just the UK, but the EU too.  

Saturday, June 25, 2016

The Damage Done: The UK faces the Sunset


As I feared, the polls weren't wrong, but the bookies were. On a very narrow margin, the referendum in the United Kingdom has voted to leave the European Union.

In the face of a great shock, there is a tendency to exaggerate the scale of the crisis. There is after all an awful lot of ruin in a nation. Unfortunately the UK has been pressing its luck for sometime now. I could write screeds about the narrow education system, the growing lack of social mobility and the economic imbalances, but that must wait for another time. The point is that the people of England and Wales have voted to Leave, but the people of Northern Ireland and Scotland have voted to Remain. 

As I predicted in May, the vote to Leave has triggered a thunderclap of a crisis. The Prime Minister has indeed resigned, Sterling did indeed fall through the floor, the FTSE went into meltdown and next week the UK will lose its AAA credit rating. Investment projects are being suspended, Millions of workers are facing an uncertain future and in the face of the divisive and ugly anti-immigrant theme in the campaign, many are making plans that no longer include staying in Britain long term. The crash is already causing damage that will lead to a permanent fall in the economic performance of the UK for many years into the future- the damage is already done.  

Yet, as we parse the result, it is not only that Scotland and Northern Ireland that have voted differently from the majority. The astonishing thing is the massive difference between older people, the less educated, the less well off and the rural populations, which largely voted Leave, and the young, the well educated, the better off and the urban populations, which largely voted Remain. A sociologist might suggest the vote was a rebellion by those with no stake in globalization, against those with a heavy stake in globalization. Personally, I am not convinced. The fact is that before the vote, only 30% of those who supported Leave believed that they would win. Even after the polls closed, Nigel Farage was forecasting a narrow Remain victory. Thus the shock of the actual result was pretty universal. It is clear that if people had believed that the situation was so close, that many people might have voted differently. "Buyers Remorse" amongst Leave voters has already been significant.

The question now, is is that "Buyers Remorse", and the growing understanding that "Project Fear" was nothing of the kind, but an accurate forecast of the impact of a Leave vote sufficient to change the country's political direction? There are examples of Referendum votes against the EU- in France, Denmark and the Netherlands- which have been either fudged or reversed. Can the UK change its mind, and would the EU accommodate this?

The early signs are mixed.

The decision of David Cameron to resign was accompanied by a further decision: not to activate article 50 of the Lisbon treaty until a new government can be formed. This will give a brief breathing space on the UK side. However, Martin Schulz, the German Socialist President of the European Parliament, believes that article 50 should be activated now. Meanwhile the German Chancellor, Angela Merkel, is silent- suggesting that it is up to the exiting party to declare its intentions first. The likely new Prime Minister, Boris Johnson, is now suggesting that the UK intends to seek associate membership- like Norway or Switzerland. However, the European Commission suggests that even to negotiate the framework agreement would be far beyond the two year negotiation window that Article 50 requires. The problem is that article 50 is simply too inflexible and too short a window for the necessary agreements to be made. Despite Mr. Schulz's insistence, pushing the UK out in too quick a timetable will lead to chaos, and not just in the UK.

Yet, as the practical negotiations are considered, it is now clear that the vote will indeed lead to an existential crisis for the UK. The reaction in Scotland has been the collapse of support for the common state. Nicola Sturgeon, in the disorganized and emotional way of the SNP has, immediately announced plans for a second referendum. Personally, I think it is a little premature, but the clear direction of travel for Scotland is clear now. Unless the UK stays in the EU, Scotland will leave the UK.

That, I suspect will trigger another thunderclap in the rUK. All the institutions that have been taken for granted, from the Monarchy downwards, will be challenged. I see the end of the UK leading to a much weaker, smaller, but perhaps eventually more open society in England and Wales. A country that is less Pomp and Circumstance and more the Levellers, and eventually, of course, the rUK will return to its European ideals- just too twenty years too late, and too diminished, as usual.

As for Scotland, the swing of the establishment behind Independence will hopefully result in a significant change in the ideology of the emerging Scottish State. The hurried chaos of immediate separation- snatched quickly, less it be reversed- needs to give way to a more confident, but longer timetable. In order to gain support amongst the other 27 member states of the EU, Scotland will need to be a genuine force for European federalism. This implies membership of the Euro, not the untenable idea that Sterling can be retained. This implies full opt-ins to the European acquis, with the possible exception of Schengen, where a three way rUK, Ireland, Scotland passport zone may need to be retained, Although that can only happen if rUK becomes an EEA or Schengen member, otherwise, there will indeed be borders at Berwick, and we must accept the damage that might cause. Scotland will need to spend a great deal on defence and to keep the nuclear bases open, especially to the Americans. Russia remains a serious threat, and Scotland, with a strong martial tradition, should commit to help the defence of the EU as much as possible. The halfway house of the Common Monarchy should, in my view, give way to a ceremonial Presidency, with the powers of the Crown devolving to the Parliament or President, as appropriate. Yet, again, the details of the future will have to await further events. 

The people have spoken, but Messrs. Johnson, Gove and Farage, the nominal victors, are most likely to be the gravediggers of the UK.

Unless there is a popular uprising which derails the result and significantly changes the political scene, which I can not altogether rule out, the end of the auld sang of the UK is in sight. I regret it. In a fit of pique, the voters have unleashed forces that will bring about the precise opposite to what they may have intended. Unless they recant, through protest or through early elections that bring about an explicitly pro-European government, committed to staying in the EU, the first pebbles of the landslide to come are already rolling.

Wednesday, June 22, 2016

The evil that men do


The referendum in the UK has hardly been a spectacle of informed and intelligent debate.

We have seen absurd statements made by politicians who must clearly know that they are lying. The cost of EU membership is easily provable with the most cursory online research and yet the the Leave campaign have run with a number that is provably not true- £350 million a day is at least twice and probably three times more than any actual number, and anyway assumes that the UK receives no benefit from membership, which we do, even if Leave can hardly deny, although they try. Leave has predicted that the entire population of Turkey- all 70 odd million of them- would come to the UK as soon as Turkey joined the EU- an immediate prospect, according to them. The facts are simple: Turkey is unlikely to join the EU for years, probably decades, and possibly never, and even if they did, it is patently absurd to expect all the Turks to move from the sun kissed beaches of the Mediterranean to the millionaires playground of Scunthorpe. It is fear tactics pure and simple. Time after time the Leave campaign has been not merely economical with the truth, but excessive with the lie direct.

Now the Leave campaign, scenting that they may have been rumbled, is resorting to a whinging victimhood that is truly emetic. At a time when the opinion polls show the race to be neck and neck, they resort to the tactics of throwing mud: accusing the Remain campaign of the disgraceful tactics that they themselves are guilty of. The idea that anyone would wish to make a political spectacle of the brutal murder of Jo Cox is utterly repellent. Yet that is what the Leave campaign suggests the Remain in campaign is orchestrating. I would encourage a close reading of the headlines in the Daily Express, Daily Mail and the Sun in recent months. I would suggest that Nigel Farage's Immigration poster - cropped white faces and all- is not a dog whistle, it is as someone said recently, a siren:
   

So Farage, so unsurprising. But when Farage was predicting violence on the streets if immigration was not "controlled" he was doing a bit more than predicting: he was inciting. If, like the right wing press, you continue to put out the idea that immigration is creating a breaking point, you can hardly be surprised when a mentally ill person with extreme views may indeed break: and the result is oh so predictable, but not perhaps quite in the way that Mr. Farage intended. So lies about immigration, lies about the EU budget, what can we trust about the Leave campaign?

Well, we can judge them by their friends. The fact is that the "leadership" of the motley crew of Leave: Boris Johnson, Michael Gove, Nigel Farage, George Galloway are hardly the mainstream. What is mainstream is the backing of the most right wing newspapers: The Daily Telegraph, owned by the non-dom Barclay brothers from their Sark off-shore haven. The Daily Mail, owned by the non-dom Lord Rothermere through a network of off shore trusts. The Daily Express- a "newspaper" so wedded to the truth that it refuses to accept any newspaper regulation- is owned by the porn baron Richard Desmond, again through a series of non transparent ownership vehicles and finally The Sun, a foreign owned newspaper that has been implicated in a series of scandals. 

This referendum may be the last hurrah for this cankerous right wing rag-tag. For years they have twisted the truth, insulted those who seek a more just country and undermined their political enemies through blackmail and threats. The fact is that Leave has become the voice and puppet of the the right wing political-media complex. I do not underestimate their power. Despite everything, the fact that 40% of the press supports Leave, with only the Guardian, the FT and the Economist wholly supporting Remain, is a big advantage. In the past there would have been little doubt that such a united front in support of a political cause would have carried the day. Yet perhaps for the first time, it may not happen this time. News is now gathered from a wide variety of sources, and the bias of the right wing is more obvious and more strident than it has been in the past, although also it is of course more easy to challenge. Fact checkers have stood ready to demolish any argument with a stout leavening of facts: something that the Mail journalists in particular have trouble with. This is why Leave have faced such an uphill challenge: their argument is not supported by very many facts, only be primitive emotions, which are the stock-in-trade of the Tabloids.

The battle seems to have been fought by the marionettes of Leave to defend their media masters, but this could be the last time. I for one have viewed the antics of the right wing press with, at first, disbelief and now with contempt. The British press has showed itself to be at their very worst. As today I read screeds of Leave propaganda in the Daily Mail, I have lost all patience. The shrill poison of their ignorance, coupled with the arrogant certainty of their invective has left a young mother murdered, but as the obvious accusation emerges, these hypocrites scream that the just anger of those who have seen what has happened is "playing politics".

It is a stain on our democracy that these people retain so much power that they could yet persuade the British people to embark on the economic train wreck that Leave would cause. It is an outrage that the deep pain that people feel at the senseless murder of an MP is dismissed as a mere pose. It is criminal that these vermin continue to have the power to twist and subvert with unabashed lies.

Whatever the result, the time has come for the stables to be cleaned: this cancer must be destroyed. 

Saturday, June 18, 2016

Politicizing things

Some are saying that it is important not to politicize the brutal murder of Jo Cox.

Her Murderer declares his name to be "Death to Traitors, Freedom for Britain", but it is so important not to politicize things.
Nigel Farage not merely predicts violence, but practically incites it, but it is so important not to politicize things.
The Leave campaign calls anyone who suggests they are wrong self interested liars, no matter how neutral or respected they may be, but it is so important not to politicize things.
The Leavers suggests that the entire population of Turkey is coming to the UK- an absurd lie- but it is so important not politicize things.
The Leavers suggest that the UK pays in a sum everyday that is a massive multiple of any real number and suggests that there are no gains from membership, but it is so important not to politicize things.
The Leavers say that the massive economic damage they would cause is a price worth paying, perhaps easier to say when you are a millionaire like Farage, but it is so important not to politicize things.
Significant parts of the British Press supporting Leave becomes mere propaganda for the foreign and off-shore companies that own them, but it is so important not to politicize things.
The atmosphere of lies and hate stirred up by an irresponsible Leave campaign supported by a near criminal media leaves a young wife and mother dead, but it is so, so important not to politicize things.

Thursday, June 16, 2016

The politics of a post politics era.

The position of the UK as a member of the European Union has been a persistent question since the inception of the ECSC in 1957. Nevertheless the general view is that the in/out referendum is as much the product of short-term political calculation as of any great vision for the future for the place of the UK in the world. David Cameron's decision to use the vote to attempt to unite his party and create a platform for a bigger majority in 2020 may prove to be a massive miscalculation.

A referendum is only occasionally about the issue on the ballot paper. Often it risks becoming the focus for a wider range of discontents. To me, that is exactly what is happening in this one.

To see why, perhaps it helps to consider the bigger picture in British politics. Trust in politics and the political process has been fading for decades. 

Going back thirty years, Margaret Thatcher was able to push through highly controversial changes, even in the face of bitter and occasionally violent resistance. A highly polarizing figure when in office, it was her defenestration that was most damaging. She was the classic model of a charismatic leader whose departure is disruptive. It was disruptive both to the country, and also- especially- to her own party. Her enemies among Conservatives did not get what they wanted from her fall, and neither did her opponents in other parties. John Major, whose diffidence masked considerable toughness, struggled to maintain peace in the party, but in the end he ultimately fell because of the collapse in confidence that followed the British exit from the ERM in September 1992. This occurred just five months after Major gained a Conservative majority of 21 against all predictions of a hung Parliament. The divisions amongst the Tories grew ever more bitter after the 1997 defeat, and these bitter Conservative divisions have lingered and festered to our own day- as the hatred unleashed by the Prime Minister's decision to support continued EU membership has revealed.

Nor has Labour been immune from the same kind of problems. The landslide victory of Tony Blair in 1997 presented Labour with a similar "charismatic leader" problem, and his controversial leadership combined with a genuine national repugnance at the way he filled his boots after leaving office. His focus on wealth, to the exclusion of all other considerations, including morality or even taste underlined a sense that political leaders were abusing their position for their own personal gains. At the same time the scandal of MPs expenses broke, and although the sums of money were quite small, there was a sense of disgust against the whole political class, virtually irrespective of party. Meanwhile Labour too- as the Conservatives had before them- gone through a succession of petty leaders. However, whereas after William Hague, Michael Howard and Iain Duncan Smith, the Tories had settled on the charismatic, or at least electable, David Cameron, Labour quickly passed through the highly flawed Gordon Brown the immature Ed Miliband before settling on the decided uncharismatic Jeremy Corbyn. Labour is as divided as the Conservatives and it is still essentially leaderless.

The fall of the British two party system, which has been a process lasting at least two generations, is now reaching a terminal phase. From the late sixties until 2005 it was the primarily the recovery of the Liberals/Liberal Democrats that chipped away at the two party dominance in the national vote, with an occasional blip of support for National parties in Scotland, and to a lesser extent, Wales.

During the 2010 election, the election campaign proved highly volatile- with a huge surge in support for the Liberal Democrats in the polls, after their leader's stand-out performance in the first leaders debate. However in the end all parties were disappointed- no majority and in the end even the Lib Dems lost five seats from their historic 2005 high of 62. The advent of the coalition was to prove disastrous for the Liberal Democrat interest, and in 2015 the Conservatives squeaked a similar victory as 1992- with an even smaller majority, this time of 12.

That victory came despite a shockingly low percentage of the vote- less than 26% of the eligible electorate voting Conservative. More to the point, despite the evisceration of the Liberal Democrats at the hands of their erstwhile coalition partners, two party support fell further. Labour were virtually clean bowled in Scotland at the hands of the SNP and the anti-EU UKIP attracted nearly 13% of vote. The fact is that the electorate is demanding more choice in politics, but the system is- so far- failing to supply it.

Thus this referendum has become a vector of rage against the political machine. The fact that the political class is largely on the side of Remain has been a cause of its weakness, not a source of strength. The inchoate rage has been channeled by the absurdity of a former Minister of Education -of all ironic things- decrying the value of expertise. Michael Gove's dismissal of "Experts" was greeted with disbelief- "whatever you think of experts, you wouldn't want to build a bridge without one"- but in a sense Gove's absurd vacuity captures the Zeitgeist that dismisses rationality in favour of personality. This irrationality captures the rage of those who feel weakened and disenfranchised by the globalization process. It is the province of the internet troll and the wrath of certainty denied.

I had just written this paragraph when the terrible news of the murder of Jo Cox MP came through. She was attacked while campaigning for Remain in her constituency by a man shouting "Britain First". It is an horrendous crime, and although of course it does not reflect the will of the leaders of Leave, it does reflect the atmosphere of irrational hate that they have created. It is the first political murder in Britain for many years. In the face of this shocking event, I almost throw up my hands in despair. I can only hope that we rally round to reject this poisonous irrationality. I will continue to make my case with mind as much as heart or spirit, but for today I shall close.



  

      

Thursday, June 02, 2016

The Conservatives will not be the same after this Referendum

The Scottish referendum was fought on a prospectus that had a bare nodding acquaintance with the economic and political realities of the early twenty-first century. Divisive and absurd ideas were bandied around by the SNP as a sort of alternate reality. The same has been true of the Brexit campaign. Although both sides have resorted to negative and nasty campaign tactics, the fact is that the statements made by the Leave side are repeatedly fact checked by independent scrutiny and found to be totally untrue. By contrast the evidence from genuinely independent research from a very wide range of sources still- despite the attempted rubbishing by Leave- strongly supports the case for Remain. As with the Scottish referendum, the intellectual case is overwhelmingly for the status quo. More to the point though, the moral case is also with the status quo.

The fact is that this debate has been conducted by Leave with an absolute contempt towards the truth. The fact is that the Leave attacks on immigration, framed in a narrow minded and bigoted way are little short of disgraceful. 99% of those who come to the UK come because they are not only social useful, they are needed. This article by Jakub Krupa, a Pole, points out that the attitudes revealed in this debate are little short of racist xenophobia and are threatening a hard working community that contributes a lot more to the UK than it takes out. 

The impact of the referendum on Europe seems set to be as unpleasant and divisive as the Scottish referendum, but the Brexiteers may not gather much of a boost for their ideas, as happened, perhaps only temporarily, for the SNP. Instead they seem set to be damaged from their encounter with the electorate. The Hard Right in British politics has revealed itself to be just about as incompetent as they are ruthless and obnoxious. The vituperation they issue is indiscriminate. Everyone, from distinguished economists, business people, journalists to even wavering Brexiteers, has been treated to insult and abuse. Caught in the cross-hairs of these shouts of rage has been the Prime Minister himself. The insane conspiracy theorists of the fruitcake, xenophobic Tory hard right have even had the gall to suggest that David Cameron does not even know his own mind on this issue, that he is a traitor to all he holds dear. In the face of this shrill cacophony it is increasingly hard to see how Mr. Cameron can reunite his party, or even that would wish to.

For the Tories now face serious problems. It is not just the bitterness that many seem to feel towards their own party, it is the growing number of scandals that beset the organisation. The tragic suicide of a young Conservative activist amid allegations of bullying and predatory sexual advances has seen a set of heart broken, baffled but decent parents caught up in a battle against some genuinely nasty individuals- some of them the same people now running the Leave campaign. The, at best, casual disregard for the niceties of electoral law has set off a chain of investigations into Conservative cheating in the 2015 General Election and several by-elections. In fact there is evidence that the scandal goes way beyond some small misunderstandings and amounts to a wholesale electoral and financial fraud which has subverted our democracy.

The fact is that the Tories have behaved with a contempt for the truth and quite possibly a contempt for the law. The arrogance that the Leave campaign has shown is of a peace with an attitude that regards truth as optional and that the only thing that matters is victory.

The referendum campaign has been a period of phony war. June 23rd will be an inflection point for a new crisis. If Leave wins, then there will be a national crisis which will probably distract to some degree from the crisis in the Tories. If Remain wins, however, then the storm around the Conservatives will break. Those who have felt obliged to keep silent in order not to affect the referendum result, will lose their constraints. Those on the Remain side who were aghast at Mr. Cameron's referendum gamble but could not speak out, will also gain the freedom to speak.

The explosion of noise that will follow could see not merely the emergence of the full scale of the details of the Conservatives alleged financial misdealing, but even further scandals may come to light.

The Conservatives who one year ago gloried in their trouncing of their erstwhile coalition partners, the Liberal Democrats, may in one years time themselves be facing an existential crisis.