BREXIT Negotiations and the General Election

 

Enough, enough of this childish behaviour. The desperation of the EU regarding BREXIT has now reach such a crescendo that long-standing political protocols have been ignored by Jean-Claude Junker and his merry men. His obvious frustration that he cannot impose his will on the British Government clearly demonstrates that the original view held by the British that he was not suitable for the job at the time of his appointment has indeed proven correct. I can only hope that Michel Barnier took him to the woodshed and firmly dealt with him.

 

Although Michel Barnier has refrained from making the same mistake he also demonstrates a lack of understanding of the British way. He hears the noisy whingers in the UK who fail to accept democracy, but he fails to understand they are the few; the silent majority will prevail as is always the case, so take your interfering rhetoric elsewhere. The Brits understand the stress you are under, not least because of the some 3.1B EUR of CAP subsidy that the French will lose each year after BREXIT. My message to Michel Barnier is use this as an opportunity to scrap the CAP which is well past it’s sell-by date. It is interesting that the NFU, representing British farmers, do not want to continue with such subsidy. They apparently want to follow the model successfully introduced in New Zealand where subsidy has been scrapped, but funds made available for bad years. This model works, so why does the EU insist that the UK supports the EU CAP until 2025? The CAP is not some long-term capital commitment; it’s a benefits system subject to fiscal policy.

 

Then we have the clap-trap rhetoric of the schoolboy brigade led by tiny Tim Fallon and Nick Clegg, and the obvious nationalist – ‘we will abuse any opportunity to seek independence’ – Nicola Sturgeon, suggesting our opening approach to the exit negotiations should be “compromise” and “concessions”. I was schooled in negotiation in the late 1970’s under Andrew Gottschalk, the then guru of international negotiations. I still have his Pocket Negotiator summarising the various stances that can be taken. None of them would include such words. At best one might use “reasonable” or “equitable” if both parties were amenable to a sensible negotiation. Having negotiated complex settlements throughout the World over the years I would enjoy negotiating BREXIT. Boy, would reality kick in regarding the rose-tinted spectacles of the EU mandarins. Coming to the table demanding money before discussing any consideration is contempt of the Lisbon Treaty which states that the whole divorce deal needs to be agreed as a single package. Anything else, such as a speedy conclusion of the rights of EU and UK citizens, is by mutual consent. But even this simple issue is marred by the ridiculous notion by the EU mandarins that EU citizens residing in the UK should be protected under EU, rather than UK law.

 

I chose to ignore the rambo rhetoric of Angela Merkel at this time as, having returned somewhat bruised from her visit with Donald Trump, she is now fighting for her political future in the upcoming elections. Her words are meant to placate the German public, and thus should be ignored in the UK.

 

Teresa May has shown true British grit, and now she wants her own mandate for all to see as she readies herself to battle in what will be an acrimonious divorce – not because of the UK, but more to dissuade other members from deserting the sinking ship. The more divisive it becomes the more likely the EU will collapse under its own intransigence.

 

I decided to examine the real issues at stake with our exit from the EU. Let us start with the emotional fear generated by the undemocratic remainers regarding trade, and their irrational fear of leaving the Single Market and Customs Union rules. I chose 2015 as a base year thinking that the ink would be dry by now on actual trade. I looked, primarily, towards OBR for the UK, and OEC for the EU. Was there any correlation – absolutely not. Little wonder that the accounts for the EU have not been signed-off for so many years. Therefore, I will use figures generally in agreement, but only for qualitative illustration purposes of the likely impact of a clean BREXIT.

 

Before looking at reported trade numbers it was interesting to note that some 40% of UK exports go to the EU, but this has been falling over recent years as a percentage of non-EU exports which appear to be increasing at some 2% per annum. It was also noted that this 40% included exports of petroleum products and gold to non-EU countries, but passing through Rotterdam. It would be interesting to know what percentage of the 40% of such high value trade represents as it could demolish the frequently stated rhetoric of the remainers that the EU is the UK’s largest export partner, and gold represents some 9.8% of total UK exports.

 

The 2015 figures reveal that the UK receives some 17% of total EU exports. The UK’s largest partner in the EU is Germany with a net UK deficit of some $54B. The UK is the 3^rd largest export market in the World for Germany. The UK is also the 9^th largest export economy in the World.

 

If we use the available numbers for 2015 regarding UK exports the principal recipients were USA $54.7B, Germany $39.5B, Switzerland $32.5B, China 27.6B, and Netherlands $23.9B (which possibly includes the non-EU petroleum products previously mentioned).

 

On the UK imports side our significant partners are Germany $93.9B, China $62.8B, USA $44.8B, Netherlands £44.4B, and France $37.6B.

 

Another interesting reveal was that GDP per capita for the UK and Germany are about the same at $48k.

 

If we use the available numbers for the UK with our largest trading partner in the EU, Germany, for illustration purposes we see that the UK exports $39.5B to Germany, and imports $93.9B from Germany leaving a trade deficit of $54. Let us assume that the EU mandarins are so enraged with BREXIT that they throw good economic sense to the winds such that the UK has to fall-back on WTO rules at some average 4% tariff. In this case the UK would charge enough in tariffs on German imports to repay UK exporters tariffs imposed by Germany and have funds left in the exchequer. This can only hurt Germany, resulting in a possible decline in German exports to the UK and the resulting loss of income and jobs. Politicians may think they have such power, but more than 30 years in international banking has taught me that, other than despotic dictatorships, business will prevail. Trade will continue, and consequently to the advantage of the UK.

 

As we are flooded with the French Presidential election at this time; both candidate seeking change in the EU, albeit from different angles, I will reiterate my view on the French stance on denying/restricting trade with the UK post-BREXIT. As with previous elections in France I do not envisage any change other than what the people demand on the streets. As much of the UK imports from France are farm produce and wine there is no possibility that the French people will allow any interference to this trade, even if this means flouting EU rules which, of course never apply to the French in any event. Also, why would the UK remotely consider continued support of the CAP if we did not have tariff free access to the produce?

 

I can imagine that the real thorn in the side of Brussels is the loss of the City of London. The EU have already been told that they are not fit to clear their own currency; the clearing must stay in London. There will be no credible capital raising power within the EU – mein Got. Deutsche Bank and ING have already committed more resources to London. Then we have the credit reference agencies threatening to downgrade the EU credit rating post-BREXIT. How could this happen to what the EU mandarins consider a superstate? How embarrassing. What a reality check.

 

International banks will need to open a token banking presence in each EU country in which they want to engage, as was the case prior to passporting. But the business will be conducted in London, as usual. Even New York has failed to attract such business as international investors want the security of English Law, the legal system built around international finance, and the most trusted in the World.

 

The cost to the EU of such a loss is enormous, both in cost and influence. So, will the City lose passporting – my bet is not.

 

So, what else does the EU lose? A shortlist would include the loss of a permanent member of the UN Security Council, the global reach and influence of the UK (still grudgingly accepted by the USA, and the British passport is still the most accepted in the World – ask the Scots), second largest contributor to the EU budget, best security services in the World, best EU military power, World class universities (in the top 25: UK 8, Germany 0), et al. What does the UK lose? Not a lot of any value, or that cannot be replaced. What a wonderful position to have at a negotiation.