Monday, 25 July 2016

The Great British Omnishambles

Omnishambles, noun, British, informal: 
A situation that has been comprehensively mismanaged, characterized by a string of blunders and miscalculations.

Over a month ago Britain decided to Brexit itself in the foot by voting to leave the European Union. Our former Prime Minister David Cameron had no fall back plan, and unforgivably the 'exit' campaign didn't have a plan either. In short nobody expected an exit vote would actually happen. One might suggest that the leading exit campaigners (Johnson & Gove) were playing a self-serving game to get political power, this might be supported by the fact that as the pound and the markets crashed in the wake of the success of their campaign they more or less vanished. Meanwhile the opposition party (Labour) has disappeared into irrelevance with a bonkers hard left wing leader supported by the member but barely able to get support from his MPs. So since the vote the UK has been an omnishambles.

Now the UK linked stocks have rallied with the promise of stability from a new Prime Minister. Prominent 'Brexit' papers like The Telegraph and The Mail continue their claims that if we all just click our heels together and wish really hard, with our eyes shut really tight, everything will be just fine and dandy. To them any recession will be because of doom mongers, not a real impact of the vote to leave. Meanwhile I have subscribed to the Financial Times (£30 per month). I don't want wishful thinking driven by political belief I want solid journalism with a paper that has a vested interest in money making, a far more honest motive than any political bias. The FT makes rather grim reading.

Yes, we have a new PM, but as the FT notes: Now comes the hard part. The drop in the pound means the UK company pensions deficit has risen £89bn to £384bn. Siemens are saying publicly that they will still invest in the UK, but the outlook for car makers is uncertain. Several property funds had suspended then opened sharply devalued, having started a sell off. Funds have poured out of the UK since the exit vote. Yes various nations are interested in trade deals with us, but they know we're desperate so what sort of deal will they seek? I could go on, but it is the coming negotiations under Article 50 of the Treaty of Lisbon that are the killer. The recent uptick in market sentiment is a mixed of dewy eyed pollyanna positivity and hard nosed short term gain seeking, the true valuation of the UK can be seen in the sustained low value of the pound. Lest it be thought I am needlessly pessimistic, during a conversation this weekend with some engineering managers in other sectors, all considered the UK's exit from the EU a disaster.

Donald Tusk (European Council president) made the exigencies of the EU position clear recently:
"No one should be seething with desire to punish, humiliate [the British] for what they have done to us," Mr Tusk said. "We cannot push them away from us, but we cannot let them profit from Brexit, as that would be lethal for the EU." BBC
If the EU give us access to the free market of the Eurozone without demanding free movement of people, payments to the EU, and imposition of EU regulations then other nascent 'leave referendum' movements in the Eurozone countries will be emboldened and will seek to have their cake without paying for it, the essence of the current UK Brexit camp expectation with regards the coming negotiations. If the EU gives us trade tariffs and denies The City a banking passport, then they will benefit from drawback of investment into the Eurozone, to the impoverishment of the UK.

Note that the exit campaign was fought on the basis of stopping free movement of people, stopping payments to the EU, and stopping the imposition of EU regulations. How flexible can Britain be on those three points?

The new PM, Theresa May, is being touted as a hard negotiator. I have been in meetings with hard negotiators arguing from a fundamentally weak position, a hard negotiator in a weak position just looks rather silly. Merkle gave May a warm welcome, but as Matt Ovurtrup points out in The Guardian, Merkle gave the Greek PM Alexis Tsipras a similarly warm welcome, before hammering the Greeks with austerity.

To be clear, the EU position isn't unfair, it's business. Whining about unfair is for children, business is business.

If the EU messes this one up and goes soft on the UK, it doesn't deserve to survive. If it plays hard it may just show it has the mettle to become The United States of Europe and take its place with the two other superpowers of world. Europe shouldn't pity UK, we'll muddle through, the UK won't collapse, it will remain a relatively successful little nation. But for us in the UK either path looks rather poorer than membership of a stable EU, isolation next to the large gravitational force of the Eurozone lacking the massive economies of scale the EU once gave our businesses, or next door neighbour to a continent in collapse. If the EU plays hard, my assessment of its economic prospects might improve and draw my investment. Until then my money is in Asia and the US, hedged with gold.

At the moment I don't know much of what's going on in the Arctic. I intend to do some posts at the end of the season but most of the time this blog is likely to be quiet, this is likely to persist for some time. With my money in investments outside of the EU the time I was spending on sea ice is now spent on monitoring the markets and political indications, that together with trying to counter the impacts on my business means that something has to give. And that something has to be sea ice.

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