I was sitting comfortably in a slick new A350 flying across the world with a speed exceeding 1000 km/h at times, reading material that I downloaded in the airport lounge. It was mostly about the sad Brexit saga, which highlights the lack of leadership in a once great country. The so-called “exit negotiations” have turned into a spectacle of public humiliation for Britain.
Nelson would have been furious. Churchill would have snowballed into a spitting rage. Thatcher would have coiled to launch a counter attack.
Those were the days.
Today, premier Theresa May is making conscious efforts, the paper says, traveling to Brussels for talks but looking like a tortured person. Perhaps Britain should hire Donald Trump to run the negotiations; he would give the unelected bureaucrats in Brussels a run for the money. And fast.
It is not difficult to see that the EU needs Britain more than the Britain needs the EU. It’s a big market, biggest one for German cars in Europe, for example. It has the strongest and most battle hardened military, with natural ties to the US and the biggest financial center in Europe. It will do fine making decisions on its own.
It is ironic, that the EU, built on the promise of universal liberal values, is teetering on the verge of collapse due to the difficulties of integration. And maybe this is the last moment for Britain to leave the union before economic issues really explode. They have been “papered over” by the European Central Bank purchases of government and corporate paper. The ECB now owns 40% of investment grade debt in Europe including that of stock listed corporations, so basically they are the market.
With the Federal Reserve unwinding the Quantitative Easing and rising interest rates how long will the ECB be able to do the opposite? The giant sucking sound you hear is the capital flight from Europe. For the ECB the problem is that if they stop, or even slow down the purchases, where will the bid come from? This is the reason why it is illegal to short government bonds in Europe.
What many don’t realize is that the European Central Bank can actually go bankrupt. In contrast to the US Fed, they can’t create elastic money as needed because Germany would never allow it. They have limits set by political powers. If there is no longer a political will to create more money, then watch out below. Central banks are not all created equal, but they all share the same flaw that feeds separatist movements worldwide. They were created with the good intention to micromanage, but morphed into something really counterproductive. My home country Canada is a good example.
The separatist movements in the province of Alberta claim that the Bank of Canada manages the economy in response to stock market trends and real estate speculation in Toronto and Vancouver, but the commodity producers in central Canada are on the opposite side of the economic cycle. High commodity prices are bad for stocks and vice versa. There is lots of merit to that - in the US they call it the Houston-New York arbitrage, meaning that high oil prices are good for Texans but bad for Wall Street stock peddlers. The Federal Reserve System was originally set up in 12 regional branches, each managing interest levels independently. This set up is long gone and doesn’t exist anywhere in the developed world.
Among the options for the Brexit resolution next year is a repeat of the vote, which will be a mockery of the democratic process. Angry reactions from the Brits may be damaging.