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Transcript of 03-05 - Toscafund Discussion Paper - BREXIT III
TOSCAFUND Discussion Paper
June 2016 EU Referendum Part III: Even MORE further Out
1
� This is the third instalment of our research output ahead of the EU
referendum.
� As was the motivation for Part II, this instalment touches upon a
variety of themes, raised over recent weeks concerning “The Brexit
debate”. They have been written only where I have had a sense that
something has gone unsaid, been poorly argued or has been
misrepresented. And sadly, rather than the degree of
misrepresentation lessening, it has to my mind at least worsened
since Part II.
� These vignettes can be read in any order and covers an assortment of
themes.
� One vignette discusses how EU enlargement has seen one particular
accession nation, Romania, export its prime age adults as it has grown
its sheep population, a development at odds with the ambition
claimed that membership of the EU would strengthen and advance
the internal markets of new joiners.
� Another short piece attempts to address concerns that Brexit would
compromise our defence capabilities, with another challenging the
idea that the UK economy needs to be involved in the low-value
added industries being widely protected across the EU.
� The remaining vignettes and ‘blue boxes’ introduce the behavioural
psychology behind the reluctance of some to venture into a post-EU
world but the game-theory of why this is Best for Britain.
� When I penned the original research back in February I was confident
that leaving the EU at this opportunity was in the UK’s best future
economic interests. I can only say that my views have strengthened
since then. Indeed, all I have heard and read from the Treasury, the
IMF, OECD, the US President and others with skewed subjective
agendas has only encouraged me in the belief that Brexit is in our
national interest.
� The EU is not the elite successful Club it is being portrayed as. It is a
structurally unsound grouping within which there are nineteen
countries fused within an ever weakening euro-zone. If we do not
‘Leave’ at this opportunity, we will come to realise that it comes with
considerable economic and financial costs.
Author:
Dr Savvas Savouri
Contact information
Toscafund Asset Management LLP
90 Long Acre
London WC2E 9RA
England
t: +44 (0) 20 7845 6100
f: +44 (0) 20 7845 6101
w: www.toscafund.com
TOSCAFUND Discussion Paper
June 2016 EU Referendum Part III: Even MORE further Out
2
Contents page
1. The EU: Where mutton is dressed as lamb .................................................................................................................. 3
2. Beating steel drums ............................................................................................................................................................. 5
3. Brexit: In my Defence ........................................................................................................................................................... 7
4. Welcoming of our tax disharmony when outside the EU ..................................................................................... 9
5. Whose case exactly needs to be answered? In my defence too... .................................................................... 12
6. Why Brexit is a better bargain for us............................................................................................................................ 14
7. Good trading practices ..................................................................................................................................................... 16
8. Thinking twice about the numbers ............................................................................................................................. 17
9. Euler never quite expect certain changes ................................................................................................................. 19
10. The referendum – Voting to Stay or Leave, and a broken nose ........................................................................ 22
11. The Truman Show ............................................................................................................................................................... 23
12. Seeing Europe in 2020 ...................................................................................................................................................... 26
13. The disgrace of not disqualifying oneself ................................................................................................................. 27
14. Wacky European Races ..................................................................................................................................................... 28
15. Fear the real serpents not imaginary sharks............................................................................................................. 30
16. Valued migration points ................................................................................................................................................... 31
17. Trigger happy contracts ................................................................................................................................................... 33
18. Staying ‘In’ – Dear, oh financially dear ........................................................................................................................ 35
19. The insanity of the ECB ..................................................................................................................................................... 37
20. Condemnable damned economic lies ........................................................................................................................ 38
21. ‘Remain’ simply won’t wash ............................................................................................................................................ 40
TOSCAFUND Discussion Paper
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1. The EU: Where mutton is dressed as lamb
On January 1st
2007 Romania and Bulgaria acceded to the European Union, taking the number of sovereign
nations in this ‘elite’ group to 27. With the entrance of Croatia, membership has reached 28 with a number
still eager to gain entrance; including Albania, Macedonia, Montenegro, Serbia and Turkey. Against this
keenness to join, it might seem strange that there are many like me encouraging we leave.
I wish to spend a moment considering one development in Romania since it joined Club EU which I feel
strengthens my case that the UK should cancel its own membership; happily making way for a nation on the
waiting list.
For decades, and on almost every measure, Romanians languished in European wealth tables, their
performance held back by an over reliance on low value added agricultural employment. We were encouraged
to believe that Romania’s economic development would be hastened by joining the EU, benefiting Romanians
and according to the reasoning being presented benefiting nationals across the wider European Union. We
were told that the more rapid Romania’s development, the more its economy would buy goods from the rest
of the EU and the slower the pace at which it’s prime age adults would migrate to wealthier parts of the Single
Labour Market. Some in the UK were so NOT convinced by this that they insisted on a seven year ‘opt out’ – or
more formally a transitional arrangement – which, as we know, expired on January 1st
2014. Let me make
clear that I have no objection to economic migration and it is not the Single Labour Market which most
frustrates me about the EU. What most frustrates me is that what we are told we get in the form of positive
externalities from our EU membership is not in fact what is actually delivered. And Romania’s wolf in sheep’s
clothing is just one instance. Let me elaborate.
Since 2010 the number of sheep in Romania has risen, with estimates suggesting there are now almost eleven
million being husbanded across the country, one sheep for every two Romanians (the UK’s sheep population is
around twenty three million; or one for every three of us). Now, remember Romania is a country which we
were told would use its EU accession to become less agricultural in its push to advance itself and in turn to
more fruitfully (sic) engage with other EU nations. Why then this rise in sheep numbers over a period when
the human population has fallen? My suspicion, indeed my conviction, is that Romanians have jumped on the
EU’s lucrative farming subsidy bandwagon; exaggerating the size of its agricultural sector at the same time it
elevates food prices.
Chart 5: Romanian sheep population Chart 6: Romanian population vs. formal registrations to
UK
Source: Romanian National Institute of Statistics (Data 1990-2003), Eurostat (Data 2006-2015), Toscafund – Note: verticals denote accession and transitional
I came across the fact that Romania’s sheep numbers are increasing sharply from a news story concerning the
protection of bears from sheepdogs; protecting them that is, so that they can be hunted by Romania’s elites.
For not only is Romania overrun by sheep, it has a great many bears, who its plutocrats like to shoot, and pay
handsomely for the privilege. Now with bears attacking sheep, Romania’s shepherds added to their sheepdog
numbers to a point that their national Parliament, many of whose members ‘enjoy’ bear hunting, set a limit on
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how many canines they could each have. In response, many thousands of shepherds herded themselves onto
the streets of Bucharest to demonstrate, the scenes turning ugly and tear gas being used. Just in case we have
forgotten, this is all happening in a country almost a decade into its EU membership, which it joined
supposedly to advance itself and in turn be less of a burden on its fellow EU members.
Let me end by saying, I have no doubt that were Albania et al. to accede to the EU, they too would jump on
the subsidy bandwagon, it is only fair we make room for them by getting off.
TOSCAFUND Discussion Paper
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2. Beating steel drums
A great deal has been written on the unfolding events with Tata steel and, in particular, its considerable works
around Port Talbot. Amongst all this chatter, far from all informed, blame is being apportioned widely and
manifold ideas for potential solutions volunteered. We have variously been told it’s the fault of the Chinese,
the Americans, the EU, our own Government and the Tata family itself. Arrayed alongside those demanding
Tata’s UK operations are (re)nationalised are those insistent that market forces should not be interfered with.
Having already weighed my two-penneth into the issue I wish to only add one last observation, if I may.
Chart 9: Service sector vs Primary metals
Chart 10: Export values compared
Source: ONS, Toscafund
It is the nature of steel-making to be highly cyclical as indeed it is of all industries where the product is traded
globally and ‘commoditised’. There are periods of exceptional earnings strength only to be punctuated by
sharp reversals, and we are in just such a particularly downside episode now. And this cyclical reversal is
compounding secular issues, such as steel being increasingly substituted out of car making, or an economy
elsewhere building new capacity or devaluing it’s currency to more strongly compete. To repeat, we are
talking here of making commoditised traded goods which we are also trying to sell in competition with nations
whose labour is, quite frankly, cheaper than ours because they are behind us in their economic development,
nations which rather than us envying would themselves be more than happy for roles to be reversed.
The question we need to ask ourselves is do we really wish to see OUR economy involved in such low value
added industries when we have so many sectors with a global comparative advantage? There is our car
making where build quality and prestige is almost peerless. Indeed, the appellation ‘Made in Britain’ extends
across a multitude of goods and services where we have only a few rivals, sometimes in fact none; think of
Scotch whisky and Rolls Royce. We have world class universities; ‘factories’ turning out education and selling it
to all corners of the world. These student ‘customers’ come to our shores and spend generously, but unlike
short-stay tourists, they spend for three or more year on rents, tuition fees and other living needs.
Those hankering for the old days of smoke-stack industries are often the same who insist on ‘clean tech’ and
environmental best practice, failing to see the contradiction in these inconsistent demands. Now, what I am
about to write will not sit comfortably with some but I will write it all the same; there is nothing strategic,
laudable or worthy about steel making or the manufacture of other commoditised products. True, the workers
employed are often highly skilled. It is no less true to say they are invariably expert in techniques which limit
their mobility; mobility to relocate across the country and mobility to move between sectors. This immobility
exposes these workers and their communities to the vagaries and vicissitudes of a single industry; sometimes
leading to a scorched earth outcome when that industry suffers a deep reversal. Contrast this with Britain’s
growing excellence in business services not simply across London but beyond it. In these sectors, skills are
transferable across disciplines, and experts in these can perform them quite literally anywhere across the UK,
with this flexibility providing much welcome freedom in lifestyle choice and national economic rebalancing.
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Obama’s far from beautiful mind on Brexit
Into the lame duck period of his Presidency Barack Obama chose to wade into the UK’s EU referendum
debate, part plaintively and part threateningly on the side of IN. He made the usual claims that the UK was
stronger in the collective of the EU and he voiced the, now familiar, threat that negotiating new trade deals
would prove extremely protracted. In fact he went as far as arguing that if we voted for Brexit we would not
get a trade deal comparable to what we have with the United States until as far out as ten years. Now that is
some drawn-out prospect. Scary? Yes. Credible? Most definitely Not. In fact each time I hear or read that
establishing ‘new’ trade deals post Brexit would involve protracted negotiations and economic hardship
across Britain, I simply turn to the “Beautiful Mind” of the Noble laureate and brilliant game theorist John
Forbes Nash.
From his Princeton office Professor Nash conjectured on the outcomes of events when there was
behavioural uncertainty. He concluded that as long as one was aware of the interests and motivations of all
participants, it was possible to anticipate the outcome of “the game”. Sadly John Nash and his wife were
killed twelve months ago in a motor accident in New Jersey, and so we cannot call upon him to share his
genius on the matter of our looming referendum. I will, however, try to pay homage to his behavioural
reasoning in a few lines.
The UK trades widely and has counterparties with which it runs a trade deficit, and with others where it
records a surplus. Assuming we will not be recalcitrant in seeking to replicate trade agreements let me reflect
on the post- Brexit behaviour of nations with which we either run deficits or surpluses in relation to the
balance of payments.
Were a nation earning a surplus from trading with the UK, one can hardly expect it to prevaricate in
establishing a trade-deal which perfectly imitated what we have now. Why should it when it would clearly be
the net loser. What then of nations which run deficits. In this case they buy more from the UK than we buy
from them. Would they drag their feet in creating new trade deals? The answer is most definitely NOT. Let
me reason why. Were a nation importing from the UK we can assume that what it was buying was either
unique to the UK - positional products with an exclusive UK appellation – or goods and services available
from other nations but which we were particularly competitive in providing. Why would a nation restrict its
access in either case? Were it to put up trade and customs barriers to goods and services which were unique
to the UK and which it needed, it would suffer. Were it to put up trade and customers barriers to goods and
services which whilst not unique to the UK were most competitively available from it, it would have to find a
less competitive substitute, and so would again suffer. This very simple Nash reasoning is why trade threats
from Barack Obama and others do not come from ‘Beautiful Minds’.
Welcome, surely, to those who wish to see closed north-south and other such ‘divides’. For those harking back
to Britain’s ‘glorious industrial past’, my response is nostalgia isn’t what it used to be.
I would also ask those encouraging us to go backwards for our future whether they would like to work in blast-
furnaces or steel mills? Before answering they might first remind themselves of the words of William Blake
where he extolled building something better in the place of “dark satanic mills”.
What of our EU membership in all this? Well, in the services the UK excels, our customers are truly inter-
Continental and the freedom to perform our roles is not conferred by EU ‘trade deals’ but by advances in
teaching, technology and transport. We have it in our hands to improve this trinity of T’s and can do so in a
more determined way outside the European Union.
TOSCAFUND June 2016
3. Brexit: In my Defence
Just one of the criticisms being levelled at
by being a member of the European Union. Before I con
in regard to our territorial defences.
Now, as far as I am concerned the referendum on June 23
nation EU, and will make no mention of the UK
Treaty Organisation (NATO). The reality is that the latter not the former is the over
Union which we have long been an important part of, and should most definitely remain IN.
Lest we forget Britain has regularly been in common defence pacts, the one in fact with Poland triggering our
entry into World War II on September 3
we were also inaugural members of a post
nations and France.
Six months later this became the Western European Union
addition of the United States, Canada, Portugal, Italy, Norway, Denmark and Ic
know as NATO (currently covering one billion of us across twenty eight sovereign states).
Significantly, the first NATO Secretary General was a Briton, Lord Ismay, who at the very outset stated quite
bluntly that the organisation’s goal was
(West Germany would join in 1955, although under strict guidelines as to its military capabilities). No less
significantly France would begin withdrawing from the NATO superstru
leaving almost entirely in 1966, only quite recently returning on April 3
Map 2: Current NATO members
Source: Wiki Creative Common License
Whilst nations have come and others gone (temporarily) from NATO, the UK has stood as a stalwart, as well it
should have, and as well it should remain. Not that all agree on this latter point. In fact there are a great many
enthusiasts for our continuing EU membership who argue we should instead be considering EXITing NATO. Let
me make another point clear. Our belt and braces approach to national defence has long been to be in NATO
whilst also possessing an independent nuclear deterrent. Here again there ar
membership and the ‘protection’ it provides, who demand we denuclearise our submarine fleet. Such strident
“anti-Tridenters” in fact fill the ranks of one extremely pro
party. Before I turn to unconventional threats, I would like to continue with territorial issues in the context of
our membership in the European ‘Community
Discussion Paper
EU Referendum Part III: Even MORE further O
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Just one of the criticisms being levelled at “Brexiters” is that they are ignoring the security provided to Britain
by being a member of the European Union. Before I consider unconventional threats, let me dismiss this claim
in regard to our territorial defences.
Now, as far as I am concerned the referendum on June 23rd
is only concerned with our membership of the 28
nation EU, and will make no mention of the UK’s continuing membership of the 28 strong North Atlantic
Treaty Organisation (NATO). The reality is that the latter not the former is the over-arching defence umbrella
Union which we have long been an important part of, and should most definitely remain IN.
forget Britain has regularly been in common defence pacts, the one in fact with Poland triggering our
on September 3rd
1939. With our signing of the Treaty of Brussels on March 17
we were also inaugural members of a post-war European defence block; our co-signatories the Benelux
Six months later this became the Western European Union’s Defence Organisation, and six months on the
addition of the United States, Canada, Portugal, Italy, Norway, Denmark and Iceland,
know as NATO (currently covering one billion of us across twenty eight sovereign states).
Significantly, the first NATO Secretary General was a Briton, Lord Ismay, who at the very outset stated quite
s goal was “to keep the Russians out, the Americans in, and the Germans down
(West Germany would join in 1955, although under strict guidelines as to its military capabilities). No less
significantly France would begin withdrawing from the NATO superstructure a decade after it was forged,
leaving almost entirely in 1966, only quite recently returning on April 3rd
2009.
Current NATO members
Source: Wiki Creative Common License
Whilst nations have come and others gone (temporarily) from NATO, the UK has stood as a stalwart, as well it
should have, and as well it should remain. Not that all agree on this latter point. In fact there are a great many
U membership who argue we should instead be considering EXITing NATO. Let
me make another point clear. Our belt and braces approach to national defence has long been to be in NATO
whilst also possessing an independent nuclear deterrent. Here again there are those enthusiastic of our EU
it provides, who demand we denuclearise our submarine fleet. Such strident
in fact fill the ranks of one extremely pro-EU Nationalist party and now lead another national
. Before I turn to unconventional threats, I would like to continue with territorial issues in the context of
Community’.
ferendum Part III: Even MORE further Out
is that they are ignoring the security provided to Britain
sider unconventional threats, let me dismiss this claim
is only concerned with our membership of the 28
ing membership of the 28 strong North Atlantic
arching defence umbrella
Union which we have long been an important part of, and should most definitely remain IN.
forget Britain has regularly been in common defence pacts, the one in fact with Poland triggering our
1939. With our signing of the Treaty of Brussels on March 17th
1948,
signatories the Benelux
s Defence Organisation, and six months on the
eland, created what we now
know as NATO (currently covering one billion of us across twenty eight sovereign states).
Significantly, the first NATO Secretary General was a Briton, Lord Ismay, who at the very outset stated quite
to keep the Russians out, the Americans in, and the Germans down”
(West Germany would join in 1955, although under strict guidelines as to its military capabilities). No less
cture a decade after it was forged,
Whilst nations have come and others gone (temporarily) from NATO, the UK has stood as a stalwart, as well it
should have, and as well it should remain. Not that all agree on this latter point. In fact there are a great many
U membership who argue we should instead be considering EXITing NATO. Let
me make another point clear. Our belt and braces approach to national defence has long been to be in NATO
e those enthusiastic of our EU
it provides, who demand we denuclearise our submarine fleet. Such strident
EU Nationalist party and now lead another national
. Before I turn to unconventional threats, I would like to continue with territorial issues in the context of
TOSCAFUND Discussion Paper
June 2016 EU Referendum Part III: Even MORE further Out
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Think twice about that one vote
Having called upon the work of the Nobel Prize winner Professor John Nash I wish to turn my attention to
another distinguished Nobel laureate, Professor Daniel Kahneman.
Much like Nash and his efforts Kahneman has significantly advanced the study and understanding of decision
making; the latter all the more, thanks to his best selling work “Thinking, Fast and Slow”. His work has
blended psychology and economics, and explored how our second-nature heuristic responses can result in
errors of judgment, or what he termed cognitive biases.
If I had to summarise Professors Kahnerman’s brilliant work in four words they would be “measure twice, cut
once”. And if I wanted to provide a single illustration of this it would be by asking this brain teaser; If the
total cost of buying a bat and ball came to one pound and ten pence, and the bat was one pound more than
the ball, what did the ball cost? In the vast majority of cases when this question is posed the quick fire
response is ten pence, followed by a look of derision that such a simple piece of arithmetic be considered a
challenge. On those producing this erroneous answer being told that five pence is in fact correct many will
express disbelief until they are persuaded by the revelation that one pound and ten pence added to ten
pence sums to one pound twenty pence.
What is the relevance of this to the referendum on June 23rd? Well, for most of us the instinctive or heuristic
response to the question of whether we leave the European Union is “NO”. I experienced this personally
when a colleague asked me the question. His reply to my quick fire instinctive response was to ask me to
explain why I was convinced the net benefit made it sensible to stay. It was only on ‘Thinking Slow not Fast’,
about the issue of our membership did I realise “LEAVE” was the RIGHT ANSWER.
From March 1982 Argentina began to occupy the islands around the Falklands, before carrying out a full-scale
invasion of the main island itself. Back then the UK not only went it alone, all the way down in the South
Atlantic, but our Task Force found itself facing military hardware sold to Argentina by a European ‘Community’
partner.
British forces have, of course, been active since the Falklands War. Their involvement has, however, never
been under an EU banner but under other coalitions, including but not exclusively the UN and NATO; but to
repeat never the EU.
Let me now turn to the unconventional threats we have and continue to be exposed to, and consider what
protection our membership in the EU has provided in the face of these.
The UK mainland is not unfamiliar with terrorist acts. When it has faced such threats, it has dealt with them
unilaterally and stoically. As for the protection against unconventional threats afforded by the European Union
we have sadly only recently seen terrorist attacks organised from one EU member state into another, hardly
an endorsement of collective security against unconventional threats. One can only guess at the protection
afforded by NOT BEING IN the now discredited Schengen Area.
The point I wish to close this short vignette with is that in departing the European Union the UK can both build
on its membership of the 53 nation Commonwealth (as discussed earlier) and its membership of a 28 STRONG
NATO.
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4. Welcoming of our tax disharmony when outside the EU
Let me attempt to link the incendiary documents which have COME OUT of Panama with why we should
COME OUT of the European Union.
I will not enter into the semantics of tax evasion, tax avoidance and tax management. What I will say is that
ever more progressive income tax rates promote ever more adventurous machinations to mitigate tax bills.
And since the wealthy have greater access to the tools of tax ‘management’ so tax is invariably regressive even
when formal income tax rates are ostensibly progressive.
As the number of self-employed has risen, ever more Britons have found themselves outside of the Pay As You
Earn (PAYE), system and their numbers are set to only increase. Against this backdrop, we can either focus
ever more tax-funded spending on capturing income tax or we can accept that there is a more “progressive”
way to progressively fund the State.
The United Kingdom is on the cusp of a devolution revolution. It should use this transformation to transform
its tax system by shifting away from income tax to spending based taxes; far easier to capture in our close-to-
cashless economy. The case for sales based taxation is all the more compelling if rates are allowed to vary
across the country and to differ according to the nature of the goods and services being consumed. For
instance we quite rightly exempt most off-sales food from VAT because not to do so would expose this tax to
the legitimate criticism of being regressive. Now as to why VAT is a flat rate across the UK, and across almost
all rateable items, is easy but extremely frustrating to answer; we have this blunt system because of the EU’s
desire for tax “harmony”. The reality is that as long as the United Kingdom remains in the European Union it
cannot restructure its sales tax system to improve the workings of the economy – rebalancing growth or the
efficiency and equitability of tax gathering.
Why is the VAT rate for a hotel stay, a restaurant meal or a theatre ticket the same in the swanky West End of
London as it is in beautiful Western Isles of Scotland? The answer is because the EU will not allow a distinction.
And yet, few can deny the logic of such differentiation. Why are luxury goods not charged at a higher VAT rate
than more modest non-discretionary items? The answer is because the EU will not allow a distinction. And yet,
few can object to the idea that such a difference would be merited on a host of equitable grounds. We are,
after all, in an economy where conspicuous consumption is the norm and where demand for many “luxury”
items is remarkably price inelastic. Indeed one is minded of the designation “Veblen good” – named after the
Norwegian economist Thorstein Veblen – where demand for certain goods increases with their price (an
advertising campaign even using the strap line “reassuringly expensive” to promote a certain beer).
As well as being memorable for being the year the UK made a now wise EXIT from the ERM, 1992 was when
the 10% “Special Car Tax” was halved from the sales of new cars. Having such a tax has considerable fiscal
merits. It is extremely progressive and pro-cyclical, providing the Exchequer with revenues when car sales are
strong which it can put aside for any manner of non-motoring spending since there is no reason why revenues
should be hypotheticated.
In short, to those who claim there is no reason the UK needs to depart from the EU to achieve its good
economic ends, my response is there are plenty. And one of the most significant is that the European Union’s
obsession with the harmonisation of sales tax means that the UK cannot make the transformational changes
to its tax system where it moves towards tax on spending and moves from a one-size fits all system which fails
to differentiate geographically – as it should – or by products (the EU’s VAT system is regulated by a series of
directives, the most important of which is the “Sixth VAT directive” - Council Directive 77/388/EEC of 17th
May
1977 on the harmonisation of turnover taxes).
Such is the EU’s dogmatic stance towards harmonisation, that one of the demands it made of Greece in 2015,
to release much needed rescue capital for its beleaguered economy, was to raise VAT rates which existed on
TOSCAFUND Discussion Paper
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islands close to the Turkish coast. That these hikes risked damaging the tourist industries on these islands,
faced as they are with an ever more competitive tourist market across in Turkey, seemed lost on the
homogeneity obsessed European technocrats. The obsessive focus on harmonising sales taxation is all the
more frustrating when one considers the heterodox corporation taxes across the EU, inviting corporate tax
inversion; a transfer of wealth around the EU’s sovereign states where the net effect is negative since it in
effect is a transfer which benefits the corporate structures exploiting the opportunities presented to invert
taxes.
Chart 11: Rising self-employment, numbers & %
Chart 12: New car sales value
Source: ONS, Toscafund
In raising income tax, the UK can call upon around thirty million potential contributors; the number of those in
work. Whilst many of these are covered by the PAYE system an increasing number are self-assessed; the latter
accounting for 15% at the last count an all high in relative terms and still rising. Not only does self-assessment
allow for less transparency in what is ‘rightfully’ owed, it also involves ‘lumpy’ and ‘late’ revenues. The simple
truth is that when it comes to income based taxation we will have to spend ever more taxpayer pounds to
search out withheld taxes. If we, however, consider expenditure based taxation, the ease of collection and
universe of potential payers expands considerably; 35m overseas residents visiting the UK each year (of which
8m are business visits), with the number of foreign students in the UK currently c500,000 having risen on
average by 4% each year since 2010. Now neither tourists nor foreign students earn in the UK and so yield
little or no income tax. However their spending is undeniably generous, and made in quite visible and taxable
ways. To repeat I see no reason why the Exchequer should not harvest tax receipts, from both Britons and
‘visitors’, using ever more targeted sales-based taxes.
Chart 13: Non-UK Students in HEI’s
Chart 14: Tourism to the UK
Source: HESA, ONS, Toscafund
When we talk about economically motivated immigration or foreign students we sometimes fail to grasp the
widespread benefits these arrivals generate. We should recognise that their demand for housing supports
prices and rents and for owners and landlords lifts their fortunes and so too the exchequer. Moreover a great
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Mil
lio
n
Employees Self-employed Share of self-employed (rhs)
0
5
10
15
20
25
30
35
40
1998 2000 2002 2004 2006 2008 2010 2012 2014
£, B
illio
n
UK-produced Imported to UK
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
1996 2000 2004 2008 2012 2016 2020
Stu
de
nt
nu
mb
ers
, mill
ion
England Scotland Wales NI
Top-up fees introduced:
capped at £3000
Impact of Browne Review: fees raised
to £7500-9000
Tuition fees introduced:
maximum £1000
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
40
45
50
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
£, B
illio
n
Mill
ion
s
Visits Spending (rhs)
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many of those who arrive enter from nations where they have left behind a left hand drive car and so become
part of the market for new or used cars “righteous” ones, again producing a welcome benefit to those whose
fortunes rely on car making or selling and to the tax man. For those of us with cars they also provide a
welcome secondary market when we come to sell. I could go on and provide instance after instance where
arrivals to Britain to work or study produce unambiguously positive net-benefits. And to repeat Brexit would
not herald the end to the arrival of either workers or students from overseas, or their valued contributions to
the Exchequer. What Brexit would allow is the UK to shift to ever more targeted, spending based taxation.
There should be no objection to shifting from taxes directed where money is earned and whose evasion can
become the privilege of the privileged – and so essentially regressive – to taxes where income is spent and
where levies can be targeted so they are progressive. And there should be no objection to the idea that
‘foreigners’ should contribute ever more to the UK Exchequer if they are doing so in the enjoyment of facilities
drawing upon British public services. In addition to raising Exchequer revenues from tourists and students
from overseas, a far more sales based tax system will allow revenues to be extracted from tax recalcitrant’s
such as those using ‘non-domicile’ or trust status to mitigate against their income tax liabilities. As for the idea
this would somehow discourage tourists or foreign students and their spending their ‘appetites’ are, I believe,
largely inelastic.
Quite frankly then, moving ever more to a sales-based tax system which varies both by the good or service
being consumed and where exactly this is happening can only be welcomed. This, however, can only be
achieved if we EXIT the absurd restrictions to achieve sales tax harmony demanded by the European Union.
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5. Whose case exactly needs to be answered? In my defence too...
Our justice system places the burden of proof squarely with the prosecution; we assume innocence and only
pass a judgement of guilt if it has been established to a jury of our peers, beyond reasonable doubt (Ei
incumbit probatio qui dicit, non qui negat). We quite rightly would rather a jury made the error of acquitting a
guilty defendant than wrongly convict one who is entirely innocent. For, whilst these are both errors, we insist
on veering on the side of caution. The same incidentally applies in the ‘drug trials’ involved in the
development of new medicines; we would rather reject a potentially life improving, indeed life saving drug, if
there was the remotest chance it produced adverse side effects. You may well be asking where I am going
with this.
On June 23rd
we – the jury made up of the UK’s electorate – have to come to a verdict on our continuing
within the European Union. Now this vote – or rather ‘this trial’ – is being presented to us in such a way that
the burden of proof is on a verdict of OUT. In short, we are told it has to be proven beyond reasonable doubt
that “the UK has a better future outside the EU”. The prosecution case is hardly helped by the defence calling
upon “expert witnesses” claiming that the cost of food, energy, travel and mortgages will increase were the
UK to leave the EU. When the prosecution produce counter-arguments to challenge these claims it is told it is
conjecture and speculative and therefore inadmissible. The judge then demands that the prosecution’s case
be proved with factual evidence. When the prosecution replies that there is no precedent to use, only rational
economic thinking, the defence objects, claiming these arguments are no more than fanciful optimism. Rather,
however, than the judge overruling this objection on the grounds that the defence case could as easily be
considered fanciful pessimism, he chooses to uphold it. The prosecution is clearly up against what in the
vernacular is known as a ‘bent Judge’.
To further hamstring the ‘OUT’ case, the defence have insisted that the jury be presented with evidence
highlighting the undeniable historical benefits to the UK of having joined the European Economic Community
back in 1972. The judge should, of course, have declared this inadmissible because it is irrelevant to deciding
the merits of remaining ‘IN’. In fact, this is much like calling upon character witnesses in the defence of an
adult charged in some way who will testify that ‘he was such a nice boy’. Well, members of the jury that nice
well behaved vibrant EEC has quite frankly grown into a useless bully. I would also add that when the UK
economy has performed impressively during its time within the EEC and then the EU, some of this has been
circumstantial to our membership, not because of it. The same counter-factual argument applies to claims
that the UK would not have advanced its environment or social credentials but for its membership of the EU.
Let us be clear the UK is one of Europe’s least reactionary nations.
Now, whilst I am happy to rise to this challenge of making the ‘OUT’ case, I am frustrated by the “if it isn’t
broken don’t fix it” nature of the ‘IN’ defence. Put bluntly large parts of the European Union, and in particular
the euro-zone within it, are indeed broke; not simply figuratively but financially. Returning to character
witnesses, and those providing the EU with positive ‘references’, the reality is that most if not all are not
impartial and should have their supposed evidence dismissed as inadmissible since their facts are
contaminated, indeed by rights they should be charged with perjury.
I made the point at the beginning that the defence case for remaining in the EU puts the burden of proof
squarely with the OUT campaign. Now imagine for a moment that this crucial court-room drama began with
the UK outside the EU. Here it would be the prosecution burdened with the case we joined the EU (just as it
has tried and failed to prove in two trials in Norway). This is not a semantic difference but a very substantive
one.
The defence and prosecution would each call upon expert witnesses and ask them under oath how they saw
socio-economic, demographic and political events unfolding across the EU in the years ahead. Bear in mind
these are the very ‘experts’ who are being called upon to provide their wisdom on how much the youthful EEC
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was a model and why the UK would suffer in the event it were to EXIT the much less flexible indeed infirm EU.
Also bear in mind all witnesses are under oath. When confronted with the direct question of how they saw
the EU performing over coming years, these experts would stutter, sweat, pull on their shirt collars, but finally
admit that the European Union’s future was not terribly encouraging, in fact had a very unsettling outlook. On
being pressed they would have to admit that for a nation like ours membership would not confer a great many
benefits, indeed that these would be outweighed by handicaps, restrictions and limitations. Being
interrogated further, expert witness after expert witness would have to accept that the EU had become a club
one joined were one a nation in need of a considerable economic and financial “leg up”, like say Macedonia,
Kosovo and Albania, not ones which already sat on the economic top table, like the UK, Norway and
Switzerland. With such admissions the jury could only side with the defence that membership in the EU from
that point onwards was best avoided, with even waverers accepting there was a reasonable doubt over the
merits of joining.
When we vote on June 23rd
we need to forget the vote is on continuing within the European Union and
instead imagine it is about joining from scratch; we must put aside what we have gained from being members
as a historic legacy, focusing instead on what the future annuity will be. Were we to do so I have no doubt
public sentiment towards out membership would be very different because the case for the defence of ‘OUT’
would be water-tight. This trial has, as already been mentioned, been performed elsewhere with the
Norwegian Jury twice dismissing the prosecution case for joining the European Union (1972 and 1994). More
recently on March 3rd
this year the Swiss prosecution dropped its case for Switzerland joining the EU (its
Parliament voting 126 to 46 to withdraw its long standing application for membership).
Another factor prejudicing the current trial is that the judge is not allowing the precedent from 1992, when
expert witnesses claiming the UK economy would suffer stagflation were the pound to leave the discipline of
the ERM, were discredited. On the issue of ‘expert witnesses’ warning of the consequences of ‘EXIT’ let me say
one thing concerning the Treasury’s recent dystopian report on the UK economy in the event of ‘EXIT’. So
much had the Treasury’s forecasting been discredited that from 2010 it was stripped of these responsibilities
by George Osborne no less, who transferred the role to the Office for Budgetary Responsibility (OBR). It is
instructive to note that the OBR has been sensibly firm-lipped on what it thinks of ‘EXIT’. Let me also say one
thing about Mark Carney. Not only is he a George Osborne appointee, he is a Goldman Sachs man. Both of
which should disqualify any evidence he produces. In fact, his reckless announcement soon after his
appointment that a sub 7% rate of unemployment should be viewed as evidence enough to trigger a base rate
rise is enough of a misjudgement to disqualify him, in my mind.
As it is then the trial set to conclude on June 23rd
threatens to prove a corruption of justice. This accepted, I
know that in two or so years time, at the very latest, we will have overwhelming evidence to exonerate those
of us accused of willing on the UK into misery by willing on a vote to ‘EXIT’ the EU. Because before long there
will be no reasonable doubt as to how a structurally weak EU provides only a drag on the UK and ever fewer
benefits. Those who wake up to this only after June 23rd
will have a rude awakening and will join the chorus
calling for a re-trial.
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6. Why Brexit is a better bargain for us
We have been told that our membership of the European Union provides us with strength when negotiating
with other nations or groups of nations. Indeed the claim there is “strength in numbers” is used tirelessly by
enthusiasts for our continued membership. In what follows I will focus on this argument in relation to
negotiating deals in trade and commerce, not defence or security. After all, I have argued elsewhere that the
safety card is entirely spurious in relation to the June 23rd
Referendum; since the vote is solely on our
continued membership of the EU, not NATO.
I understand perfectly the commercial negotiating power provided by collective bargaining. In fact
optimisation and game theory has held a fascination for me ever since I was first fortunate enough to be
taught it thirty or so years ago. What has always struck me in particular is how rarely the outcome of a bargain
has avoided there being ‘a loser’. This “zero-sum” idea was explored by the 19th
century Italian economist
Vilfredo Pareto. When leaders say of a Trade Union negotiate with company management’s, they do so to
extract concessions for their members. And at the conclusion of the negotiations the overall ‘cake’ as it were
isn’t any larger, but rather the size of the pieces ‘cut’ and handed to each side are simply different, larger
according to which has wielded the greater negotiating strength. With this in mind let us now imagine two
quite distinct scenarios. In one we are collected together with others who are exactly like us, almost perfect
facsimiles in fact. In the other case, we must imagine we are grouped with others with quite contracting
qualities than ours. Now, in the first case collective bargaining is unambiguously in our best interests. After all
as indistinguishable individuals we are weak, but collectively we have critical mass when negotiating (as Karl
Marx made clear when encouraging “worker of the world unite”). And by being indistinguishable but
collectivised we receive exactly the same as one another, as is only fair (of course in his brilliant allegorical
Animal Farm George Orwell exposed us to the temptation that some try to be “first amongst equals”, a role
Germany has long aimed for in the EU). What we get in collective bargaining is greater than we would have
achieved negotiating individually and all gained at the expense of the counter-party we have been bargaining
against. But to repeat we and our fellow collaborators receive exactly the same.
What has gone before was a short explanation of the ‘commercial sense’ of us having a body to collectively
bargain for us, if we are all perfectly similar. Now consider we are in a group amongst which wide differences
exist. In this case collective bargaining is not in the interests of all. Take those working at a commercial airline.
There are the engineers and check-in staff on the ground, and there are pilots and cabin crew on board the
aircraft. None can dispute that this collective team whilst possessing very different skills need one another in
their day to day work. And neither can anyone reasonably deny that they each have different negotiating
powers, some clearly stronger than others. Now, if the engineers and pilots agree to exert their strength to
help the cabin and ground crew, one cannot reasonably doubt that stewards, stewardesses and check-in staff
would extract a better deal than were they to bargain alone against airline management. Few can also deny
that if they did allow themselves to be involved in collective bargaining engineers and pilots would end with a
worse deal than were they to negotiate separately. This then brings us back to Vilfredo Pareto. He gave us the
concept of an efficiency frontier or ‘Arc’ on which to make one participant in a game better off another needs
to be made worse off. And this is where the enthusiasts for the UK continuing within the European Union on
the grounds it is ‘good for our negotiating position’ have got it very wrong. The reality is that we are the
equivalent of the EU’s engineers and pilots. We are ‘giving up’ part of our negotiating strength to its much
weaker members.
Now there will be some arguing that our continuing within the EU is perfectly sensible selfless and altruistic.
My reaction is that whilst this is perfectly admirable, we have to make it clear that the argument for our
continued EU membership is then based on our ‘moral’ good but not our economic benefit. Indeed, as we
know pilots do not belong to the same ‘Trade Union’ as cabin crew for precisely the reason that it is not in
their best interests to do so. Cabin and ground crews would very much LIKE pilots and engineers to join them,
and so give-up some of their negotiating strength to help theirs. But to repeat pilots and engineers prefer not
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to be in a broader Union. Well, the same applies to the UK, in remaining within the broad European Union we
are not benefiting from collective strength, but rather we are giving up part of our strength for weaker nations
to exploit. And only a casual look at the country’s keen to accede to the EU reveals a list of ever more weaker
nation.
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7. Good trading practices
I’ve attempted to make the case why game and bargaining theory implies Brexit will see an almost
instantaneous writing of trade deals, no worse than those we already have, and indeed in many cases superior
to them. I will now turn to the practical reasons why drawn-out negotiations will happen only with the most
recalcitrant counter-parties; hurting them no less than us.
There was a time when establishing trade agreements involved a painstaking process. At first these required
sending emissaries over land and sea to negotiate terms. One had to allow for the time for the journey there
and back, and add the period discussing what reciprocal benefits could be achieved. On returning to ‘court’
the delegation would have to present the preliminary terms and if not entirely acceptable the whole thing
would have to be performed over again. Then once agreement had been reached the trading process would
require the often treacherous transportation of goods in trade caravans between the partners, again travelling
slowly over land and sea. I have, of course, described something which seems to come from pre-history. And
that is precisely my point. It is totally irrelevant for modern economies and merely historical.
When President Obama made his fanciful claim that we risked an up to ten year post-Brexit wait for a
comparable trade deal with the United States, it transported me to an age when we could not negotiate in
real time, were unable to speedily transport our wares by air, and could only trade in physical goods. Well, Mr
President, this is the 21st
not the 15th
, 18th
or indeed the 19th
century. We can communicate quickly and
transport goods swiftly. In fact, we now trade in services such that a British based business can offer and buy
services in an instant. And exporting services – which covers everything from catering and accommodating for
tourists and students, across to insurance, legal, architectural and many other professional ‘goods’ – is what
the United Kingdom is practically peerless in doing, certainly peerless across Europe, and almost unequalled
when measured as a share of its overall economic activity. So why in some cases do trade deals take so long to
thrash out? Well, invariably it is because a nation is being protectionist as a prospective President Trump
claims he will be and as the Japanese have long been. Japan has in fact proven one of the developed world’s
most trade wary nations. This may appear a strange claim given it is famed for its mercantilism. The reality,
however, is that Japan’s internal market has nowhere near been as porous to the free-flow of imports as it has
wanted its overseas markets to be for the goods it wishes to export. This is not the place to pour scorn on
Japan but rather all those who stand in the way of free-trade. When President Obama reflects back on his two
terms in the Oval Office I hope he cringes at what he said concerning the risks of Brexit and US protectionism,
we are after all getting enough of that from the Republican candidate.
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8. Thinking twice about the numbers
I have been watching as forecasters on both sides of the argument present their estimated net costs or net
benefits to the UK economy following any vote to ‘Leave’. We have had institutions such as the Treasury, IMF
and OECD and we have had collections of economists coming out with numbers. In every instance I cry
“humbug”. I say this not because I have no confidence as to the net effect to the aggregate UK economy of an
EU EXIT. I cry “humbug” because the confidence shown in precise forecasting is implausible. To make my
position clear one more time, I am confident that the net effect to the whole UK economy after withdrawing
from the EU will be positive. I simply will not put a precise figure on what the benefit will be per capital or as a
percentage of GDP. It is not simply because the experience would be unprecedented that I dismiss those
making claims they can accurately predict the consequences of Brexit in monetary or real terms. I am
dismissive because the likes of the Treasury, IMF and OECD have woeful forecasting track records for the UK.
Consider for instance the two-hundred page dystopian report by the Treasury on Brexit; the forecasts within
which the Chancellor was so keen to point at to discourage us to vote ‘leave’. This is the VERY Treasury which
this VERY Chancellor stripped of its forecasting responsibilities back in 2010 because its numbers had long
become discredited; handing the role instead to the non-governmental Office for Budgetary Responsibility. If
the Treasury’s Brexit forecasts can be ignored, what should we make of the IMF’s, and what too of the
OECD’s? Well, let me repeat what I wrote back in 2013 and 2014 on these organisations. This first from August
2013 “Darn Losers”:
“Watching the way he beats himself up when losing a point, you know Andy Murray is in the true
sense of the word a winner. Over the same weekend he came through with his historic win, I
watched the Australian’s in defeat. As the Lions quite rightly celebrated you could see these
words being seared in the minds of each of the Wallabies; I don’t like losing, it hurts. When
Manchester United lost the 2011/12 Premiership title to their local rivals, Alex Ferguson is known
to have told the players to store how they felt and draw upon it for future strength. Within a year
they were back as champions.
Without entering into motivational psycho-babble you have to recognise what errors and defeat
means, failure. And in two fields there seems to be a total lack of hurt when losing. On the one
hand we have England’s international footballers and on the other financial and economic
forecasters.
HSBC research analysts have been unable to contain themselves to tell us how impressive the
future is for the UK’s residential market, and how attractive its listed homebuilders are. Why do I
make particular reference to HSBC? Because this is the firm which only until quite recently was
telling us the UK homebuilders were long-term rubbish. Indeed, I remember receiving HSBC
research entitled “UK homebuilders - the structural defects”, and fuming. Suffice it to say its
arrival prompted a swift and rather spicily worded reply.
I do not want to simply pick on investment bank research; where analysts are never wrong,
simply surprised. Such euphemisms are everywhere, research consultancies, accountancy firms
and essentially all self-selected soothsayers. Consider the all too familiar, “I am adjusting my
forecasts” where in reality the wording should read “I am correcting my forecasts.
For their part the IMF, OECD and CBI have recently raised their GDP forecast for the UK. What
makes these revision (read corrections) particularly interesting is they come from organisations
which only relatively recently lambasted the Chancellor for driving the UK into the ground. I could
go on and talk about the rating agencies, but will choose not to, since it would only raise my
blood pressure.”
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Now this from January 2014 “It’s all just talk really”
“If an entire nation can be said to be economically dysmorphic I would argue Britain has a
negative self-image like no other.
Ask an average Briton about their economy and chances are you will hear it described in the most
unflattering terms. It doesn’t help of course that journalists and mostly but far from only
opposition politicians are unrelenting in their criticism. Of course, Britain’s economy isn’t without
imperfections. Its blemishes are nothing however compared to those of many other nations
which mask theirs by a thick veneer of makeup, the French, more specifically Parisians,
possessing a particularly vain economic self-image and affectation.
Having for very long been very loud in talking-down Britain’s growth prospects, the IMF, OECD
and numerous “think-tanks” are now falling over themselves to upwardly revise their forecasts
for growth in its Gross Domestic Product. And yet there remain doubters trying to convince us
Britain’s revival is either London biased, founded on PPI compensation and/or reliant on “free-
money”. Indeed, poor Christmas trading statements from a raft of UK retailers – cited in the
previous vignette - have been picked upon as evidence that all is not entirely well within the UK
economy. Notwithstanding an acceptance it is not without its challenges, I remain firm in the
belief that the forces driving Britain’s economy forward are fundamentally sound.
Although initially very much London-centred we are now seeing evidence of a diffusion of wealth
with the Midlands and North West of England both recording improving economic conditions. In
both regions the benefits of strong engineering and in particular car manufacturing have been
especially evident. In fact Britain’s car exports by value are as high as they have ever been,
alongside private new car sales back at pre-recession levels and growing fastest outside London.
As for the recent bout of encouraging labour market data, it is noticeable that the East Midlands
is the second region to see its unemployment rate break below Mark Carney’s 7% threshold.
Elsewhere Britain’s higher education sector has recorded strong enrolment from beyond the EU,
as families across emerging economies see education as a very worthwhile investment, and
Britain an ideal place to make the commitment. We need to remember that students entering
Britain contribute strongly to its balance of payments and that its universities are widely spread
well beyond the South East.
There are concerns of course. One is of a potential spill-over from a weakening Europe. There is
also a worry that “too good growth” leads to premature monetary tightening. The evidence
however has been that far from hurting the British economy, worsening events across mainland
Europe are encouraging more evacuation of people and their money from it to the UK, lifting
British property prices whilst keeping wage growth muted. This along with a dovish central bank
Governor suggests little chance of a rate rise this year or early into 2015.
As for General Elections and Referendum’s, their outcomes cannot of course be predicted with
certainty. This accepted, by 2015 when the next General Election is due, UK GDP will be growing
above 3%, interest rates will not have risen, but property values most definitely will. If elections
are as was claimed by Bill Clinton, “about the economy, stupid”, David Cameron has less to fear
than opinion pollsters would have him believe.”
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9. Euler never quite expect certain changes
In my writings on the approaching referendum I’ve taken the liberty of drawing upon distinguished academic
and literally names; of those both living and past. Most recently I referred to the Nobel Laureates in
economics and decision-theory Professors Daniel Kahnerman and John Nash (posthumous) as well as a man
who they would accept was their inspiration, the 19th century Italian economist Vilfredo Pareto. I have also
made references to two writers whom one could describe as futureologists, George Orwell and Karl Marx;
both extolling to differing degrees of predictive power – but considerable following all the same – where they
saw we were heading.
Politicians too have been referenced. In one recent piece I made note of the unprecedented overlap of Enoch
Powell and Ian Paisley with Tony Benn and Denis Skinner in 1975. Back then each pair put aside their
otherwise diametrically opposed beliefs to jointly recommend we ‘Vote to Leave’ the EEC, this barely two
years into the UK joining the ‘Common Market’.
Now please be in no doubt, had I been able 41 years ago to take up your time through unsolicited emails I
would have done so to oppose Messrs Benn, Skinner, Paisley and Powell and offer reasons we Remained in
the EEC (which had eight other members then). I couldn’t, of course. Not only was this form of communication
a thing of fantasy, I was not yet ten years old, my English was poor, and my knowledge of economics limited to
playground swapsies; where I always seemed to end up worse off.
From what I have learnt since, the UK economy very much needed to stay in the European ‘Common Market’
in 1975. After all there wasn’t much of a global economy beyond it back then. Yes, there was the United States
but aside from it and the EEC there were precious few economies around the world which presented realistic
trade partnerships (whilst keen to export, Japan was reluctant to ‘open up’ its own internal market to
imports). At the time the Soviet Union was over twenty years away from glasnost and perestroika, and so
effectively closed. For its part Red China was also closed. It was after all still a year away from the end of Mao
Zedong’s Cultural Revolution, and the backlash in the form of the Gang of Four trial which followed – the most
notable defendant in which was Mao’s irascible widow. Elsewhere across Asia, South Vietnam had just fallen
to the North which meant effective defeat for Washington’s efforts to prop up the anti-communist regime in
Saigon, a city which would go on to take the name the iconic leader of North Vietnam, Ho Chi Min.
Politically the US not only faced embarrassment in its foreign policy but internal disbelief over the Watergate
revelations, a Presidential impeachment which loomed and on August 9th 1974 Nixon’s humiliating
resignation. For America’s economy the cost of anti-communist efforts in Vietnam and elsewhere had weighed
heavily. The US currency was in crisis – in 1971 Nixon had suddenly separated the dollar from the gold
standard which it had held since the Bretton Woods conference in 1944. The economy of the US had also been
hit – as indeed had the UK’s – by the OPEC shock of October 1973 when Saudi Arabia led the oil price up
fourfold - from $3 to $12 by March 1974 – in response to the Yom Kippur-Ramadan War. Across in South
America dictatorships reigned whilst on the continent of Africa it’s largest economy South Africa was a global
pariah, with proxy but very much deadly ‘cold wars’ being fought widely elsewhere on the continent, as they
were from central America to Asia.
If things were unstable around the world in 1975 they were hardly less so within the UK. The Government of
Harold Wilson had a wafer thin majority, and nationalists across Scotland and Wales were increasingly
demanding devolved Government, the Scots spurred on by the spike in the oil price. As for the internal UK
economy it was riddled with structural fault lines; large parts of it were nationalised and industrial unrest and
inflation were both escalating.
That was just some of the unpleasant background Britons went to the polls to in 1975: we desperately needed
as much of a common market as possible with those of our European neighbours not behind the Iron Curtain
or under the yoke of dictatorial regimes or just released from them; Spain, Portugal and Greece. Indeed
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Greece had come close to war with its NATO ‘ally’ Turkey in the wake of the latter’s invasion and occupation
of northern Cyprus less than a year before our referendum. How the world has changed since 1975. Which
brings me again to dropping an esteemed academic name or two; this time the mathematicians Leonhard
Euler and John Venn.
Amongst a great many other revelations which Euler and Venn introduced us to was set-theory. And I see their
work as all too relevant for our upcoming referendum.
‘Leavers and Stayers’ are being drawn from all political sets – to differing degrees of course – Labour
supporters joining Conservatives on each side of the debate and other such cross-party common sympathy in
this ‘one issue’ question. Moreover, the set of those who campaigned to ‘Leave’ in 1975 does not overlap
exactly with those campaigning to leave now, testament to which is the SNP, which campaigned to ‘Leave’ in
1975 (UKiP for its part did not exist in 1975). Many individuals too have ‘changed’ their view. Consider Jeremy
Corbyn. One wonders whether his shift from wariness in 1975 towards our continuing in the EEC to warmness
for now staying within the EU sits heavily on shoulders which have long carried personal beliefs even when at
odds with the party whip; such is the journey from long-standing maverick backbencher to the most unlikely
leader. Another notable shifter is Nigel Lawson, who having agitated so strenuously that we join the EMU, is
now directing his efforts to us leaving its ‘mother ship’ the EU.
Let me now get back to those Venn diagrams.
Figure 1: UK’s possible trading partners
Source: Toscafund
Consider the set of nations which one could reasonably engage closely with back in 1975. And now compare it
with the set of nations which are now open to business and with whom our commercial engagement promises
to prove ever more lucrative. For one this circle is far larger than that of 1975. For another the set of 2016
hardly at all overlaps with the set of open and growing nations in 1975. Then, as I said, China was deep “in the
Red”. Now the Chinese economy will commercially engage with any nation which has something to offer it.
Then India was an essentially subsistence economy. Now India’s middle class is as large as the population of
the EEC was back in 1975, but growing much faster. Then the Soviet Union was a poorly managed command
economy. Now it has dissolved into two dozen sovereign nations. And whilst some may not wish to recognize
the fact, Russia has financially engaged closely with the UK, as have the likes of Kazakhstan, Azerbaijan et al. I
could go on but the point should now be clear that in 1975 the world’s three most populace nations were
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largely economically out-of-bound to the UK. These are now fast growing nations keen to engage. Moreover
none happens to be in Europe, but rather in most cases some distance away. I mentioned that in 1975 the UK
internal economy was riddled with structural faults. It is now very different; as dynamic as any across Europe,
indeed as impressive in its internal fundamentals as any of the G20.
The issue then is this. Back in 1975 the referendum was a choice between on the one hand our economic
isolationism and on the other active regionalism, and it was no contest in favour of the latter. After all our
internal economy was stagflating and Western Europe was one of the few regions open for us to economically
engage. Now the vote is about internationalism over regionalism. It is a choice between remaining fixated with
what has sadly become an economically malfunctioning Continental Europe or casting our gaze far beyond it
to where we can engage with large emergent nations. Euler not be surprised to read that I believe it is no
contest in favour of the latter.
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10. The referendum – Voting to Stay or Leave, and a broken nose
I have been told that I will get a bloodied and indeed broken nose from recommending the merits of ‘Leaving’
the European Union. Whilst this was said in a figurative sense it got me thinking about the literal.
From my experience the discomfort of a broken nose isn’t the actual moment the septum is dislodged, which
isn’t actually painful, but living with it and then having the corrective procedure. I remember comparing
experiences with a lawyer friend. Presented with a ‘quickie’ but momentarily excruciating solution or a drawn
out but essentially pain-free corrective procedure I elected for the latter. For his part the legal friend went for
the quick fix. The reason was that as a self-employed barrister, he was unwilling to endure the loss of earnings
over the three to four week recovery period needed for the surgical procedure. I, however, was salaried and
moreover had paid-for private health care. Here then is how my procedure went. I checked-in to a clinic and
was shown to a private room. Having chosen my evening meal and next day’s breakfast and lunch I was
wheeled into an extensively equipped and well staffed operating theatre and given a general anaesthetic.
When I awoke my deviate septum was deviated no more, and the process was as painless as I had been
assured it would be. What I hadn’t been told however was that my real discomfort was only about to begin.
Having been transported back to my airy room and carefully placed into bed the evening meal I had earlier
ordered then arrived. I had anticipated sitting up eating whilst watching television – the clinic boasted all the
Sky channels. The reality, however, was that the bandages on my nose were such that I could neither eat
easily or see too clearly; certainly not both at the same time. Dinner was abandoned and I tried to sleep. This
proved as uncomfortable as my efforts at eating and viewing.
I was not simply trying to sleep with cotton wool in my nostrils but with considerable amounts of it packed
deeply into my sinuses. The first night of broken sleep was the first of many. Day after day for a week eating
and sleeping with any comfort was impossible. Throughout this period I was house bound. Then I visited the
consultant who removed what had been stuffed into my sinuses and I returned home, relieved that I could
begin to resume a normal life. I hadn’t, however, reckoned for the sudden and considerable nose bleeds.
These again made me practically confined me to my home. The bleeding finally eased up and I returned to the
consultant. On inspecting his work he discovered that some of the cartilage in my nose had fused in a way that
needed another procedure, albeit only requiring a local anaesthetic. This took me into the fifth week of being
largely incapacitated.
That all happened close on twenty years ago. Now what about my barrister friend? Well, as I have already
written he opted to go for ‘a quickie’. This involved sitting on his consultant’s sofa, standing behind which the
esteemed surgeon said these words “this will hurt a bloody lot for a moment, and so feel free to scream. Now,
look ahead and think of anything other than where you are”. I was told that making almost no noise the
consultant suddenly leant over from behind my friend and quickly placed his thumbs on either side of his
nose; like a flash the deviated septum was yanked back into alignment. Whilst he described the pain as
something he had never experienced before, such it both made his eyes water and let out a loud scream, my
legal mate stressed this was all fleeting; certainly when compared to my protracted experience. He made clear
that he was back at his chambers the following day and earning a living.
So much then for reflecting on my particular experience and that of my barrister acquaintance in comparing a
painful but quick solution, with the ‘easy option’ bringing with it drawn-out discomfort. I will let readers
decide which of the two aligns with ‘Leaving’ or ‘Staying’.
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11. The Truman Show
Part I
For those still choosing to open these emails, citing a 1998 film starring Jim Carey in my musings over the
looming EU referendum may prove the final straw. Well, the cinematic “The Truman Show” concerns a man
who discovers he has lived in a world where his actions have been controlled by others, but where those he
has long trusted deny as much. Indeed, those around him warn Truman of the dangers if he leaves. The film
continues with his efforts to escape and the obstructions put in place by those trying to contain him. Watching
all of this unfolding is a global audience. In bars, at home and at work people are captivated. And for the most
part viewers excitedly back Truman’s efforts to escape; he however is unaware of how closely he is being
watch from above and around.
When Truman finally breaks out he exposes how those he trusted were simply paid actors and tales of the
dangers of leaving were lies all along. I think the film’s storyline is incredibly apt for where we find ourselves.
Part II
Back in May 2012 I penned a Discussion Paper entitled “Britain’s got Growth”. It was met on its release with
“howls of derisive laughter”. I would like to take the liberty of drawing on a few paragraphs from that research
to reveal just how different Europe would now be had the political Truman Show not happened.
“Even before the war in Europe had ended plans were being drawn up for what territorial and
economic form Germany would take once it was defeated. Tasked with planning Germany’s
“peace” was US Secretary of the Treasury, Henry Morgenthau, a man with considerable
influence, having been a major force in planning President Roosevelt’s New Deal. And,
Morgenthau had a very clear idea of what was required and it did not bode well for Germans.
The Morgenthau Plan was uncompromising; Germany should be split into three, with the largest
rump, North Germany reduced to a largely agricultural economy. President Roosevelt was a
keen supporter of this strategy and quickly commissioned the Joint Chiefs of Staff to draft a
framework for the terms of occupation along the lines suggested. The Directive which followed,
JCS 1067, ordered the US military government of occupation to “… take no steps towards the
economic rehabilitation of Germany [or] designs to maintain or strengthen the German
economy“. JCS 1067 was policed by a team of US Treasury officials who had been seconded to
the Army and who became known as the “Morgenthau boys”.
Occupation saw the wholesale dismantling of German plant and machinery and its
transportation out of the country, all under the guise of “industrial disarmament”. Most often
this valuable equipment ended up in United States. There was also a concerted plan to
deconstruct what remained of the German banking system, under the banner of decartelisation.
At the same time Paris organised the annexation of the important coal mining area of the Saar,
and began preparing it for assimilation into France. Against such a backdrop economic events
across Germany in the years immediately after 1945 progressed as they had in the years
following 1918; with rampant inflation, a collapsing currency and food shortages. Just as it
seemed it would sink into economic chaos the chill winds of the Cold War began to blow into a
gale that would quickly revise the American attitude toward West Germany.
At first the new US President Harry Truman was sympathetic to the concerns of his predecessor
regarding the risks an economically strong Germany posed. However, the onset of the Cold War
made him appreciate the need for a friendly and stable nation in the centre of a fractured
Europe. Indeed, Herbert Hoover, the man who Roosevelt had replaced as President put it starkly
in a speech in March 1947. Hoover’s words carried this stark Malthusian warning:
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“There is the illusion that the New Germany left after the annexations can be reduced to a
‘pastoral state’. It cannot be done unless we exterminate or move 25 million people out of it”.
Truman’s Realpolitik of restoring Germany to an industrial state was supported by Secretary of
State George Marshall and in late 1947 JCS 1067 was replaced by JCS 1069. This recognised that
“an orderly, prosperous Europe requires the economic contributions of a stable and productive
Germany”. The generosity extended to West Germany would prompt the Wirtschaftswunder or
the German Economic Miracle that is the cornerstone of the mythology that now surrounds it.
Having been initially denied access to Marshall Aid this changed from 1949. The considerable
financial capital West Germany began to receive from this point allowed it to reindustrialise;
acquiring capital equipment exported from the US, an early form of vendor financing.
Additionally, there was the boost from replacing the worthless Reichsmark with the more stable
Deutschmark. Indeed, Frankfurt continued to manage the Deutschmark long after exchange rate
anti-gravity should have begun to work, in the process co-authoring with Japan the currency
management playbook that Beijing and others have evidently been reading from. With its
currency low and stable through the course of the 1950’s, economic events moved swiftly and
favourably for West Germany. Restrictions on its production capacity were removed and the
Saar was returned. Despite ending quotas on West German industrial capacity, its Allies
remained steadfast that it should have no military industrial complex. Far from being a
handicap, not committing men or resources to military spending was to prove another economic
benefit, saving West Germany from the opportunity costs of such commitments. Indeed, not
only did West Germany not need to provide manpower for its own defence, its safety was
“guaranteed” by the presence of 175,000 British and American military personnel, whose wealth
created welcome internal consumption, particularly in the early post war years.
Through the 1960’s West Germany’s economy gained momentum. Even though the
Deutschmark began to move higher from late in that decade its strength provided for the low
inflation that has become a policy obsession since. Of course, low inflation allowed the
Bundesbank to maintain low borrowing costs that did much to stimulate investment across
manufacturing. As the 1960’s made way for the 70’s, West Germany found itself enjoying
impressive fiscal, monetary and growth qualities that were the envy of others.”
So far then, so lucky, for West Germany; the bulk of the now re-unified Germany. This however is how I closed
“Britain’s got Growth” four years ago.
“By demanding the rest of EU member states in distress to adopt its thrifty image, Berlin is
expanding its economic hegemony across large tracts of Europe. It would not be an exaggeration
to claim these have been drawn into a Greater Germany.
As so often in the past, a Battling Britain is holding firm against the expansion of German
influence. Some would claim Britain will come to pay economically for its obstinacy. We
disagree. If President Hollande goes through with his promises the French will join other
nationals across the EU in considering where their personal interests are best served given the
options of the EU’s Single Labour Market. We have little doubt moving to Britain will be a
favoured option by many, providing it will welcome skilled workers and their evacuating capital.
We have predicated this piece on the assumption/in the expectation the euro does not
fragment. The issue however remains that defections are a possibility. In this event what of our
thesis favouring Britain's economic future over Germany’s?
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1) In the event Greece is ejected or voluntarily exits the euro-zone, we would have to
assume others would follow. A Euro break-up in which not just Greece but most of the Southern
European countries now in that currency block left, would leave the “rump” – of Germany,
Austria, France, Holland, Finland and one can only guess who else eventually remained – with a
very much higher exchange rate relative to the new units of departees and long standing
currencies beyond. The result would be to eliminate the competitive advantage bought by the
depressed 17 nation euro. If the new “northern” euro attracted, as is more than likely,
substantial capital inflows, it could easily become painfully uncompetitive. For its part whilst the
pound would also rise against the new units of nations departing the euro, it is unlikely to do so
relative to the “northern” euro. The point to emphasise is that in terms of competitive position
relative to the euro-zone nations to which they export most, Germany has more to lose in the
wake of a break-up than Britain.
2) Beyond the Euro-zone many European countries which are currently shadowing the
Euro are certain to devalue at some point; and their moves will be all the more severe in the
event of a break-up in the euro. Crucially, such devaluations would have a far smaller effect on
Britain than Germany, given the latter’s more extensive mercantilist links across Europe.
Consider too Austria in all this, a nation whose banks have extensive exposures beyond their
home market; into Hungary, Romania, Croatia and elsewhere. It is no exaggeration to claim
Austria's banks and its economy would be sorely hit by currency shocks across Europe, bringing
the crisis right to Germany's doorstep.
3) The risks to Austria of widespread currency collapses across Europe are such that one
has to consider just which nations eventually remain in the “northern” euro? Could Finland
endure its competitiveness sapping rise? What of Slovakia, Slovenia and Estonia? One can only
guess how many of the euro's dominoes are left upright if Greece was toppled over? Each
departure could only heap more pressure on Germany, far more than the impact on Britain.
4) Disorderly devaluations across Europe would of course lead to significant demand
disruption and we have to consider the impact of downward trade shocks on British and German
exports. Here again one can only conclude matters will be worse for the latter than the former.
Moreover there is the real prospect that ejections from the euro would lead to ejections from
the EU, and the raising of trade barriers as a result. Here too one can easily see the German
economy being far more troubled than Britain's, given the latter’s more internally driven nature.
5) We also need to consider how disorderly devaluations across Europe would trigger
the flight of people and wealth into both Britain and Germany. This accepted, we feel Britain
would be both a proportionately larger beneficiary as well as being better placed than Germany
to capitalise on these arrivals. Better equipped by way of language and better equipped due to
the service nature of its economy.
The reality is that a break-up of the euro-zone and precipitous currency falls more widely across
Europe would severely affect German GDP. At the same time the event could cause, at worst, a
glancing blow to Britain's, if not even possibly a net positive, as it receives capital and labour
from its perceived safe-haven status.
We began this piece acknowledging that the vast majority of economic forecasters favoured
Germany’s future over Britain’s. We have challenged this preference in the only way we know
how; looking at economic futures not histories.”
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12. Seeing Europe in 2020
Even though I would never claim to see the economic and financial future with 20/20 vision, a crucial part of
being a career economist is to have ‘a view’. And an essential element of remaining employed as a career
economist is to be more right than wrong in ones outlook; and when incorrect in ones final answer, at least
having gained marks in the working out. At the present moment, I am expected to have a view out to 2020
and this is it.
I have recently written about the contingency of a vote to ‘Remain’ – the bookies short odds outcome. In that
vignette, I offered a view of the events I was convinced would unfold across the European Union and our part
in these. The point which I stressed was that the UK taxpayer could not avoid being involved in the looming
volte face of economic management across the European Single Market. This would involve shifting from the
failed approach of combining monetary and austerity programmes as a means of ‘sorting-out’ the economic
and financial problems (read mess) besetting essentially the euro-zone.
I have made clear that at some point the EU would have to adopt an essentially spending or Keynesian
solution. Whilst I described this as a sort of Rooseveltian New Deal I could easily have called it a modern
Marshall Plan, funded not by the United States but by those EU members who could use their balance sheet or
access to global credit to do so. And having renewed its EU membership – or as I put it previously our marriage
vows – the UK would be obliged to shoulder, a proportional, part of this responsibility. We would be expected
to do so because of our sheer size and because we would, after all, be one of the few EU members almost
certain to be enjoying robust real economic growth. In fact the worse economic, social and political events
become across large parts of Continental Europe the more EU nationals will ‘escape’ with their human and
financial capital to the British Isles – both the UK and its symbiotic neighbour, the Irish Republic.
When I claim Europeans will escape to the UK and Ireland, I do not mean depart solely from post enlargement
EU states, but leave original signatories of Treaty of Rome; France, Belgium, Holland, Italy and indeed
Germany. And the more this migration of human and financial capital happens, the greater Continental
Europe will be ‘hollowed-out’ and the faster the British Isles will be ‘filled-in’. Somewhat ironically we will find
that the ever growing number of EU nationals working and paying tax in the UK will find part of their
contributions to HM Exchequer being directed to whence they escaped. But crucially Britons too will be
expected to fund efforts to rescue the economies of France et al.
Now let me make one point very clear. In the event the UK did ‘Leave’ the EU of course it could not fail to be
affected by the economic and financial problems I am convinced will soon become far worse across it. What I
would stress is that whilst we would ‘suffer’ a regional trade ‘hit’ this would have to be put in context. First in
the global context of our trade in goods and services; the world economy after all extends far beyond Europe,
and is extensively growing in real terms in large parts of it. And second in the context of our being filled-in not
only by escaping Europeans (who would still be welcomed as economic migrants) but by arrivals from the
developing world, not least looking to study across the UK. I need to stress that my economics are neither as
an isolationalist or regionalist but as an internationalist.
As for a ‘Leave’ vote triggering a second referendum on Scottish independence, whilst clearly possible I see
this becoming made increasingly improbable with each new crisis across Continental Europe.
So what could forestall all this?
Well, the answer is as simple as it is improbable. What would make me review this outlook is some dramatic
fundamental economic recovery across mainland Europe. By fundamental, I mean not stimulated by a Zero
Interest Rate Policy (ZIRP) and Quantitative Easing (QE) but genuine in the context of being underpinned by
private sector job creation. Genuine too in the sense it reflects part domestic and part trade driven growth. In
fact until and unless the ECB ends QE we must assume the euro-zone is on artificial monetary stimulants or
more vividly in intensive care. My heart very much wishes the euro-zone is restored to rude heath. My
economic head tells me it is not simply far from recovery, but has the worst ahead of it. And if the euro-zone
has trouble ahead the EU more widely is in trouble.
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13. The disgrace of not disqualifying oneself
From a barrister to a bricklayer, across to an estate agent and electrician, indeed across all services and crafts
we expect impartiality in the advice we are given and professionalism in the work provided. The contract we
enter into in all cases is that we will agree with the experts in their fields as to what we need, and pay them
for their work accordingly. The implicit assumption is that pride in their work and their sense of professional
responsibility will stop self-serving behaviour.
Where a ‘professional’ senses a conflict exists or may even be perceived to exist he or she is expected to
disqualify themselves without hesitation. In short, we expect those presenting themselves as professions to be
like Caesar’s wife and be above suspicion and beyond reproach.
At the beginning of this increasingly febrile referendum campaign I hoped those presenting a professional
rather than personal view would only do so if they could legitimately claim to be impartial. I had expected
those who were conflicted either way of the Remain or Leave issue to either adopt a form of purdah or failing
self-censure, to make clear their conflicts whenever venturing forth an opinion. Well, we have not had such
disclosure from the IMF or OECD, nor from PwC or Ernst & Young. Neither had we had it from HM Treasury or
the Bank of England. In fact I could denounce many others from Goldman Sachs to the CBI for concealing their
conflicts in a cloak of indignation, at the MERE suggestion they may be anything other than impartial. Some
may point to the extremely cautionary outlook expressed by the Institute for Fiscal Studies, whose forecasts
were for a long time seen as far more objective than those of a too politicised HM Treasury. I do not disagree
that the IFS was once the independent arbitrate of UK growth. What I would stress is that the Office for
Budgetary Responsibility was created for the very reason that Treasury forecasts were so discredited. The OBR
in effect is the official blue-ribbon UK growth forecaster, to all intense and purposes making the IFS redundant
and so keen to be noticed. For me at least the decision by those in the OBR to decline entering the forecasting
fray says much about how truly professional it is and how lucky we are to have it. I would thank George
Osborne for creating the OBR but for the fact he seems to have forgotten why he did; the Treasury’s
forecasting had lost all credibility.
As to why there are so many institutions which are conflicted one does not need to call upon Sherlock Holmes
or forensic science to uncover the reasons; every institution I have named has financial interests aligned with
not upsetting the EU and its myriad institutions. For my part, it greatly upsets me that we are being spun a
great many untruths by those we are expected to continue to trust after June 23rd
, when they are sure to be
exposed either way.
As for my conflicts I do have to admit to them. I am a UK taxpayer and have all my assets here, and am geared
entirely in sterling. In fact, I do not simply have some skin in the UK game, I am entirely immersed in it.
Therefore, what I unashamedly want is what is “best for Britain’s economy”.
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14. Wacky European Races
A few weeks ago I had the pleasure of experiencing the thousand mile race around Italy, known throughout
the world by its famous alliterative Latin title, the Mille Miglia.
I was admittedly not in one of the four hundred or so classic cars participating in the race - from four thousand
applicants. I was instead a mere passenger in one of the equally numbered support cars. This admitted we
weren’t so much following passively behind but in amongst it all, and at times seemingly in the race. And not
simply in a support car version of the classic race, but occasionally up against the priceless machines
themselves, very often raising the ire of their drivers; one of whose wing mirrors was more valuable than our
entire car and our luggage. With our vehicle (if I told you it was a Renault Twingo, would you believe me?)
bearing stickers designating it as a ‘Support Car’ the stewards and the Politzei, Caribianari and others in the
best dressed and most leisurely police force in Europe, allowed us to act as if we were in the race. They
escorted us on motorcycles whilst others waved us through red lights, the left side of the road and the wrong
way around roundabouts, all with no consideration of speed limits. I must add we took the precaution of
having our hazard lights on through all these manoeuvres. To add to the proceedings during the weekend
period of the race a great many car-clubs across Italy have ‘meets’ where they follow the classic route. The
result in short was the spectacle of multiple races involving a great many more than four hundred cars hurtling
around Italy.
We drove through towns across Lazio and cities up into the Toscana region, and what fun it was. Delighted
scenery combined with excellent food and refreshingly deserved evening drinks. Like they do, the final day
came, which was Sunday where the last stage would take us from Parma to Brescia through Firenza and past
Bologna with a stop at the famous Monza autostrada. Anyway, we woke to what I must say was an even less
than indifferent breakfast. This would have been far more annoying had we not dined and wined so well the
night before. Anyhow, off we set in the company of not one but four silver Gullwing Mercedes Benz classics
and a number of other automotive beauties, driven mostly by grizzled men.
With a long drive ahead our priority was fuel. We stopped at the first petrol station we came to as did many
other participating and support cars. On getting the nozzles out, so it were, they proved to be closed. Closed
too were the second, third and fourth petrol stations. Each unfulfilled stop raised our ire and lowered our fuel
reserves. We did finally fill-up with fuel, but not before we had sweated in the Tuscan morning sunshine, as
did our fellow ‘Mille Migliaries’.
Now relaxed, we settled down and drove at a more sedate speed than the previous day - well mostly - through
sleepy villages, sleepy towns and indeed sleepy Italy writ large. It was Sunday after all, and a day of rest.
Anyway we experienced the Monza circuit and enjoyed celebrating the race finish in Brescia where it had
begun five eventful days earlier. After a splendid night in that historic city we awoke to grey sky and rain, the
sunshine we had enjoyed the days earlier reappearing again only as we touched down at Luton.
During the journey home I reflected on the unparalleled experiences. There was the beauty of the scenery and
the cars. And there was the excitement of it all and the excellence of the people and the pasta, the wonderful
wine and the wit. As for the cars and drivers they were as heterodox as they were interesting. This said whilst
international they were for the most part European. Alongside Italians driving Ferraris, Germans in Mercedes
and Englishmen in Astons, were classic British marques driven by Continentals and Continental classics driven
by Brits. One was made aware of each drivers nationality by the name and flag stencilled on the doors,
although there was seldom doubt as to their origins from how they looked and drove. One thing I remember
as being noticeably absent in this classic European road race, was the EU flag to designate driver origin.
I also couldn’t help but recall that I came close to missing the Mille experiences because of the disruption
caused by a strike by French air traffic controllers, the beginning of what threatens to be a Summer of Gallic
discontent as nasty as our winter version back in 1978/79. Not that industrial unrest is confined to France;
there are picket lines being drawn across much of the EU from Belgium down to Greece. Neither could get out
of my mind the sleepy Sunday or the Saturday in Parma when we were told that a bistro with an al fresco
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dining area, perfectly situated to enjoy the end of that days racing at 8.30, closed at 7.30. I remember when
the UK had what are so out-dated working patterns; introduced initially to protect workers but inevitably not
fit for modern purpose.
I also reflected on my few days on the Costa de Sol presenting at a very pleasant off-site arranged by one of
the UK leading real estate advisors. It was from there that I had travelled to Italy. I remembered becoming
familiar with “En Venta” the Spanish for “For Sale”; so often did I see it driving from and to the airport painted
on buildings. This graffiti was sufficiently weather beaten to indicate the seller had been waiting some time to
be requited with a buyer.
I returned to the UK with it even deeper in the throes of referendum rhetoric. The ‘Stayers’ were extolling in
ever louder tones the virtues of our links with Continental Europe. For their part the ‘Leavers’ were making all
the cases bar the one which was most relevant; large parts of the much vaulted European Single Market were
closed on Sundays, holding a fire sale when opened, or were behind the flaming barricades erected by strikers.
I was not in the UK long before my travels took me to Cyprus, or more precisely the Republic of Cyprus, a
member not only of the EU but the euro-zone within it. There I was already familiar with signs announcing
“Polytai”, or “For Sale”. This said my acquaintance of these increased greatly as did my familiarity with stories
of distressed assets, unemployment and the exodus of those able to. So much for my travels around Europe,
and my ruminations on them, the last of which I will close with; I wonder whether ‘Remainers’ are aware the
journey they want us to continue on as members of the EU is not a pleasant one around Europe involving
good fun, food and friends, but rather a race to the economic bottom, political extremes and social
disharmony.
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15. Fear the real serpents not imaginary sharks
The essence of the ‘Remain’ campaign is the claim Brexit would result in abject chaos.
Project Fear involves the chilling forecast that our economy will descend into stagflation. It predicts prices will
soar, output will collapse and we will see considerable job losses; the UK in effect becoming a case study in
self-imposed autarky. ‘Remainers’ predict no less chaos will beset our politics. They argue that a vote to
‘Leave’ will trigger an internecine war within the governing Conservative Party, whilst at the same time
galvanising the Scottish Nationalists into demanding a second referendum on independence. All this will
unravel at a time when the Labour opposition in Westminster is itself incapable of Governing in a unified or
credible fashion.
As I have written before, Project Fear contains some scary stuff, which none in their right mind would
reasonably wish upon themselves. Given I have dismissed the economic cataclysm which ‘Remain’ has
predicted and argued political ‘shocks’ are not uncommon why am I returning to these - unfounded - concerns
once again? Well, because since I last broached them, Remain campaigners have crossed the imaginary
rubicon into a brexitland which Swift and Carroll would applaud.
In TV culture (sic) the Remain campaign has in effect jumped the shark. This term was coined after audiences
watched ‘The Fonz’ perform such a feet of daring only to react by not being so happy with the ‘Happy Days’
scripts. ‘Dallas’ too had its jump the shark moment involving an entire series (they call them seasons
nowadays I understand) being explained away as a dream. Those old enough will remember the ‘dead’ Bobby
Ewing emerging Lazarus like from a shower at the beginning of the first episode of the series after being dead
in the one before.
I refer those too young to remember either this or The Fonz’s shark jump to a more recent crossing of the
credibility rubicon, one involving a sizeable stone tablet. On this were carved policy promises which their
author was never able to prove the credibility of. After all, Ed Miliband was never tested because his
Manifesto was not sufficiently believed to win him enough of the popular vote to prove he could deliver on his
‘Commandments’. The contrast with the looming referendum is that if Project Fear is successful in avoiding
Brexit the shameless nonsense concerning its consequences will not be tested. In the event, however, we do
somehow overcome the Fear of the unknown then we will come to know that Brexit waters are not shark
infested. And we will awaken to the realisation that ‘Bremainers’ were speaking with serpent tongues.
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16. Valued migration points
For many, the issue of immigration to Britain is amongst the most important in deciding how they will vote in
the EU referendum on June 23rd
. Indeed for some, it is the only factor. Since ‘Vote Leave’ has now presented
the outline for a points-based ‘Australian style’ immigration system I wish to spend a moment considering this
thorny but unavoidable and fundamental issue.
None can doubt there is considerable demand to be in the UK to work or study, the gross number arriving
over recent years is evidence enough. Whilst those keen to enter Britain from beyond the EU have to ‘make a
case’ to be allowed to come to the UK to work or study, nationals from across the EU are bound by no such
requirements. With the Government struggling to contain net-immigration to its arbitrarily annual target
(currently set at 100,000) it is hardly surprising that restrictions on non-EU nationals have tightened
considerably.
Now, were the nations beyond the EU largely populated by inferior potential migrants than those of the EU,
this would not be a concern. This is, of course, a ridiculous premise. It is ridiculous in the context of Australians
and Canadians keen to work in the UK and ridiculous in relation to young adults from India’s and Africa’s
burgeoning middle class keen to study here. It is ridiculous because it assumes Europe’s global population
primacy.
The reality is that the present system ensures the UK’s migrant-mix is economically sub-optimal. How can it be
anything other unless we can prove that the EU has some exclusivity over what the UK requires economically
in relation to its need for “new blood”? With this in mind, a points-system seems eminently sensible. Points
earned from having professional or vocational skills. Points achieved by language aptitude and points earned
according to a clearly defined set of discriminating taxonomies. Not discriminating by race, creed or colour but
discriminating in terms of the UK’s economic needs. Would this be impractical? Well, it is what is practically
being used for applicants beyond the EEA, so why not within it? And if it was impractical why does it work so
well in Australia, et al.
Chart 1: Net migration, by main reason, EU
Chart 2: Net migration, by main reason, Non-EU
Source: ONS (Long-Term Migration data), Toscafund
Lest we forget Teresa May is the Home Secretary on whose watch the ridiculous 100,000 net migration target
has been in existence, a politician who more recently identified herself squarely as a ‘Stay’ campaigner. She is
in effect the chief architect of the UK’s sub-optimal migration policy.
Let me close with a few anecdotal points.
I find it curious that my recommending the merits of a points-based immigration selection will not find favour
with many of those who are members of ‘Soho House’, the ‘Groucho Club’ and other celebrated institutions.
My curiosity stems from the fact these use just such a selection system; one which happens to overtly
discriminate against the likes of me because I work in finance. In fact, a year ago, I applied for membership of
the Royal Automotive Club. I did not begrudge having to form-fill or wait for more than a year to learn of my
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fate, possibly having been called for an interview. Nor too did I resent having been proposed and seconded or
paying an application fee. In fact, having to overcome these hurdles was part of the proof that it was worth
being a member of that institution. I do hope I’ve got my points across.
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17. Trigger happy contracts
There has been much discussion of the contingency clauses being written into certain draft contracts dealing
with transactions in UK assets, particularly those involving real estate. These would be exercised in the event
of a vote to Exit the EU. The existence of such triggers has raised concerns that the UK will miss out on inward
investment which would otherwise be assured were continuity in the EU guaranteed. Let me try to expose this
as yet another unfounded element of Project Fear.
I wish to briefly outline why in the instances these clauses actually do exist they have been misinterpreted and
their threats to inward investment exaggerated. For the most part they are NOT parachute clauses, allowing
prospective buyers to walk away from acquisitions. They are instead mechanisms to reprise deals ex post of
Brexit, and it’s near certain downwards effect on sterling’s value in the foreign exchange market.
It is certain the pound will weaken if we vote ‘Leave’, but unclear by how much. A to why the reason is simple
currency markets do not like events which have no precedent. Their response is to ‘price down’ until the fog
clears. This said the ‘correction’ will not be an unrelenting collapse as the hyperbolic ‘Remain’ camp claims,
but finite (and by the way it will undershoot and then rally as we witnessed in 1992 and 2008). We saw a
bounded weakening in sterling – c28% - in the wake of the ‘unprecedented’ banking shock of 2008, and we
witnessed a finite c28% decline in sterling when the pound made its dramatic EXIT of the ERM in September
1992. In both cases the shocks were a surprise to almost all. The same cannot be said of Brexit. We know it is
possible from June 24th
and the ‘fact’ that the pound will fall to new levels against the euro, dollar et al in its
event. It is perfectly sensible then for contingency clauses to be written into contracts being drafted ahead of
the referendum.
Chart 1: Dollars per pound, ERM exit
Chart 2: Dollars per pound, Lehman’s collapse
Source: Bloomberg, Toscafund
The point is that a vote to Leave is not a deal breaker but a deal revaluer, I’d call such clauses shock-absorbers.
Imagine as a dollar buyer I see a sterling asset as being attractively priced at say $y measured using an
exchange rate based on a Remain model – it doesn’t really matter which methodology. Now assume that the
pound weakens by say x% in the event of the UK Leaving the EU. A contingent contract which ratchets what is
paid in dollars to y(1-x/100) makes perfect sense. After all the UK vendor will still receive £y. Some will no
doubt claim that a vote to Leave will undermine the occupational fundamentals of UK assets. Since I have
written extensively elsewhere why I do not fear any such deterioration I will not do so here.
What of owners from overseas nervously holding UK assets, in particular real estate? To these I would
perfectly understand them selling if they sense the vote might be to Leave. I would, however, advise they re-
enter the market they left at the first sign that sterling has found its new level. I say this because I see no asset
backed investments elsewhere across Europe with more occupational and rental promise than those of
England. Brexit will after all not replace regionalists with isolationalists, but internationalists.
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Stupid is as stupid does
Without a hint of humour and often with a very evident sneer I have been accused of being stupid for supporting
Leave, even by those who have hitherto considered mine a prescient mind on many things to do with economics.
Indeed, my reasoning for why the UK should ‘Exit’ the EU is based entirely on the economic costs and benefits of
staying versus leaving; a focus which many claim narrow-minded, lacking in perspective, and so piece-meal. Well,
I'm sticking to this focus all the same. Even with this emphasis my economic arguments have come against the
criticism that I have succumbed to the psychoses known as confirmation bias.
Confirmation or my-side bias – also known as subjective validation – is a form of cognitive dissonance when one
seeks to emphasis data which supports a stubbornly held prior belief or prejudice; at the same time suppressing
anything which could undermine ones pre-judgement. Indeed, when Forest Gump famously spoke the words, that
form the title of this short piece, he was in effect voicing the criticism that people tend to think those who do not
agree with them are the stupid ones. Well, if I may I will talk more stupid for a paragraph or two.
Since the referendum was called, a lot has been spoken and written concerning the harm uncertainty has done to
our economy. We have been told it has not only tempered investment but triggered disinvestment. Now, when the
Chinese Government recently made London the first foreign centre from which to issue its Sovereign debt, was it
being stupid in the face of uncertainty concerning the UK's tenure within the EU? And was this action bad for the UK
economy? Was China being even more stupid when it announced that it would invest in the Midlands to build the
new version of the iconic taxi it now owns the rights to? Or was it being stupid taking a one-third interest in the new
nuclear power plants at Hinckley Point in Somerset and Bradwell in Essex? Was the Indian management which
announced that the new Aston Martin factory was to be in Wales, also stupid? And was that decision bad for the UK
economy? Was Boeing's management itself stupid when it recently revealed that the UK was where it chose to
make its European hub? And is the bond market stupid in sending Gilt prices to new highs and yields to historic
lows? And are either bad for the UK economy?
Does citing these instances simply show that my mind has been dumbfounded by a confirmation bias and subjective
validation disorder? And can I reasonably claim that without the uncertainty of the UK’s EU membership there
would not have been considerably more investment in the UK? Or do these and many other instances of inwards
investment into the UK announced in the lead up to June 23rd
, confirm that others around the world are quite
sanguine on the referendum issue and are attracted to the UK regardless of its membership of the EU?
As for what a weakening pound is saying, well it tells me very clearly that it is good for the UK economy. And in the
words of a former US President, when it comes to what really matters, “it’s the economy, stupid”.
Let me close with one final reference to a cognitive bias which I consider one of the most fascinating, it has come to
be known as the Dunning-Kruger effect. This form of opinion psychosis involves believing one is smarter than in
reality. The academics who were first to identify it had come across the case of McArthur Wheeler. Mr Wheeler had
robbed banks with his face covered in lemon juice. He did so in the belief that because lemon juice is used in
invisible ink, his face would not be recorded on surveillance cameras. Now I mention the Dunning-Kruger effect
because often whilst listening to BOTH sides of the referendum debate I have been left thinking, I wonder which
speaker has smeared most lemon juice over their face. Stupid is as stupid does, after all?
Although not a perfect parallel one can compare the way the recent surcharge on SDLT has altered pricing
points in the residential property market. That there was a surge in transactions ahead of the implementation
of the new tax reflects how amateurish the exercise was performed. The UK residential market has such
strong fundamentals that only an amateur would suggest lower transactions in the quarters and indeed years
ahead.
For the record the person who performed the amateurish change to SDLT is the very Chancellor encouraging
us to ‘Remain’ with him.
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18. Staying ‘In’ – Dear, oh financially dear
The ‘Stay’ campaign has presented countless arguments why an ‘Exit’ from the “comfort” of the European
Union would propel the United Kingdom into a dystopian future. We have been warned it would disrupt trade,
raise food and energy bills and increase prices for our airline tickets, and generally leave us all so much worse
off than were we to simply stay put in the EU. I will not spend time here pouring scorn on these claims, as I
have written my dismissive words towards them extensively elsewhere. If I may then, I’d like to spend a
moment presenting how, to my mind at least, the decision to remain will cost us all financially dear oh very
dear. Let me do so by transporting us to no later than the second anniversary of us having renewed our vows
to the EU, on the assumption this is what we choose to do on June 23rd
.
Yes, Germany has long resisted a spending-based solution to Europe’s economic problems. But no this
reluctance cannot and will not continue. To those who claim this capitulation could only happen were Angela
Merkel to leave office, I say her months are numbered anyway. Regardless of her formal position there will be
an economic catalyst for a change of policy in dealing with the deep rooted problems around Continental
Europe. The trigger will be the detonation of devaluations around the periphery of the euro-zone. Whether it
is Hungary, the Czech Republic, Romania or any other of the eight Continental nations within the EU, but
outside the euro-zone, I have no doubt that within the next two years one of these will experience a sharp
currency reversal. The most likely reason will be the respective Central Bank taking interest rates to nil – or
even negative - in response to ever weaker economic data and deflationary pressures. Rate cuts would act to
effectively pull the yield support from under whichever national currency its central bank acted decisively the
way others already have done, viz. Sweden. And when one post-enlargement EU currency tumbles, a domino-
effect is certain to follow. We saw a dress rehearsal of this in 2008 when considerable bailouts were paid to
calm matters. Next time however we will see the full drama. The most recent performance of what awaits the
European audience was in Asia in 1997.
Back in the autumn of 1997 the Asian exchange rate crisis saw currency after currency fall sharply against the
dollar, and most notably the yen; a currency which had been carried around Asia in search of yield. That crisis
had the effect of unravelling the seven-year effort which had been made to revive and reflate Japan’s
economy. Fast forward two decades and I predict the same awaits Europe, the frail euro-zone taking the role
of Japan, and Polish, Czech and Hungarian devaluations the roles of Indonesian, Malaysian and Thai ones back
in 1997. Be in no doubt Germany’s economy within the euro-zone will not come off lightly.
At a time when euro-zone members desperately need a more competitive currency to help their flagging
fortunes they will soon be hit with an even less affordable euro. This will prove the catalyst for the EU turning
to a spending-based solution, not least because it would seriously fear defections from the euro. And it is at
this point when the UK is dragged in. Why? Because having renewed our vows to remain in the EU “through
sickness and in health” we will be required to contribute to funding the fiscal efforts being applied to our ever
more sickly EU partners. Now, some readers may feel we have a responsibility as good Europeans to stoically
hand over money. Others may say we owe it to Europe to help it out in its time of need, so as to avoid its
problems spilling over to us. Whilst I would applaud such benevolent sentiments I am not at all sure that most
of those convinced we should ‘Remain’ are aware of just how much the Exchequer, and through it UK
taxpayers, will have to contribute. As for the idea of paying up to avoid the spill-over, I see that as a
contradiction; the spill-over IS the financial burden. Could we resist paying up? Of course not. My premise
after all is that on June 23rd
we have renewed our EU vows, and so all the more tied the knot to it financially.
To repeat, until now we have largely avoided being involved in rescuing the European Union because the
medicines dispensed have been austerity and monetary; neither involving us. And to repeat, the former is
counter-productive and the latter applied long after it should have been to be effective. The result is that by
Remaining we WILL be dragged in financially.
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So here we are then, in my imagination as it were, being shown things by the ghost of two summers future.
Not only are we being told we have to make a sizeable financial contribution to the EU’s version of a
Rooseveltian New Deal, but we are two years into a period when the demand for British exports to the EU will
have fallen in tandem with mainland Europe’s ailing health and lessened appetite to import. Our trade deficit
with Europe will in short have become even wider. Note also that the pound is set to lose considerable
competitiveness against those EU currencies which devalue, as I am certain they will do. True, the cheapening
of goods from our EU partners will help lower import costs. No less true is that it will hold the Bank of
England’s hand on the base rate tiller for even longer; welcome to some, but far from welcome to all.
Now, what about the economically motivated movement of people around the Single Labour Market (SLM)?
Far from more competitive currencies in Poland, Romania, Bulgaria et al encouraging their nationals to
remain, the more likely outcome is they will be tempted to leave, and their most likely destination across the
SLM will be the UK. And I have little doubt the French will be well represented in this wave of new inflows just
as they have been amongst recent arrivals, as captured by the issuance of National Insurance numbers.
Chart 15: French National Insurance registrations
Chart 16: All National Insurance registrations
Source: Department for Work & Pensions, Toscafund
I have claimed above that the European Central Bank’s programme of Quantitative Easing will inevitably prove
forlorn. Let me elaborate. For one, the prevarication shown in performing it has undermined its effectiveness.
It has been further undermined by the austerity programmes pursued in tandem and IN CONFLICT with it.
Contrast all this with the UK, where rate cuts and QE were each performed in a timely fashion. For its part the
UK’s austerity has been tame when compared to what the Troika is demanding of Greece, Cyprus, Spain,
Portugal et al. And to repeat, the ECB’s QE will ultimately fail because it will soon come up against deflationary
currency shocks around the euro-zone's borders. It will be at that juncture that the financial cost of the UK
remaining will become clear. The reason is that the euro-zone's problems will then become the wider
European Union’s to fix, and we will not avoid carrying a considerable financial burden.
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19. The insanity of the ECB
The British economy performs impressively despite the perceived “uncertainty” caused by the EU referendum;
new car sales rising, consumer spending increasing and property demand robust against the backdrop of
strong job creation, more than four years after the Bank of England ceased to Quantitatively Ease. By contrast
the economies of France, Italy, and Spain et al., across the euro-zone are being stimulated by a potent
monetary cocktail. New car sales would not be rising across mainland Europe without this stimulus, or asset
prices supported. And make no mistake, just as we saw with Japan in the middle of the 1990’s with its NZIRP
(Near Zero Interest Rate Policy) and United States from 2008 with QE (Quantitative Easing), potent monetary
medicine performed too late or for too long can lead to dangerously toxic currency consequences.
From April 1995 the Bank of Japan was reduced to adopting a NZIRP, one which it was woefully late in
employing. As Japan’s pension and insurance firms saw their income on yen investments fall to near zero, they
carried their capital out of Japan into the yield available widely across Asia. For its part, the Federal Reserve’s
interminable QE programme from November 2008 inflated prices of Treasuries and US corporate bonds and
so forced dollars to journey extensively across Emerging Market economies drawn by their generous yields. In
both instances of this currency carry-trading, exchange rates were dislocated.
At first destination currencies strengthened. But as capital respectively left the yen and the dollar it not so
much stimulated destination economies as distorted them, releasing highly combustible monetary gases.
Eventually these detonated with currencies which had been the target of yen and dollars being blown-off
exchange rate cliffs. And just as sharp devaluations in neighbouring Asian economies sent Japan back into
deflation and recession so the same appears to have been happening in the US through 2016 in the aftermath
of the decision to begin tapering QE from late 2013 started a process of weakening currencies across the
emerging world.
Einstein once suggested the definition of insanity is doing the same thing over and over again but expecting a
different outcome. Be in no doubt the European Central Bank’s monetary cocktail of ZIRP and QE will
inevitably result in the same outcome as the earlier experiences of the Bank of Japan and US Federal Reserve.
In the ECB’s case the economies of Central, Eastern and Southern Europe are set to suffer marked
devaluations against the euro. Whenever this denouement comes is unclear (autumn 2018 is my guess) but it
WILL, and will bring with it an entirely new set of costly pains to ALL member of the European Union.
I mentioned earlier the robust new car sales and property markets in the UK were underwritten by an ever
stronger jobs market. I also made reference to the seemingly impressive strength in property prices and in
new car sales across mainland Europe, which I attributed mostly to QE and ZIRP. Let me consider specifically
the recent strength in Europe’s automotive market. Rather than strength in fundamental demand this has
reflected a surge in refinancing as drivers across the continent have been able to buy a new car taking out new
loans with an interest payment lower than that on their existing car. Whilst this has provided much needed
respite to the automotive industries of France, Italy, Spain and others, it has seen a glut in used cars for sale
and so sharp fall in car prices; new and used. In its efforts then to deal with deflation the ECB is, in effect,
deepening it. The ECB is quite frankly using pain killers which delay rather than do-away with the need for
invasive supply-side surgery. And the longer this delay goes on the more demanding the operation with have
to be.
For the record the IMF failed to predict what hit Asia in 1997 or the currencies of Emerging economies more
recently. That it chooses to mistakenly predict a Brexit recession and not disaster ahead for Continental
Europe, speaks volumes about its forecasting abilities.
As for the most recent of the barbed political comments being levelled at those in the UK keen to ‘Leave’, let
me say this to the French Economy Minister. I’ve only recently visited Guernsey. I could only wish that the
whole of the UK were to operate as that island does. Let me add that at a time when the French economy is
struggling with industrial unrest, is being evacuated by its prime aged adults and set to be hit by currency
shocks across Europe, his economy is better spent dealing with these real problems than the ones he imagines
will face the UK were we to ‘Leave’.
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20. Condemnable damned economic lies
It has been said that to ‘Leave’ the EU is a form of disloyalty, caprice and hubris. I see it as none of these;
instead to leave first is to lead from the front. Were we to leave I am convinced the UK would lead the way for
other member nations to realign themselves within the EU, and very possibly make their own escape from it,
and from outside negotiate a sovereign re-engagement with those who chose to remain.
By leaving, the United Kingdom would in effect become a talisman, lighting a flare path for others to follow. In
fact, a great many of those across the EU are not watching disapprovingly, as we seriously contemplate an
Exit, far from it. The reality is that many of our fellow EU inmates would be delighted if we made a break for it.
As I have said they would be delighted because we would be a pathfinder for their own prison break.
I am mindful that Swedes in particular are keenly watching what we do regarding the EU, and many are indeed
eager for us to ‘Leave’. After all it too has a sovereign currency and an economy which can boast a wide range
of keen customers beyond Europe. And like many of us across the UK, Swedes have come to challenge the
idea that being outside the EU is untenable; after all they only need to look close to home towards Norway to
see the nonsense of such a claim. Remaining within Scandinavia I am convinced that whether we ‘remain’ or
not, Finland's days are numbered within the euro-zone and very possibly the European Union; this number
lowered significantly if we do ‘Leave’ first.
Our leaving would also be welcome by many others across the European Union, not because it would allow
them to escape, but because it would relax the regime they would remain imprisoned within. I am thinking
here of the likes of the Greeks, who are once more living under a dictatorial and crippling economic Germanic
discipline. Now, whilst Greece was evidently guilty of a form of fiscal malpractice, we in the UK have consigned
debtors prisons to Dickensian history. For its part Germany has no such qualms against the harshest of
punishments for breaking their strict rules on thrift and parsimony. This brings be to three facts.
Chart 17: UK NI registrations from Greece
Chart 18: Australian migration from Greece
Source: ONS, ABS, Toscafund
First, whilst Greece spent beyond its means, it did so in large part on German imports; from an entirely new
airport for Athens to German engineered cars and electrical and electronic appliances. Second, much like
Philip Green and the Libyan Investment Authority, Greece was advised during its reckless years by Goldman
Sachs; the firm which is encouraging we ‘Remain’. Greeks much like Libyans and BHS workers and those
retired from its employment will hardly ever again be inclined to believe what Goldman Sachs claim. Third,
whilst Greece cannot escape the EU, prime-age Greeks can and most definitely are. In fact, an increasing
number of those across the EU agile enough to make their escape, are doing so, including urbane Parisians.
And as they do they Leave weakening economies and speed the pace of this decline.
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Chart 19: UK Employment and unemployment
Chart 20: No. of passenger Cars produced &export value
Source: ONS, Toscafund
It is telling that the latest set of labour market data should reveal an impressive decline in the unemployment
rate and a record high in the level of employment. It is telling because it flies in the face of those claiming the
UK economy has been struck down by referendum fever. In fact, data from car making and exports across to
new car sales has confounded claims our economy has been paralysed by the potential we might leave the EU.
And just as the UK economy has sustained growth into the referendum vote, as it did ahead of last year's
General Election and the Scottish referendum before that, so I am convinced it will continue to expand were
we to indeed ‘Leave’.
So then rather than feel a sense of guilt or irresponsibility from encouraging we Leave as a Briton of Greek
extraction I am proud to do so. Because if by leaving we trigger a set of events which help extract Greece and
Cyprus from their present penury within the EU, then I win on three fronts.
PS George Osborne is some athlete. He has after all leapt across yet another wide credibility gap. It is absurd
of him to suggest tax rises and spending cuts in response to a vote to ‘Leave’. The pound will fall, sure. This,
however, has no negative fiscal transmission mechanism, unless we have a Gilt shock. And that market has
been remarkably sanguine in the run up to the Referendum, and I am convinced will continue as such were we
to vote Leave. Moreover, since we cannot formally ‘Leave’ for an interregnum having voted out, we will not
lose Single Market access. Neither will we lose this access once we get a pro forma Deep & Extensive Free
Trade Agreement akin to the recent ones written – in very short order – to Ukraine and Turkey. What the EU
says it will do and how it would act in the event of Leave are quite different. So too Rolls Royce and so too
Goldman Sachs and so too...
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21. ‘Remain’ simply won’t wash
I have maintained that a great deal of what has been claimed concerning a UK vote to ‘Leave’ the EU has
involved imagination well wide of any possible economic reality. Since others have taken these flights of
fantasy, I see no reason why I shouldn’t also take an intermission from reality, in the form of a TV break.
I am particularly mindful of those classic TV ads where to prove product superiority our clunky pre-plasma
screens would be filled by a dinner plate one half of which it was claimed had been cleaned with the branded
washing liquid being promoted, and the other by a generic store brand. As viewers we could clearly see the
difference; pristine clean on one side, and the persistence of stubborn stains on the other. Simple stuff but it
made us believe in “Fairy’s”.
We’ve been told the UK is practically evenly split on attitudes towards the EU. Well, just imagine we could
divide the UK into two parallel post-referendum realities. Those wishing to ‘Remain’ could do so on one side,
and those keen to Leave on the other Each side could then test the veracity of ‘Remain’ and ‘Leave’ claims.
Such trickery is, of course, the making of “Mad Men”. All the same I have already come clean on which side I’d
choose to be in what has been a very dirty advert for the established order.
Let me close by turning my Wilde imagination to what one of my literary hero’s might have written
considering matters. Impertinent as it is to suppose he might have written, “Remain, when they are trying so
hard to keep you! My dear, Leave and see just how much harder their efforts to keep your affections”. I will
now finally Foxtrot, Oscar.
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-----------------------------------------------------------------STOP PRESS-----------------------------------------------------------------
I have been told repeatedly that it is surely better to be in a tent peeing out than peeing in. My response is
that when the tent is on fire, the best thing to do for all concerned is to step outside and pee onto it.
The ‘sage’ stayers Emma Thompson and Eddie Izzard claim “we need fewer borders, not more”. In the event
the vote is ‘Remain’, I take it they will open the electric gates and turn off the CCTV cameras to their many
homes so as to allow us all ‘In’ to celebrate.
The FT recently ran a leader “Vote Leave is damaging Britain’s political culture” I was particularly struck by its
blandishments towards HM Treasury, the Bank of England and its Governor. I wondered was this the same
Treasury which in 2010 was stripped of its forecasting responsibilities, because it had lost credibility with
‘markets’; these handed instead to the Office for Budget Responsibility? Stripped I need to add by the very
Chancellor who has recently called upon it to forecast the economic consequences of Brexit. Moreover was
this the same Bank of England which is failing to hit its mandated inflation target, forcing its Governor to write
apologetic letters to the same Chancellor who appointment him with such pleasure? And are these the same
two institutions which worked so hard at no inconsiderable cost to our foreign reserves, to keep us within the
EMU in 1992? I was just wondering whether there was some mix up in names.
Truly THE END
"If I speak, I am condemned.
If I stay silent, I am damned.
Who am I? Must I lie?
How can I ever face my fellow men?
How can I ever face myself again?"
This has truly been an experience of ‘Les Miserables’ proportions.
THE END
TOSCAFUND Discussion Paper
June 2016 EU Referendum Part III: Even MORE further Out
42
Toscafund Discussion Papers
Britain stands up – Better to exit European Union, February 2016
Britain’s Property Credentials – a report commissioned by the British Property Federation, January 2016
UK Private Rental Sector – Multi-Year Growth, July 2015
Prime Central London Residential Property, March 2015
The 2015 UK Election Outcome, January 2015
Growth of Britain’s Primary Cities, October 2013
Banking-on positive change in London’s property markets, 19 April 2013
Where in the world is this looming food price crisis? 1 March 2013
Britain’s Got Growth II: beating Germany on penalties, 17 January 2013
Seeing a quite different island in 20/20, 21 September 2012
Britain’s Got Growth, 31 May 2012
The building storm over Cyprus – Update, 18 May 2012
The Darkest of Greek Dramas: A Play for Survival, 16 May 2012
London 20/20 – Update, 30 March 2012
Update: Plotting North Korea’s path from regime-change to reunion, 20 December 2011
A Western Balkans crisis: A Europe wide problem, 2 November 2011
Plotting North Korea’s path from regime-change to reunion, 13 September 2011
Update: Scottish fiscal independence by 2015?, 13 June 2011
Cape Fear; South Africa’s chilling outlook, 18 March 2011
Scottish fiscal independence by 2015? 26 July 2010
Clouds darkening over Cyprus, 22 April 2010
Australia and Japan The best and worst of the G20, 26 March 2010
Who could possibly laugh through a Greek Tragedy? 8 February 2010
An employment outlook for London in 20/20, 13 January 2010
An A to Z journey into the economic future, 14 December 2009
An outlook for Canada & Mexico: Seismic Continental drift, 10 November 2009
Taking lessons in history, 5 August 2009
The REAL interest rate story, 20 July 2009
Toscafund Economic Papers
Issue 34 – An Encomium on Britain, mostly England
Issue 33 – Don’t get your Chinese order wrong – July 2015
Issue 32 – False Chinese Whispers – May 2015
Issue 31 – EXITSTENTIAL thinking, March 2015
Issue 30 – 2015, Thank you for reading, December 2014
Issue 29 – My grateful nation, October 2014
Issue 28 – UK housing issues and solutions, July 2014
Issue 27 – Scotland’s Special Issue, June 2014
Issue 26 – Just lots of boring words, May 2014
Issue 25 – Vive la difference, April 2014
Issue 24 – Europe in crisis again, as Britain stands out, March 2014
Issue 23 – It’s all just talk really, January 2014
TOSCAFUND Discussion Paper
June 2016 EU Referendum Part III: Even MORE further Out
43
Toscafund Asset Management LLP
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