Daily Archives: June 29, 2016

Selling England by the Pound

“Can you tell me where my country lies?”
said the unifaun to his true love’s eyes.
“It lies with me!” cried the Queen of Maybe
– for her merchandise, he traded in his prize.

“Paper late!” cried a voice in the crowd.
“Old man dies!” The note he left was signed ‘Old Father Thames’
– it seems he’s drowned;
selling England by the pound.

Citizens of Hope & Glory,
Time goes by – it’s the ‘time of your life’.
Easy now, sit you down.
Chewing through your Wimpey dreams,
they eat without a sound;
digesting England by the pound…

I found the title of one of the early Genesis masterpieces particularly appropriate today. It was a long time ago, but I must have listened to the music at least a hundred times. Peter Gabriel, the unequivocally Brit lead singer and flutist, who was to leave the band months after the promotional tour, suggested the title and wrote the lyrics -as (nearly) always was the case. It is a metaphorically loaded lament on the destruction of the UK’s cultural heritage. At the time, the “enemy” was Americanization -but it could very well have been directed against Germanization or Europeanization nowadays. Colossal singing for the first two minutes, followed by impeccable, but somewhat aged, British-flavored homemade rock.

The “Brexit” referendum victory was hardly a smart voteBut it was a wise vote -even if entirely for the wrong reasons. Populism, Xenophobia, Class war, and tabloid supported nationalism implicit in headlines like “I beLeave in Britain”, are hardly desirable drivers for any vote, and those emotions were key to the outcome. Of course, if you are on the lookout for some evidence of voter wisdom, it pays to remember that famous Churchill quote about the main argument against democracy (a five-minute conversation with the average voter).  That is what democracy has to offer, and it is not a prerogative of the UK voter. Look at your own country for more of the same. Democracy is one of our global problems. Up to now, nobody has come up with a palatable solution.

Some more pain is still to come, and the City has been placed in the proverbial spot between a rock and a hard place. But it was, nevertheless, a wise long-term vote. I can cite two basic motives (that most standard UK voters are not even aware of) to support the “wisdom” epithet.

In the first place, the EEC is a sinking ship, and the euro disaster that must take fault as the main cause for the inevitable shipwreck is undoubtedly not Britain’s responsibility. So, why should they tie themselves to the ship deck and go under for something they were not even a part of. The euro is a huge Ponzi scheme where exporters lend importers the money, in exchange for keeping the buying up. Everybody is happy in the short run, but layers of irredeemable debt accumulate, until the total bankruptcy of the system. You are better out of that as soon as possible. Yet it is understandable that it makes the rest of the players uneasy about their own exit before it crumbles. Still, you want to go before the vortex of the sinking ship sucks you down with it. It is not an act of cowardice, but rather an act of prudence.

20160615_out1Brits did not suggest the euro, and never wanted anything to do with it -or with the credit boom and the macro disequilibrium, it generated in the periphery. And they did not profit from it either. If anything Sterling’s PPP has always come up as expensive relative to the euro cross, for the last couple of years. That shows in their trade balance -showing a deficit not far from 5% of GDP in their trade with the rest of the Union. They not only refrained from begging any of their neighbors, but are being used by their neighbors as a convenient goods market (services, and particularly financial services, are another matter).

Decoupling and navigating away from the Eurozone is a wise financial move. The Club Med countries are a postponed bankruptcy (they were a basket case long before that anyway). It makes sense to move away, annoying as it must be for Germany -that would like others to share the problem of financing the subsidies in the south. Why should Brits cooperate? After all, it is Germany’s interest to maintain their export markets, and preclude an episode of abundant German Banks going under together with the periphery bust. Think Deutsche Bank. Continue reading