Brexit Redux

Brexit Redux

by Pininvest Analysis

British Companies all US listings on pininvest.com

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Check the investment theme exit_to_app

Pin-insights

Covid-19 brings down certainties about of economic wellbeing and human progress, driven by sophisticated supply chains securing high value in the advanced segments of the national economies

Politicians relied on the confident assertion that economic riches would spread without hiccup, bringing ever more consumers into the fold of business titans from America, China and Europe

The frailties of exchange have always been balanced by trust and common interest, the immaterial glue of globalized trade … and both have now come under viral attack

Truly unexpected, covid-19 lays bare how elusive trust between nations really is and how ambiguous our sense of common interest

Which puts Brexit in a bind… not only because policies in viral times are uniquely defensive, but also, more strategically, because ‘Britannia’ riding high on technology and free markets, freed of European rules, targeted the global economy as its preferred playing field

Always optimistic and short on actual promise, Brexit visionaries may have to contend with a pipedream for years to come

What now?

 

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When confronted with realities putting paid to whatever confident assertion the speaker had voiced previously, the French idiom of ‘“Manger son chapeau” – to eat your hat – is final, though hard both in practical terms and on one’s self-esteem

The saying appears to be derived from the English idiom  “I will eat my hat if…” and, in another flight of cross-Channel misunderstandings, implies great confidence about a future outcome, with possibly just a whiff of smugness in the certainty of being right all along, without having to eat hats, ever…

Leaving – of course – the last word to Belgian surrealist painter René Magritte

by R. Magritte - source Lou Gary

The English saying might resonate in a somewhat different manner under the cloud of uncertainty shrouding actual implementation of Brexit, while the world is engaged in the most global effort since WWII, against a viral assault which does not know of borders

Could it be that Mr Johnson and his government will be “eating humble pie” after all ?

It is true Melton Mowbray pork pies are definitely more digestible that top hats…

 

credit Daily Mail

 

Confronted with a real virus

Ideologies have a way of sounding cheap, laying out their hollowness for all to see

Politicians usually manage to paper over the promises that got them elected when circumstances change, as they always do

However, when grand-standing has become the trademark of a political party, when the certainty of a bright future is conveyed with god-like arrogance, when fallback policies are deliberately ignored as wet alternatives to a unique truth, it becomes hard to paper over the idiomatic hat

This is where the British government is at

In a probably vain attempt to wiggle through, Prime Minister Johnson has chosen to downplay the risk of the virus running havoc across the globe because the naked truth unveiled suddenly is just too much to contend with

Anatomy of a killer - source the Economist

The risk is mounting, both for the health and safety of the British population and for the economy

What makes the new reality both inescapable and insufferable is the multipronged impact on every aspect of the policies which got Mr. Johnson elected

 

Of sovereignty in viral times

Foremost, ‘regaining’ British sovereignty (a title no one ever questioned) in the caricature drawn by the political parties supporting departing from the European Union proves to be a falsehood

Conceived by a band of ideologues eager to ride national identity for all it is worth, the supposed loss of sovereignty implied an all-or-nothing choice, great in terms of propaganda and worthless in practice

Already true for prospective trade negotiations with its main partner, the European Union, defense of a ‘sovereign’ nation turns out to be absurd when collective security, data exchange and fight against terror all play out on a global scale

All of which was tabled before the recent virus outbreak and the British government actually made security and exchange of information a gambit in the coming negotiations, a misguided ideological tactic, to put it mildly

The virus outbreak has been clearing the board in a way, none of the parties to UK-EU negotiations could have anticipated

Ideology has always had a way of soldiering on and undoubtedly Brexit-believers will keep muttering about safety behind national barriers but the population at large will have none of it as the virus with its trail of deaths spreads

Driven by public awareness of the danger, the British government will attempt to mix national sovereignty with a whiff of collective – European – policy, in matters regarding health information, trade safety and vaccine research

It will be up to the UK’s European partners to show how the collective interest does not infringe on sovereign interest of each nation in the Union and to build on the trust flowing from reciprocity in times of need

Difficult challenge, no doubt, and the European Commission has its work cut out

If only the UK government’s challenge went no further, one might just conceivably keep the storied ‘sovereignty’ whole at the cost of some minor compromises by doubling down on a resilient national identity in times of need

 

Shared economic hardship

It is hardly likely the UK will escape the recession sending shockwaves across the world, which the national governments hope to fend off with hundreds of billions of euros and dollars…

The ink on the budget announced by the new Chancellor of the Exchequer, Rishi Sunak, has not had time to dry before being entirely upended by the urgent need to bring respite to entire business sectors which are very much dependent on European trade after all..

On March 11th, the Chancellor announced large scale fiscal loosening – with £12 billion in immediate virus-related spending, £18 billion in other spending and essentially a blank check to cover whatever is needed by the National Health Service (NHS)

 

If the magnitude of support required by current business is as large as German and French governments believe, running into the hundreds of € billions, the UK budget will continue to reverse course, with net public sector borrowing already on course to double from last year’s projections and deficits through 2024 revised up by more than 1% of GDP

With more to come, presumably….

 In the circumstances, one wonders how the promises to launch new business opportunities and infrastructures in the Northern constituencies, seduced by the shiny future of the Conservative manifestos, will be met

While sovereignty is conceptually a big tent lending itself to many compromises, this is hardly the case when regional development is at stake

The successful electoral strategy of the Conservatives – taking on traditional Labor seats with optimistic claims to reverse long-term economic and social decline – may have been sensible, though hardly creative

A bridge, a road and new jobs exist or they do not … making fudging hard

In a recession, marginal economic areas can be expected to take the hardest blows and confidence in political promises hit a new low, exposing the Tory majority to a stormy backlash

Regarding the much discussed and largest investment public investment of the decade – the 345 mile high speed (HS2) line from London to the north of England at a cost which ballooned to more than £100 billion but with promises of great economic benefit for the cities on the route – no decision has been announced but further postponement by a newly elected government portends dire news...

UK growth, concentrated on London, might remain as unbalanced as ever

The northern and western areas of the country are waiting

 

Brexit Braggadocchio

Braggadocchio, a minor character of ‘the Faery Queene’, an English epic poem by Edmund Spenser, published in the 1590’s and honoring Queen Elizabeth I, is a comic character who is also an empty, vainglorious braggart

The character might reflect on the forthcoming Brexit negotiations, the product of a pompous, hollow and mostly irrelevant ideology well past its prime in times of viral health crisis

Empty and vainglorious indeed…

While economic commitments, unrealistic in the circumstances, cannot be laid at the doorstep of the Conservative government, the same cannot be said of the presumptuous post-Brexit negotiating positions put forward a few weeks ago, which will turn out to be no less dire for Tory credibility

Successive UK governments have repeatedly underestimated the relative importance of the UK’s departure from the Union: paramount for a divided British people, the decision to leave has early on been cast as an incontrovertible fact by Brussels, another unfortunate occurrence marking the Union’s history

Damage control has been the order of the day for the European negotiators since 2016 and would have remained the ground rule, if the virus attack had not led to a fundamental reversal in priorities

Of course, the time limit set unilaterally by the Johnson government to year-end 2020 has been greeted with dismay – unfeasible in the best of times when the expert opinions on both sides of the Channel project a multi-year process, the limit will be first to go out the window

While obviously impractical following cancelations of the March meetings between both teams, the reversal of Mr. Johnson cannot expect a friendly hearing after much bragging from his government, mostly for domestic supporters of course but still borderline insulting for the EU negotiators

Backpedaling will not do and Europe can be expected to put paid to time-limit posturing altogether

And this is just the premise of a negotiation

Failure has been laid down early on as a possibility, in part as a negotiation ploy but also because the cost of a “no-deal” was perceived as low

After all, as the argument goes, the December withdrawal treaty averts a hard Irish border and covers sensitive immigration issues of EU and UK citizens

This may well have been true in macro-economic terms, ignoring wistfully vulnerable sectors such as agriculture (lambs exported to France) and fisheries (selling most of their catch on the European continent) and the complexity of industrial supply chains (automotive and aerospace, among others)

To soldier on, as the most committed ideologues are likely to do, one must assume the viral assault will fade, supply chains will be restored, trust and common interest unblemished

And the future of the United Kingdom, welcomed in the major league of world economies and booted by a generous trade deal with the United States, will shine bright

Maybe…

Governments are entitled to their share of dreams but, confronted by political reality, a slice of Mowbray pork pie might come in handy