The news flash is almost three years old. The citizens of the United Kingdom voted on June 23, 2016, in a plebiscite to withdraw from the European Union. The UK exit was legally scheduled to take place on 29 March 2019 at 11 pm UK time. Don’t hold your breath.
By James Dale Davidson,
That deadline is upon us, and there is no agreement in place to specify the terms of withdrawal.
What to make of it?
The distinguished British commentator, Alastair Crooke, sees the inability of the May government to negotiate suitable terms for a minimally disruptive Brexit as an inevitability arising from German aversion to inflation. He illustrates:
“The economic aspect to today’s pan-Europe economic discontents, however, reaches back to Germany’s traumatic experience of the inter-war hyper-inflation, to the Great Depression of the 1930s, and to the social erosion to which it led. To exorcise these ghosts, Germany deliberately painted the EU into an automatic system of austerity ‘discipline, enforced through a German-surveilled, Central Bank (the ECB)….
“And here lies the kernel of the crisis. There has been a call from all sides to try something different: such as relaxing the fiscal rules that are destroying public services or touching the ‘live wire’ of reform of the financial and banking system.
Moreover, here is the rub: All such initiatives are prohibited in this locked-down treaty system. Everyone might think to revise those treaties, but that is . The treaties are untouchable, precisely because Germany believes or says it believes that to loosen its disciplined hold over the monetary system, will be to open Pandora’s Box to the ghosts of inflation and social instability arising, to haunt us anew.
The reality is that the European ‘lock-down’ derives from a system that has wilfully removed power from parliaments and governments, and enshrined the automaticity of that system into treaties that can only be revised by extraordinary procedures. No one in Brussels sees any prospect of ‘that’ happening – hence the Brussels ‘record’ is stuck: repeating the mantra of ‘There Is No Alternative (TINA) to more, and closer, Euro-integration.
So, a deadlocked system stands in direct collision with a widening insurrection against a Euro-Reichstaat, and against the inequalities and social fragmentation inherent in a hyper-financialised world.
“Can the EU reform? Can it survive? The options are difficult: If the rest of Europe cannot survive the Bundesbank ‘lock’ on the Euro, then the obvious solution would be for Germany, and its export-surplus allies, to leave. However, who can force the German Establishment to yield up such a clear and present benefit? Draghi’s replacement as head of the ECB is likely to be another Bundesbank nominee. And the paradigm of a hyper-financialised, fiat credit-led, the world is not just the creation of Europe. It is embedded in the US too. The EU marches in step with it, and its beneficiaries intend to claw-down all who threaten it.
“Yet the ‘insurrection’ will not simply fade away. The deep sense of growing inequalities is matched only by popular fears of community ‘safety-nets’ that have been dismantled, and of the insecurity of living perpetually at the cusp of economic extinction. The EU official intolerance merely exacerbates the polarisation and increases the anger.
Some view Brexit as an ‘outlier’ to EU disorders -- that it simply reflects British insularity, and may be disregarded. However, they would be wrong. It is one fraught episode to what is set to be a ‘long war.’ The next chapters are already clear: Les Gillets Jaunes in France, La Lega in Italy, the AfD in Germany, the May MEP elections, the Visegrad group, Vox in Spain, etc. Brexit merely is the canary in the mine shaft, warning of coming danger. The counter-revolutionaries (as in Britain) are determined to crush all insurrection: It will be highly fraught.”
What happens next?
Tom Luongo points out the markets have been telling us what to expect: “The markets have been subtly telling us for months what they want. The British Pound has been strengthening versus the euro since the day the treaty agreed to by Prime Minister Theresa “The Gypsum Lady” May was rejected by parliament.” The pound stands to be volatile in the next little while, as Mrs. May’s Brexit deal, (already defeated twice by historically wide margins) is rejected for the third time, and pressures on May to resign increase.
I would not be surprised to see May resign. After markets settle, we may have a good opening to purchase sterling in a spread against the euro. There is strong evidence that the Euro Zone is headed for a recession/debt crisis that seems likely to shake loose some of the centralized binds on European economies. Stay tuned for a trading opportunity, long sterling/short the Euro.