Imagine you were Mrs Merkel. You are trying desperately to hold together a coalition of political parties in your own country while providing leadership to an equally wobbly coalition of European neighbours.
To your east you have a powerful country run by a kleptocratic elite which has interfered in the politics of some of the biggest global nations, which has invaded a neighbour and which has been running war games on your borders.
To your south you have a continent largely in the hands of corrupt and incompetent politicians or mired in war, leading tens of thousands of people to migrate towards your more stable lands. However your own people don't want them to come in.
Meanwhile some members of the European coalition have serious structural economic problems and nationalist parties are becoming popular.
A contributing member nation of the coalition has decided to jump ship, taking its contributions with it, after repeated concessions made to it (for example a rebate on its contributions and the option of not joining an 'ever closer union').
That nation has a government which is split into two factions vying for supremacy and has had to buy in support from a fringe party in order to stay in power. Populism, nationalism and even anti-democratic threats (such as demonising judges for upholding the law) are the common currency of the anti-EU media and politicians. The politician leading that nation's exit negotiation team is a member of that anti-EU group, a group that want to "have their cake and eat it", that talk about going into competition with their former allies. Many of the group are even Cabinet members - and the prime minister is captive to them.
You need to decide how to manage the exit, causing as little damage as possible. Would you give up all the goodies they demand and hope to sort out the hard things later? Would you even believe the promises of such a government?
If you look at Brexit from the EU's point of view it is no wonder they want to leave the trade deal till everything else is sorted.
Thursday, 24 May 2018
Wednesday, 23 May 2018
The pound in your pocket
The pound is slipping again. Inflation is above 3% for the first time in six years. Mrs May looks weaker and more unstable by the day. Two cabinet ministers recently resigned within days of each other. Inflation is still high, affecting food prices in particular.
GDP fell by 0.1% per capita this year. Mortgage approvals are down, investment is down. Is this the new normal, or just a blip? What is the outlook over the next few years?
Growth forecasts are being revised upwards for most rich countries - including the euro zone. Meanwhile UK growth has been revised downwards again, creeping up to only 1.3% in 2020. Even more of a concern is that even that 1.3% assumes that we will continue to have high levels of immigration and will remain in the single market. Neither seems likely right now.
So we need to tighten our belts. Consumer spending is at its lowest in five years, with a third of people expecting their finances to worsen. Five million households will be paying another £5 a month for their energy, as Ofgem raises the price cap by 5.5%. More and more families with at least one working member are now living in poverty - 8 million people at the last count. Put another way, that is 57% of all Britons who are living in poverty.
Austerity also means havinng to accept a shorter lifespan: Austerity kills people. 120,000 more people than expected died between 2010 and 2017 due to NHS cuts.
Mrs May hasn't fulfilled her promises to help the 'just about managing' (JAMs), instead they are quickly becoming the 'not quite managing' (TOAST). Instead of fighting the 'burning injustices' she has speechified about, she is making them worse. Her board of social mobility commissioners have recently resigned en masse - every member - because all they hear from the government is rhetoric and they see no action being taken.
We still don't know how leaving the EU will affect the economy in detail, even after the government was forced to release its studies. After much dragging of feet Mr Davis finally released them - admitting that his department had spent three weeks blacking out all "market and negotiation-sensitive information".
Studies by pro-Brexit economists assume other countries will give us everything we want and that extreme policies can be imposed in the UK without a parliamentary approval. It is telling that their favoured model is authoritarian Singapore.
The only reasonable predictions we have say the economy is going to suffer a long-term loss of growth no matter how leaving is managed, while the IMF expect the pound to drop another 15% if we don't sort the details out pronto, with the pound likely to fall to parity with the euro.
The good news is that the EU no longer worry that we will slash taxes and regulations in an attempt to win trade.
We can't afford to.
GDP fell by 0.1% per capita this year. Mortgage approvals are down, investment is down. Is this the new normal, or just a blip? What is the outlook over the next few years?
Growth forecasts are being revised upwards for most rich countries - including the euro zone. Meanwhile UK growth has been revised downwards again, creeping up to only 1.3% in 2020. Even more of a concern is that even that 1.3% assumes that we will continue to have high levels of immigration and will remain in the single market. Neither seems likely right now.
So we need to tighten our belts. Consumer spending is at its lowest in five years, with a third of people expecting their finances to worsen. Five million households will be paying another £5 a month for their energy, as Ofgem raises the price cap by 5.5%. More and more families with at least one working member are now living in poverty - 8 million people at the last count. Put another way, that is 57% of all Britons who are living in poverty.
Austerity also means havinng to accept a shorter lifespan: Austerity kills people. 120,000 more people than expected died between 2010 and 2017 due to NHS cuts.
Mrs May hasn't fulfilled her promises to help the 'just about managing' (JAMs), instead they are quickly becoming the 'not quite managing' (TOAST). Instead of fighting the 'burning injustices' she has speechified about, she is making them worse. Her board of social mobility commissioners have recently resigned en masse - every member - because all they hear from the government is rhetoric and they see no action being taken.
We still don't know how leaving the EU will affect the economy in detail, even after the government was forced to release its studies. After much dragging of feet Mr Davis finally released them - admitting that his department had spent three weeks blacking out all "market and negotiation-sensitive information".
Studies by pro-Brexit economists assume other countries will give us everything we want and that extreme policies can be imposed in the UK without a parliamentary approval. It is telling that their favoured model is authoritarian Singapore.
The only reasonable predictions we have say the economy is going to suffer a long-term loss of growth no matter how leaving is managed, while the IMF expect the pound to drop another 15% if we don't sort the details out pronto, with the pound likely to fall to parity with the euro.
The good news is that the EU no longer worry that we will slash taxes and regulations in an attempt to win trade.
We can't afford to.
Monday, 21 May 2018
Policing immigration
Overall there are now 2.29 million EU citizens working here, and 1.25 million from other countries.
Net immigration has dropped to 230,000 - down 106,000 from the previous year. Most of this fall (82,000) was due to more EU citizens departing than coming over - 123,000 EU citizens decided to leave while only 230,000 arrived, mostly due to the declining value of the pound and the uncertainty around Brexit.
This reduction in arrivals is very good news for our Border Force, which can't even cope with our non-EU visitors. A recent inspection report said, "We are alarmed about the impact that inadequate resources are having on Border Force. This is a system which has not functioned properly for years, in large part due to insufficient staffing."
The number of full-time staff has been reduced year on year. Border Force now relies upon partly-trained seasonal staff at Gatwick and Stansted airports. The Irish border is policed by a total of 57 officers, who have to cover four sea ports, three airports and the land border. If a hard border is created then who is going to police it?
Meanwhile Mrs May is insisting on not one but two separate systems for registering EU citizens - one for the ones already here, and one for any new arrivals. She wants the new, parallel systems to be up and running by March next year. Oh, and the Home Office also needs to create a post-transition immigration system - its details haven't even been specified yet.
The Home Office has said that work on this new system has barely begun and it will almost certainly not be ready in time. They already have their hands full with preparing for a tripling of visa applications once free movement is banned. Last year they issued 164,000 visas to non-EU citizens. Once EU citizens need visas then the Home Office will have 400,000 to deal with each year.
Looks like the NHS won't have a chance at the £350 million the Brexiteers promised.
Net immigration has dropped to 230,000 - down 106,000 from the previous year. Most of this fall (82,000) was due to more EU citizens departing than coming over - 123,000 EU citizens decided to leave while only 230,000 arrived, mostly due to the declining value of the pound and the uncertainty around Brexit.
This reduction in arrivals is very good news for our Border Force, which can't even cope with our non-EU visitors. A recent inspection report said, "We are alarmed about the impact that inadequate resources are having on Border Force. This is a system which has not functioned properly for years, in large part due to insufficient staffing."
The number of full-time staff has been reduced year on year. Border Force now relies upon partly-trained seasonal staff at Gatwick and Stansted airports. The Irish border is policed by a total of 57 officers, who have to cover four sea ports, three airports and the land border. If a hard border is created then who is going to police it?
Meanwhile Mrs May is insisting on not one but two separate systems for registering EU citizens - one for the ones already here, and one for any new arrivals. She wants the new, parallel systems to be up and running by March next year. Oh, and the Home Office also needs to create a post-transition immigration system - its details haven't even been specified yet.
The Home Office has said that work on this new system has barely begun and it will almost certainly not be ready in time. They already have their hands full with preparing for a tripling of visa applications once free movement is banned. Last year they issued 164,000 visas to non-EU citizens. Once EU citizens need visas then the Home Office will have 400,000 to deal with each year.
Looks like the NHS won't have a chance at the £350 million the Brexiteers promised.
Sunday, 20 May 2018
What are we rushing into?
What are we rushing into? Does Mrs May know?
Security
We have been paying the French £62 million a year to provide security at Calais. The Home Office has now agreed to increase the payments by tens of millions of pounds. We are also negotiating a new contract for Channel Tunnel security - the likely cost is £80 million a year.
These agreements allow British police to work in Calais, preventing illegal immigrants from even travelling to the UK, so overall they should still give us a net saving. Mr Macron has considered scrapping the deal but is willing to continue with it if Britain pays more.
Medicine
The European Medicines Agency has left London for Amsterdam, the European Banking Authority has gone to Paris. That's over 1,000 highly-paid jobs gone already - and we have to pay for moving them, including £500 million to sort out a botched rental contract. Not only that, we need to sort out our replacement for the agency - or do we just accept EU regulation?
Finance
The UK deals with 90% of all clearing of euro-denominated derivatives. European regulators want to in-house this once the UK leaves the EU. Frankfurt's Eurex is their alternative. The European Central Bank has already tried this once in 2015 but EU judges stopped them. Post-Brexit all the European Commission need do is make clearing houses legally obliged to reside in the EU.
Frankfurt has managed this once before - in the 1990s they took over managing German bond futures from London.
Regulated financial companies can't wait any longer to find out what will happen in a few months time. Over half are starting to put their contingency 'no deal' plans into action. This will mean up to 10,000 jobs moving abroad.
Advertising
The UK exported £5.8 billion worth of advertising services in 2016 making it a magnet for overseas talent, which in turn drives more exports. This positive feedback will be lost unless we remain open to talented workers settling here. And it isn't just advertising - all export-heavy industries compete on the world stage and need top talent to do this.
Industry Investment
Unilever has announced it is upping sticks completely - it is moving its legal home to Holland after nearly 90 years. Other companies are holding off on investment in the UK - and it is the most successful that are the most pessimistic. Without investment the UK's productivity - already woefully low - will keep falling, which will mean wages will be squeezed.
Exports
The UK has around 70,000 small companies which export only to the EU. They have never had to deal with customs forms or delays. If we end up under WTO rules (as Brextremists want) then customs red tape will cost £27 billion a year. Even a customs union will impose costs of £17 billion a year. The companies' best strategy is to improve their productivity so as to cover the increased cost. Employees will have to make more if they want to keep their jobs, but there won't be any pay rises.
Security
We have been paying the French £62 million a year to provide security at Calais. The Home Office has now agreed to increase the payments by tens of millions of pounds. We are also negotiating a new contract for Channel Tunnel security - the likely cost is £80 million a year.
These agreements allow British police to work in Calais, preventing illegal immigrants from even travelling to the UK, so overall they should still give us a net saving. Mr Macron has considered scrapping the deal but is willing to continue with it if Britain pays more.
Medicine
The European Medicines Agency has left London for Amsterdam, the European Banking Authority has gone to Paris. That's over 1,000 highly-paid jobs gone already - and we have to pay for moving them, including £500 million to sort out a botched rental contract. Not only that, we need to sort out our replacement for the agency - or do we just accept EU regulation?
Finance
The UK deals with 90% of all clearing of euro-denominated derivatives. European regulators want to in-house this once the UK leaves the EU. Frankfurt's Eurex is their alternative. The European Central Bank has already tried this once in 2015 but EU judges stopped them. Post-Brexit all the European Commission need do is make clearing houses legally obliged to reside in the EU.
Frankfurt has managed this once before - in the 1990s they took over managing German bond futures from London.
Regulated financial companies can't wait any longer to find out what will happen in a few months time. Over half are starting to put their contingency 'no deal' plans into action. This will mean up to 10,000 jobs moving abroad.
Advertising
The UK exported £5.8 billion worth of advertising services in 2016 making it a magnet for overseas talent, which in turn drives more exports. This positive feedback will be lost unless we remain open to talented workers settling here. And it isn't just advertising - all export-heavy industries compete on the world stage and need top talent to do this.
Industry Investment
Unilever has announced it is upping sticks completely - it is moving its legal home to Holland after nearly 90 years. Other companies are holding off on investment in the UK - and it is the most successful that are the most pessimistic. Without investment the UK's productivity - already woefully low - will keep falling, which will mean wages will be squeezed.
Exports
The UK has around 70,000 small companies which export only to the EU. They have never had to deal with customs forms or delays. If we end up under WTO rules (as Brextremists want) then customs red tape will cost £27 billion a year. Even a customs union will impose costs of £17 billion a year. The companies' best strategy is to improve their productivity so as to cover the increased cost. Employees will have to make more if they want to keep their jobs, but there won't be any pay rises.
* * *
We can deal with these issues. It won't be easy and we will be poorer, at least for a while. However if we are going to make it long-term then it is vital that the government gets its act together, decides what Brexit will actually look like and then prepares the UK properly for it.
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