Briefing: #Article50 and #BlackWednesday

Today Theresa May pulls the Brexit trigger. Read all about what this means for markets following the links below.

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Articles

  1. Grexit, Brexit και τα παραμύθια (23.3.17) The Huffington Post in Greek
  2. No-Deal Brexit And Fear (17.3.17) The Huffington Post
  3. The City of London is preparing for a hard Brexit (19.1.17) Newsweek
  4. How Eastern Europe is best placed to hit the ground running after a hard Brexit (15.12.16) The Conversation UK
  5. #Marmitegate: what the tumbling pound means for our favourite products (13.10.16) The Conversation UK
  6. Why TTIP will live on, but not for the EU (30.6.16) The Conversation UK

Media

  1. 10.16 Guest on BBC Radio 4 Today Programme, speaking about Brexit (listen here
  2. 06.16 Guest on ΣΚΑΙ radio, speaking about Brexit -in Greek- (listen here).
  3. Horror Show: Brexit unleashes a political nightmare (1.7.2016) Raconteur Magazine,

@iGlinavos

#Article50 and the end of the beginning

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Theresa May is finally ready to cross her Rubicon by notifying the EU of Britain’s intention to leave the Union, using the famous Article 50 process. Brexit minister David Davis told us last week that the possibility of a no-deal Brexit is not as frightening as some people think. Think about it this way, currently one can go online and order a fancy desk lamp from a French company and pay the price plus postage. If the lamp was coming from the USA however, customs duties will need to be paid by the customer (5.7%) once the goods have arrived in the UK but before they are delivered. She will also be charged import VAT at 20% and there will be a £8 handling fee to pay. The consequence is that buyers may well seek a domestically manufactured lamp instead. Wouldn’t this be a great thing for local manufacturers? It might, but it is likely that the domestic lamp manufacturer would incur similar charges when importing components to make their lamps. Further, they will find it more expensive to sell their lamps in Europe. Selling on WTO rules necessitates having appropriate licences and making export declarations to customs and following transport procedures. Increased demand from local customers will be probably offset by increasing costs of manufacture and a loss of market share in Europe. Mr Davis may not scare as easy as the consumers and businesses who will suffer the consequences. Brexit is happening regardless.

To summarise, we can say the following: Theresa May has selected two avenues for achieving Brexit. One is a so-called hard-Brexit (exit from the Single Market and the Customs Union) while the other is a presumed ‘no-deal’ Brexit (trade with Europe thereafter will be governed by WTO rules). Both options raise a series of significant dangers for the British economy, and crucially present a formidable challenge to the Treasury. The City has indicated that continuing business in London will require significant tax cuts as compensation for the loss of ‘passporting rights’ in the case of a hard-Brexit. Alternatively, a ‘no-deal’ fall back on WTO rules will cause significant upheaval to manufacturers, necessitating state aid to a number of industries. How will the Treasury fund either (or both) remains a burning question.

Good luck to all of us.

Art50

@iGlinavos

 

 

 

IMF and Greece, the breakup

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The IMF has been on its way out of the Greek Rescue programme for a while now.

The band-of-bandits of Mr Tsipras is getting ready to celebrate ousting the IMF. Before you join in the dance in Syntagma Square, listen to my podcast on what the IMF is, what it does and what it did (and did not do) in Greece.

This is a February 2017 lecture on what the IMF is and what it does. The discussion on the role of the IMF in Greece is from 44’30” onwards.

Enjoy and feel free to comment using the discussion options in this post.

@iGlinavos

A message of hope for 2017 from Greece

Did you enjoy 2016?

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Pretty much everyone I met who is not Greek and does not visit Greece regularly has had the same question for me in 2016: “So, how are things in Greece, its quiet now, no? Better?”.

This post answers this question (if you were minded to ask) but also unexpectedly carries a message of hope in these dark times, a little indication of how 2017 might be the beginning of a recovery for Europe (at least) despite the annus horribilis 2016.

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How are things in Greece? I think the closest parallel is drowning in quicksand. So long as you don’t move, nothing gets better. If you try and move, you sink a little deeper.

Syriza’s government has been a circus of horrors, whichever way you look at it. Since they took power in 2015 (as has been well documented in this blog) they have lurched from one disaster to another, from one conflict to another, from one (endless) ‘negotiation’ to another. They have achieved a series of ‘political solutions’ which is code for defeat and capitulation. They have interpreted the demands of Greece’s creditors in the most destructive and senseless manner, to the degree that even the IMF thinks the country is dying, stuck in a mire of growth chocking measures.

Most of the time Syriza has done nothing to improve the situation in the country (staying put in the quicksand). Some of the time (usually after botching another round of ‘negotiations’) they have legislated a new raft of fiscal measures (wiggling in the quicksand and sinking a little deeper).

Nothing has improved in Greece and nothing is changing for the better. My answer to my earnest enquirers is that Greece continues to sink as people slowly eat away any left over cash saved before the crisis. This is not to say that some have not benefited. Syriza friends and family are finding jobs in new PM’s offices. Syriza journalists are being hired at resurrected ERT. The party goes on for the few, for a little while longer. Far-right lunatics (forming the junior coalition partners) continue to bless fighter jets, while police cars cannot move for the lack of fuel. There is ample comedy, within the tragedy.

No, things are not improving in Greece.

So where is the message of hope for 2017 the headline to this post advertises?

Greece has been one of the first places where the wave of populist lies and ‘anti’ propaganda led a band of bandits to power. Greece pioneered the escape to fantasy in 2015, proudly followed by the British people electing to torch their economy through Brexit and the Americans electing to have a stab at torching the world by voting for Trump.

As the first piece of this puzzle of a (often farcical) rerun of the 1930s, Greece may be a good place to speculate on possible futures.

I had argued in 2014, mistakenly believing that those who speak nonsense and act crazy are putting on a show to excite the mentally handicapped sections of the electorate (I was wrong, they are stupid, devious and crazy), that a failure for Syriza would leave the political system in such a sorry state, the electorate would lurch further to the extremes after having witnessed the failure of both establishment parties and their populist antagonists. Who would benefit? Golden Dawn, the Greek neo-nazi (but fat and hairy) variant was first in line.

Alas, this does not seem to be happening. The failure of Syriza to drag Greece out of the quicksand is shifting support to traditional parties, like New Democracy (under its new centrist leader Mitsotakis). Syriza’s antics have served to demystify the idea of the ‘left’ as morally superior. Tsipras has laid bare for all to see how what he leads is not ‘the left’ but a group of opportunist, amoral, ignorant and incompetent power-hungry populist have-beens. Even a population as jaded as the Greeks, after 6 years of crisis, realise that the ability to govern and a broad plan (even a Euro-friendly one) is better than banditry and chaos lorded over by power-mad buffoons.

And here is the message of hope for 2017. After the populist experiment has failed, people can come back from the populist abyss. Perhaps the explosion of discontent that brings the sewer to power dissipates after the experience of governance via populists. Perhaps even the attempt to blame ‘others’ for failure won’t convince people who suffer the consequences of bad decisions.

I admit that things look bad at the moment for Europe and the world. There is a chance however that in 2017, Germans will trust Angela Merkel with another term, ensuring continuity for the European project. The French could return a mainstream president (anyone but Le Pen), thus ensuring the stability of the Euro, The Italians could keep at bay the populist buffoonery of Beppe Grillo.

Britain may ameliorate its Brexit experiment in self-harm.

Unfortunately, the Americans cannot help us here, as Trump is entitled to run a world-wide, real-life version of the Apprentice for 4 years. If the world doesn’t end on his account, we may look back at 2017 as the year that things came back from the brink.

They might. Considering the alternative, they must.

Cheer up and enjoy your mince pies.

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@iGlinavos

The consequences of Brexit

Since 2016 I have been writing on the potential consequences of Brexit. Before the referendum, the aim was to inform the public of the dangers ahead, were Leave to prevail. After the referendum, the aim is to steer policy away from a hard-Brexit.

After Theresa May confirmed she is after a Hard Brexit, I wrote an explanation of what this means for the City, and by consequence the country.

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The prospect of Brexit is already making every wage earner in Sterling poorer, as explained in my Marmitegate piece for The Conversation.

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While we knew of the potential effects of a Brexit vote on currencies, few people appreciate what a hard-Brexit (with no successor agreement) will mean for investment and trade. My article on opportunities for Eastern European investors in a hard-Brexit scenario should surprise many on the Leave side.

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My other published work on Brexit can be accessed via this link.

@iGlinavos

Why Hard Brexit is now impossible

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An unexpected thing happened today, the High Court in London passed judgment on a case involving the correct process of starting the British withdrawal from the European Union.

The court said that the government can only activate Article 50 (and thus start the 2 year countdown to exit) after Parliamentary approval.

What does this mean and what are the options Theresa May is faced with now?

The short of it is that the hard-Brexit trainwreck has been delayed, perhaps even postponed indefinitely. Why so?

In the current Parliament there is no majority for Brexit. This is both because the majority of MPs in the Commons stood for Remain, and because the Lords are likely to be strongly opposed to the idea.

Now, this does not mean that a majority of MPs cannot be found to vote in favour of activating Article 50. In the current circumstances, as the majority of constituencies in England voted in favour of Leave, it would be political suicide for most sitting MPs to vote against Article 50 activation.

An indication of how the Commons votes on Brexit issues is given by the failure of the proposal to protect the rights of EU citizens already resident in the UK recently. A narrow majority of MPs voted against common sense and decency. Why? Because they are afraid of their Leave voting constituents.

Is all this struggle in favour of Parliamentary involvement for nought then? Actually no. Saying that MPs will not want to openly defy the will of their constituents is not the same as saying that the majority of MPs will go along with May’s apparent desire for a hard Brexit.

From the point of view of an MP, suicide now (by voting against Brexit) against suicide after (once the consequences of a hard-Brexit begin to bite) is not a great choice. A better choice is to vote for Article 50 when given the chance, but with caveats that make participation in the Single Market a requirement for negotiations.

The logic behind this is that Brexit does in fact mean Brexit, but without meaning the utter destruction of the country’s economy. This is a sensible compromise between the public’s democratically expressed desire to commit suicide and the MPs desire for self-preservation.

This of course is relevant for the Commons. I am not investigating whether the regions will need to agree to activating Article 50, as it seems that they will not get a veto after the decision of the Belfast court. What the Lords will do is another question. The Lords do not need to (and do not) care what people think. They could block Brexit indefinitely, or force May’s hand.

Force May’s hand to do what you wonder? The answer is obvious. If the current Parliament cannot authorise a hard-Brexit and a hard-Brexit (translated as exit from the Single Market in order to achieve this fictional control over immigration) is what May wants, we need a new Parliament. We can get a new Parliament only by having an early General Election.

The chips are on the table for Mrs May. This court decision means that she buries any dreams of a hard Brexit, or she brings her hard edged dreams in the form of a party manifesto (for disaster) to the people and see what happens.

Now, the alternative avenue, appealing the court decision, is not a very clever move. The decision rests on an interpretation of Article 50 as the beginning of a process leading inevitably to irreversible loss of rights (everyone in this trial agreed this to be so). If May appeals the decision to the Supreme Court, then (as a matter of EU law interpretation) the nature of Article 50 (the crux of the matter in this case) will need to be investigated. The Supreme Court will have no choice but to refer the matter to the Court of Justice of the EU for an interpretation of Article 50. If the CJEU returns the opinion that Article 50 is irreversible, there is no basis for overturning the High Court decision. If it says it is reversible, then the decision will probably be reversed, but May will have opened an avenue for a different government (or political pressure) to stop Brexit within the two year period through another referendum, or executive decision.

You understand therefore that appealing is a lose-lose situation for May.

What is the outcome for the merry Brexit circus? Soft Brexit or an election.

What role can you play? 1- If you are against Brexit, or in any case not insane (and could live with a soft Brexit, if it cannot be avoided altogether), and 2- are lucky to be a resident of Richmond, then you could vote for the Liberal Democrats in the Richmond Park by-election on December 1st. This way you achieve two things with one vote. You ensure that another MP against Brexit joins this Parliament (need I remind you that golden boy Zac is a Brexit supporter?) plus, you send a message to May that a hard Brexit manifesto will not fare well in the ballot box.

I leave you with this thought. If May is ignorant enough to appeal this decision, how fun would it be to have the process of withdrawal from the EU become the subject of a CJEU decision?

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@iGlinavos