Everything we hear is opinion, not fact

Mint – Blain’s Morning Porridge

Everything we hear is an opinion, not a fact. Everything we see is a perspective, not a truth

I was going to lighten the darkening mood this morning by posting a Porridge from 2021 that conveniently slipped back through a hole in time. It described briefly how the Brexit crisis was resolved through pragmatism and common sense. But after watching Brussels last night, I’m too depressed by it all to be flippant. I am rather surprised that no one seems to be pointing out that until the UK presses the Article 50 button, we remain a full member of the EU and can’t be excluded...or am I missing something? It’s a shame.

The time-slip note would have explained how the four-year post-Brexit rally from 2017 and new concurrent growth strategies across Europe triggered global recovery. Sure, it was very very bad news for global bond markets – but great news for jobs creation and equities.

The genesis of the solution was Europe accepting the reality the UK wasn’t ready to negotiate immediately following the referendum, while back channels opened by German Chancellor Merkel and Italian Prime Minister Renzi allowed the UK to quickly establish and negotiate a new compromise position that kept it within, but on the periphery, of Europe.

Despite some spectacularly stupid comments following the referendum from the EU and French presidents about punishing the UK for leaving the EU, smarter European minds prevailed. There was a swift realisation across Europe that no one in the UK (aside from vociferous right-wingers and bona fide nutters) really wanted a breach with Europe – just reform, some border controls, and a cease and desist message delivered to the EU re further aggrandisement of its role. 

There was much compromise and argument but Article 50 was never triggered. The sticking point was immigration and open borders, but eventually the UK opened on many points.

Judging the mood of the country well during the miserable autumn of 2016, the new UK Premier Theresa May called a snap election around the terms of the agreement, resulting in a massive majority for her strong UK Centrist coalition of pro-Europe Tories and sensible-Labour (with David (rather than Ed) Milliband at their head), plus the steamroller of the SNP (Scottish National Party), to negotiate Britain’s new position in Europe. The British electorate accepted it was probably a better idea to let parliament decide.

The redefinition and redirection of the Brussels Eurocracy – including the election of Angela Merkel as Europe’s first elected President in 2020 - ran parallel with Germany’s realisation that growth was critical across the EU and its own long-term interests. This resulted in a European Central Bank empowered to work closely with national governments to drive fiscal policy across Europe.

The new Europe of core euro members pursuing the goal of ever closer ties, a second tier of non-euro members (including Greece and Portugal), and a third tier of euro partners, including the UK, closely associated with the stronger Union, was quickly established. Boris Johnson was ennobled and despatched to Europe as our observer/kommisar on the EU utilities commission.

Well…it’s a great dream. Sadly, the current noise suggests pragmatism is not on the table. Angela says it's “wishful thinking” if we think this can be turned around. France is blinded by the prospect of finally scoring some petty points over London. Hollande’s comments about stopping us clearing euros sum up the petty vindictive mood: “It can serve as an example for those who seek the end of Europe...it can serve as a lesson.” It's exactly what you’d expect from an insignificant little man.

Junckers and his cohorts are convinced they are the victims of years of bad press in the UK – and it’s fair to say most of us here in the UK buy UK Independence Party leader Nigel Farage’s view of the Brussels gravy train without question.

However, just when things are at their bleakest, that’s exactly when it can turn around…

On the other hand.. should we be worried about Europe’s hostility? (Should we be surprised? is another question…) How much will it really hurt if we can’t clear euros? If UK institutions can’t lend to Europe, what are we missing? Not much. Europe will be the loser if it closes its doors.

If we look at markets, the FTSE is basically unchanged on last month. Sterling is lower – which is great for exports (assuming we are still making anything). We might have been chucked out of Europe, but decisions are made at the global level and the Bank of England is still part of that.

Bill Blain

Mint Partners

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