posted on 09 April 2017
by Nadeem Walayat
BrExit is the latest big story for the people of Britain to believe in, a story that has split the population in half between the Remainer's and the Leavers. The BrExit vote was a reaction to the slow dissolution of what was once the world’s most powerful nation into just another bolt on to the European Union Superstate.
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For Leavers BrExit is seen as a last ditched effort for Britain to resurrect its golden age. So whilst you read part 2 of my comprehensive BrExit analysis, remember that BrExit is just the latest story built on past stories of glory and it won't be too long before we all move onto the next big story, as that is what humans do best, tell stories and believe them to be true, be they religious, political, social, personal, ethnic or economic stories. But today's story is BrExit.
Also remember to read part 1 which covers the BrExit game that the European Union is likely to play, one of attempting to use the Scottish Nationalists as pawns in a proxy war to undermine Britain's bargaining position during BrExit.
Sounds very romantic like sailing off into the sunset, with the likes of China and India expected to give Britain favourable trade deals. Though I suspect are planning their own Trojan horses to take advantage of a weak and desperate Britain.
Still the story sounds great, but of course it is just a story that the people of Britain tell themselves about Britain's glorious trading past. I bet most reading this article believe it be true that Britain was once a great global trading nation, but it is just a story that does not stand up to close scrutiny, for all I see when I actually take a look into the past is that Britain was an Empire, an Imperial military nation not a trading nation. Britain would go to war to literally blast a whole nation’s fleet out of the water to get its way (China).
Then rape, pillage and steal the resources of whole nations, turning for instance the jewel in the British Empires crown India, that before the British invasion was once one of the richest countries on earth, after all that is why Britain fought to seize control it in the first place, turning India into a third world country by the time the British Raj left India.
Perhaps Britain can tell itself a new story of become a trading nation in the future, but it does not look like that Britain actually ever was a great trading nation in the past. In fact the only thing that Britain has been consistently good at trading in is weapons of war, it's arm's industry. And that it got lucky with the City of London being optimally positioned in the world's 24 hour financial system.
Britain a Victim of the EU Single Market
Britain's trade with Europe further illustrates that Britain has never been a trading nation, an illusion as following map shows the state of the European Union's single market in terms of trade imbalances between member states that Britain is the sucker in the room, being conned to the tune of Euro 200billion that goes towards employing a net several millions of German, Italian and Eastern European workers. So the only additional thing to note to that which I have written before is that Italy also hugely benefits at Britain's expense.
In terms of direct trade, the UK trade currently exports £230 billion to the EU and Imports £310 billion from the EU resulting in a huge £80 billion per year trade disparity. Basically a subsidy from the UK to the EU, mainly Germany as the above graph better illustrates which nations are beneficiaries of the Single Market and which are victims of the Single Market.
Furthermore the following table shows the top 5 EU beneficiary nations of trade with the UK, all of whom have a vested interest in retaining easy access to the UK market and therefore the UK can apply pressure to these nations during the negotiations in Britain's advantage, especially where Germany, Spain, France and Italy are concerned.
UK Trade Deficit With EU Countries - Top 5
This further illustrates that Britain leaving the Single Market would significantly destabilise the Spanish and French economies due to the fact that both already run sizeable internal trade deficits against other EU economies and thus rely on the UK as one of the few markets that they operate a surplus against, and thus Britain can use this to its advantage in the negotiations.
What this £80 billion annual trade subsidy to the EU converts into is the UK paying to employ about 4 million EU workers residing IN the EU and this is in addition to the 3 million EU workers in the UK who act to depress wages for UK workers.
Therefore in terms of trade flows Britain has a major trump card up its sleeve that it should play, that of several million EU workers Britain pays for, as in Germany and Italy alone Britain probably employs more than 1 million workers servicing its trade deficit with these two nations whilst also being a heavy employer of Spanish, Belgium, French and Polish workers.
In totality Britain employs approaching 4 million EU workers on mainland Europe who produce goods for the British consumer, whilst at best UK exports to the EU probably employ some 1 million UK workers thus technically a clean break resulting in total collapse of trade with Europe would result in UK demand for nearly as many as a net 3 million new jobs whilst the EU would LOSE at least a net 3 million jobs with Germany, Spain, France and Italy being the hardest.
Furthermore, EU share of Britain's exports has been on a declining trend trajectory for more than decade, falling from a peak of about 54% 10 years ago to 44% of UK exports today which illustrates that economic growth has been coming from OUTSIDE of the EU. Whilst remaining within the EU PREVENTS Britain from entering into trade deals which was made clear when the EU warned against Britain attempting informal trade talks with the Trump administration.
“I do not like that member states of the European Union, including those that are still a member state, are negotiating free trade agreements. This is an exclusive matter of the European Union." - Juncker
“It’s very clear that in order to sign and have a bilateral agreement with third countries, the UK first needs to reach a settlement with the EU." - Muscat
This is just one example of how if the EU holds true to its threats of punishing Britain! Yes there would be short-term turmoil as the UK economy adjusts to loss of access to the EU single market, but against this Britain would enjoy a short-term windfall from tariffs charged on trade of about £300 billion converting into a £30 billion tax revenue boost for the UK Treasury.
Playing the NATO Card
Russia is a permanent threat to Europe's long eastern borders for which we only need look at the annexation of Crimea and the invasion and encroaching annexation of other eastern parts of the Ukraine, a process that looks set to continue for many more years and which I warned of in my following in-depth analysis of Feb 2014 before the annexations took place -
So NATO is another card Britain can play, as Britain has effectively been scammed by the EU into playing a disproportionately large role in the defence of Europe with thousands of troops stationed on Europe's Eastern borders acting to deter Russian aggression that Britain could use against threats from the take-take states such as Poland and the Baltic states who repeatedly warn of tough negotiations ahead because they demand Britain be forced to continue to pay for the likes roads and highways be built in Poland as part of the £11 billion annual EU black hole that UK tax payers fund each year.
Thus the UK has many trump cards to play, not least of them President Trump who likens himself to being "Mr Brexit", which means that if the EU does carry out its threats that the remoaners such as Tony Bliar so vocally keep regurgitating then it would be tantamount to Europe committing economic suicide which could even trigger a BrExit recession for the likes of Germany and far worse for an economically more fragile Italy that would further weaken the European Union increasing the risks of disintegration that would make itself manifest in the bond markets.
At the end of the day Brexit for the EU is a lose, lose situation, and it all boils down to just how badly does the EU want to lose. For clearly punishing Britain, which whilst hurting Britain would nevertheless exact a far higher price on the European Union as any pain for Britain would be temporary whilst the consequences for the EU could be existential i.e. risk triggering a collapse of what remains of the European Union as the series of crisis triggered from a German and Italian recession snowballing out of control, having unintended consequences such as other anti-EU political movements being elected to push more nations to follow Britain's Brexit lead such as a FrExit.
The BrExit War - Britain Intelligence Super Power Covert War With the EU
Britain may have stopped being a military super power shortly after winning World War 2, a war that virtually bankrupted the British Empire leading to its dissolution. However the cold war, another war that Britain played a pivotal role in winning, where despite Britain having one of the world’s most effective intelligence apparatus that apart from the bond movies has done a good job of mostly remaining secret, by instead letting the CIA and NSA take the public limelight, however did abysmally fail to avert BrExit from becoming manifest that virtually all of the establishment saw as an impossible outcome as the following video of Brexit night illustrates.
A reminder that the primary function of all intelligence agencies CIA, NSA, MI5, MI6, FSB, MSS is to serve and protect the interests of the ruling establishment elite from both enemies within and enemies without. If the British ruling establishment had ever thought BrExit would actually happen then they would have made averting Brexit as the intelligence agencies number 1 priority through tried and tested spy craft methods such as entrapment that the intelligence agencies are masters of, for an example of which we only need to look at the fate of Julian Assange who walked right into a CIA honey trap!
But no, they missed BrExit the shock of which has galvanised the British establishment to literally explode the size of Britain's surveillance and covert secret police spy state, that may initially have been directed towards 'enemies within' i.e. those who played pivotal roles in Brexit becoming manifest. However I suspect is increasingly being directed towards the EU in a new covert BrExit war.
UK NEW Cyber Security Headquarters
Whilst Britain's mainstream press have been busy singing the propaganda praises of Britain's latest addition to Britain's intelligence infrastructure which in addition to MI5 and MI6, central London now has a new spy agency aiming to employ 700 cyber spies so as to spy on virtually every online activity of British and European citizens, whilst the media establishment has been busy throwing up a propaganda smoke screen to mask the facilities true intentions by propagandising its function as being one of defending the British people and corporations against cyber-crime when instead the EXACT OPPOSITE IS LIKELY to be TRUE! For just as is the case with the CIA / NSA PAYING corporations to PRESEVE vulnerabilities in their systems so as to allow backdoor access for the CIA, then so will likely be the case for Britain's Cyber Security Headquarters actions be vastly different to media propaganda.
If I was in charge of developing defensive or offensive cyber capabilities then I would NOT be deploying several hundred low tech humans into the field who are really only mostly good for surveillance activities of other humans and organisations. Instead I would be concentrating resources on developing self-learning AI's that would code and test the defensive and offensive algorithms in machine time, billions of times faster than that which humans are capable of.
So Britain’s so called Cyber Security headquarters in reality is just the latest extension to Britain's secret police state within a state as a reaction to BREXIT which shocked the establishment elite.
It does not take a genius to figure out that the greatest threat Britain faces today is from the European Union as they attempt to subvert the integrity of the British state so as to undermine Brexit from actually materialising, in respect of which they have many actors at play, one such subversive actor are the SNP who remain determined to kill the United Kingdom at any cost to Scotland. For SNP logic reads as "Better Scotland dead then part of the UK".
And now I strongly suspect that Britain’s' intelligence super power infrastructure IS being directed towards destabilising the European Union, in response to EU attempts to destabilise the British state, especially given the statements already coming of the EU high command in Brussels of seeking to make an example of Britain so as to avoid the disintegration of the European Union.
And this is before we go through the process of having Britain's flesh stripped away member state by member state. For instance the French want UK financial institutions to relocate to Paris as do Frankfurt and Dublin who have already for several months been courting UK banks and insurers.
Britain and Russia Interests Temporarily Align
Britain requires a weak and under pressure European Union during the coming negotiations. Whilst Russia wants the European super state to collapse as Russia cannot compete against the EU economically or militarily. Whilst a dissolved EU would see Russia once more as a great European power, able to throw its weight around, especially bullying the eastern European states which is it is unable to do whilst they remain within the EU.
So it is even possible that during this temporary alignment of interests that we may many months from now when the Brexit negotiations hit difficulties see Theresa May make a state visit to Russia, or even Czar Putin visiting the UK as both nations declare their intentions for closer economic ties that I am sure will send Eastern European states into a state of panic, putting the European Union under immense tactical pressure to make a deal with Britain so as to prevent any disruption to the security alliances that have underpinned the security of Europe since the end of World War 2.
Spain Warned: Remember Falklands Over Gibraltar Subversion Attempts
With barely the Brexit process begun, Spain has already started to play their age old we want Gibraltar card with the EU issuing the following statement in support of Spain's claims on Gibraltar:
A spokesman for the Spanish government, Inigo Mendez de Vigo, added:
The Government of Gibraltar responded:
If this is not an example at an attempt at the subversion of the integrity of the British state than what is it? Britain could counter by promoting Catalan and Basque separatist referendums be held in Spain as one example of how a covert Brexit war could play out. After all it was barely 2 years ago that Scotland was allowed to hold an Independence Referendum with another one likely soon after BrExit happens. Therefore Spain should also afford its citizens of the Catalan and Basque states to also be allowed the freedom to decide their own fates in once in a generation referendums.
Of course Spain a pseudo democracy would never allow its people such freedoms which is why the people of Gibraltar choose to firmly remain part of the UK, especially given the fact that the people of Gibraltar do have the freedom to choose whether to remain with the UK or not with the last referendum being held in 2002 resulting in a 99% vote to remain part of the UK, which says it all, a loud and clear two fingers to Spain from the people of Gibraltar.
Therefore individual member state self-interest demands that the British state be undermined so that each can gain their pound of flesh from Britain on its way out of the EU, where Spain has always had its greedy eye on Gibraltar.
In fact on Sunday 2nd of April, former Tory party leader Michael Howard went one step further by reminding Spain of the lengths Britain would be willing to go to protect its territorial integrity from outside subversion:
Whilst Defence Secretary Michael Fallon stated:
I know many reading this may think this to be preposterous, it's not going to happen. But this is what I do, I think the unthinkable and then extrapolate the trends forward to see what is most probably likely to happen.
Remember a year ago Brexit was impossible, and virtually everyone laughed at Trump, a clown that no one took seriously. However, I saw BOTH as being probable over a year ago, that's right March 2016, and wrote well over a 100 articles and posted dozens of videos of how the unthinkable would become manifest. That both unthinkable events of Brexit and Trump would combine to saw the seeds of a Covert War Intelligence war between Britain and the EU aided by US intelligence! Though I suspected US Intelligence would have their hands full with Trump taking a wrecking ball to the White House establishment.
So whilst most today may see this as being impossible, it is in fact infinitely more probable now than it was a year ago as my following video from March 2016 illustrated of what BrExit and Britain's covert war is going to do to the European Union -
FrExit to the Rescue?
There is the risk of Britain's anti-establishment Brexit contagion spreading once more from its heavy influence on the US Presidential election, that allowed a alt-reality TV star to con his way into the White House, could similarly allow far right Le Pen in France funded by Putin's regime to con her way into the Elysee Palace.
Whilst it is beyond the scope of this article to consider all of the ramifications of a potential Le Pen victory in France, one thing is for sure that it would further destabilise the European Union as a Le Pen regime would be pro-Brexit and would announce Frances own FrExit Referendum which would be the final nail in the EU's coffin.
However, my limited analysis on the forthcoming French Presidential election suggests that given the 'run-off' election methodology of two voting rounds means that despite currently Le-Pen being in the lead going into the first round, nevertheless she is unlikely to achieve a majority in the second round and thus probability strongly suggests that Le-Pen will lose the the election to Emmanuel Macron. Therefore post-election expect France to reinforce a hard line against Britain so a Brexit friendly French government does not look likely to materialise.
So on 23rd of April when Le Pen wins the first round, don't take that as being of any real significance as she is unlikely to win the 2nd round on May 7th.
Game Theory BrExit Conclusion
Whilst Theresa May appears more intelligent than David Cameron, unfortunately she is a politician from the same stock as 80% of those who inhabit Westminster so I suspect she will be sucked into the game the European Union intends on playing for some time. Where the game Britain will be playing will be one of the cooperative game theory, basically where no one loses i.e. Britain’s access to the single market being a win - win situation for Europe and Britain as the alternative would result in a loss of at least £150 billion in annual trade.
However the objective for the EU is for the negotiations to fail resulting in far greater pain for the UK than the EU, and thus Britain failing to leave the EU by 2 years from now.
So literally with each passing day in the Great Brexit negotiation game about to begin following triggering of Article 50, the cost and eventual pain Britain will suffer will increase as Britain runs around like a headless chicken trying to placate individual member states towards voting to agree to the agreement for Britain to leave the EU (qualified majority of 65%). Whilst the EU seeks to reinforce the status quo amongst all member states as that being most likely to result in the survival of the European Union which requires a far lower bar of just 36% voting against the agreement with Britain. So unless Britain is able to secure 65% which effectively would mean bribing France, Germany and the whole of Eastern Europe at a cost far greater than today's annual contributions, then there will be NO agreement.
SO understand this following the triggering of Article 50 that the primary objective of the EU is to destabilise the UK to such an extent that the UK becomes incapable of leaving the European Union.
The big question I am left asking is when will British the Government realise that they are in a LOSE, LOSE situation where the Brexit Negotiation Game is concerned, and so must realise that the only action that would result in Brexit is for Britain to unilaterally declare all of the EU membership treaties null and void and thus unilaterally leave the EU without agreement, a HARD BREXIT.
When will this happen? Definitely not anytime soon, but what about in 3 months’ time? 6 months, 1 year, 2 years? Will it ever happen? Will my update in 2 years’ time be from a Britain that has had its back broken by the European Union? Abandoning Brexit by declaring itself incapable of leaving the European Union, I hope not!
Of course in response to EU subversion the UK can play its own game of subversion of pitting member state against the EU in a downward death spiral for all.
And don't forget that Britain literally has Trump card to play, well until the CIA does a JFK on him, so things are not as bleak as they appear as long as Theresa May manages to quickly wake up and smell the coffee of the game that the EU has no choice but to play.
So the only way that Britain can leave the EU is by means of a HARD BREXIT. An Immediate hard BrExit would throw the European Union into turmoil, destabilise it and result in the likes of Germany and Italy as the greatest beneficiaries of trade with Britain to fast track agreements for sectors that other EU member nations will build on.
Consequences of Hard Brexit NO UK / EU Deal
Whilst my analysis concludes that a Hard Brexit is in the best interests of Britain given that the EU is playing a completely different game with its objective one of punishing Britain so as to prevent other member states from leaving the EU sinking ship. Nevertheless there will be a cost to Britain such as tariff costs on British exports, but of course these will be more than offset by tariffs on EU exports to the UK. But there will be job losses on both sides with Europe losing perhaps 3 jobs for every 1 UK job lost, at a best guesstimate the UK could lose 250,000 jobs in the 2 years following BrExit whilst the EU between 750,000 and 1 million.
Therefore UK unemployment could rise from the current approx. 1.6 million to 1.85 million. However, the following chart illustrates that whilst such a rise would be significant, it would not compare to anything on the scale of that which followed the 2008 financial crisis that saw UK Unemployment soar to 2.7 million. In fact if the UK follows what I propose in the strategy section then there need not be any rise in UK unemployment.
And in economic terms, my long standing analysis that dates back to BEFORE the EU referendum, that the economic cost of BrExit would be about 2% of GDP, or about £40 billion which is still the most probable outcome in GDP cost terms.
The bottom line is that the sooner the British Government realises that they are engaged in a BrExit war where negotiations are designed to fail from the outset then the sooner Britain can enact a hard BrExit and thus minimise the economic damage to Britain whilst at the same time maximising damage to the European Union. Whilst on the other hand the opposite will be true i.e. negotiations dragging on for the full 2 years will inflict maximum damage on the UK whilst acting to reinforce the EU as other member states see the propaganda example that the EU has made of Britain in it's attempts to leave.
Therefore as Britain CANNOT WIN A NEGOTIATION THAT ARE DESIGNED TO FAIL FROM THE OUTSET. Then the only logical response would be for Britain NOT to PLAY the EU's game and instead to make a clean break as soon possible, preferably IMMEDIATLY, for the EU's goal is for the steady subversion of the British economy and state so that it reaches a point where Brexit is abandoned in the face of a crisis event by the end of the negotiations time table, which the EU may repeatedly just keep extending until Britain reaches a point where BrExit becomes impossible, abandoned in face of dealing with the likes of subversion from the north of the UK and economic and meltdown in the south.
UK Brexit Strategy
Bribing Eastern Europe - In addition to the Trump cards already mentioned such as NATO, Intelligence agencies and the trade imbalance, Britain could also undermine the position of the European Union through a myriad of measures such as by bribing the large recipient eastern European nations that are already heavily reliant on UK funding such as Poland and Hungary. And thus the UK could encourage eastern European nations to demand that the EU allow UK single market access in exchange for continuing UK funding for some years beyond Brexit.
Financial Armageddon - The UK is Europe's financial centre, therefore Britain could use this to its advantage in threatening to make foreign investment in Europe via London much harder if not impossible. Therefore seeking to financially destabilise the European Union by using weapons of mass financial destruction such as hitting the European Union member states already crippled bond markets.
EU Nationals - One of the biggest cards Britain can play are the 4 million EU citizens who reside in the UK against 1.2 million Brit's in the EU. Whilst both sides today say that they do not want to use citizens as bargaining chips, however it would be stupid for Britain to give up one of its major trump cards.
Tax Bomb - Britain could threaten to detonate the tax nuclear option, one of cutting corporation tax to 10% or even lower to 5% which would have a devastating effect on the European Union economies as it would encourage especially financial services corporations to move to the UK from the EU.
Putin Doctrine - Britain could take a leaf out of the Putin doctrine of undermining the EU through migration via the Middle East and North Africa through taking military action for instance in Syria, perhaps in conjunction with a change of mind from the Trump regime. This would further encourage migration into the EU and thus keep the EU occupied with an even bigger crisis than Brexit over the next couple of years as several more millions of migrants seek to flow into the European Union.
Trade Tariffs and Unemployment - The EU putting trade tariffs on UK Exports and the UK putting trade tariffs on EU exports will mean job losses on both side. However as there exists a huge trade imbalance between the two economies then Britain will earn at least twice as much in tariffs than EU will from UK imports. Thus an intelligent British government could use this windfall income to reimburse UK companies on the costs of tariffs paid to the EU. Theoretically this would mean NO UK job need be lost as UK companies would be being reimbursed in totality.
Economic Boom - Britain should once more play its ace card which is that Britain has its own currency which means that Britain can print money to monetize debt. The advantage of this during the BrExit negotiations is that the UK government could engineer an economic boom! All it would take would be about £150 billion of fresh QE. Which would induce a feel good factor and galvanise the British population and foreign investors behind Brexit. Therefore defeating the EU's strategy for inflicting pain on Britain, for if the British economy by 2 years from now is growing at the rate of more than 3% per annum far beyond that of a stagnating European Union, then that would act to strengthen British resolve no matter what the outcome of the Brexit negotiations are.
What's more given Britain's housing crisis then Britain is literally primed for a long overdue infrastructure boom, for construction to begin on a series of New towns even New cities as I covered in my 2014 UK Housing Market ebook (free download). Therefore, this could be the precise moment when Britain revitalises itself for the next 50 yeas by building new schools, hospitals, houses, towns and even cities!
The bottom line is that the European Union is inherently weak, literally a ticking time bomb which means it that it is entirely possible that the EU could implode all on its own and we don't even have to look at the usual suspects such as Greece, but that the European Banking System that could yet trigger Financial Crisis 2.0. So given the above strategy it would not take much to significantly weaken the EU and strengthen Britain's bargaining position during the BrExit negotiations. Of course without actually tipping the Eurozone into a death spiral that pulls the rest of the world down with it! And then there are the black swan events such as Le Pen winning in May, IF it happens then it would be game over for the EU!
However, if the British government is unwilling to see BrExit in terms of what needs to be done to win the Brexit War then the UK should just exit the EU as soon as possible so as to limit damage that the EU can inflict on the UK whilst stuck in limbo in the EU.
And lastly, it does not really matter if Brexit actually turns out to be a success or failure for Britain as long as most of the British people believe the Brexit story to have been successful. And it won't be too long after Brexit that most of the people of Britain will forget that the UK had ever been part of the European Union, a distant vague memory just as the British Empire soon became for most after the end of World War 2.
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Nadeem is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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