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December 2, 2016 | Brexit is a Religious Battle (And You Can’t Negotiate Religion)

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Lost in the entire debate about when Theresa May should file article 50, and constant bickering about how long Brexit discussions will take, is one simple fact: Brexit is now a religious battle.

The EU insists the UK heed to four fundamental principles.

  1. Free movement of good
  2. Free movement for workers
  3. Right of establishment and freedom to provide services
  4. Free movement of capital

On the other side of the table, The UK insists it will not abide by rule number 2 and that it is better off outside the arcane tariff procedures and other policies of the EU.

Obvious Bluffs

Irish Prime Minister Enda Kenny warns Brexit ‘impossible’ within two years. That statement comes from a man who does not want Brexit and whose mission now is to delay Brexit so long it doesn’t happen.

Meanwhile, Germany’s finance minister Wolfgang Schäuble boasts Britain can’t lower corporation tax because the UK still has EU commitments.

Schäuble dramatically overstates his case to the point of being an obvious bluff.

Who Has the Upper Hand?

Both sides claim to have the upper hand. In the UK, Brexit officials say Cards Stacked in Our Favour, but officials in the EU state a counter-case.

It’s unclear if the EU believes it has a stronger case, or if it is all just political posturing.

Either way, it doesn’t matter, because the debate has become one of religious beliefs.

You Can’t Negotiate Religion

Both sides appear firmly entrenched. And the entrenchment grows by the day. Jeroen ijsselbloem, who chairs the eurogroup of 19 eurozone finance ministers insists UK Must Abide by EU Rules Post Brexit to Secure ‘Passporting’ Rights.

Given that hardening stance, the UK may as well sit down with the Pope in an effort to negotiate the “Holy Ghost” out of the “Trinity”.

Risk to UK

The risk to the UK is negotiations drag on and on with costs piling up. As long as the UK remains in the EU, the UK arguably has bills to pay.

Some propose the EU will purposely drag out negotiations in hopes the UK gives up.

The political irony in all of this is the EU does not remotely come close to abiding by its four founding principles.

EU Hypocrites on Free Movement of Goods

Think goods move freely? Then think again. Please consider French Farmers Dump 90,000 Bottles Worth of Spanish Wine Because…Spanish!

EU Hypocrites on Free Movement of Services and Freedom of Establishment

To understand the hypocrisy inherent in free movement of services, look no further than French rules on nearly everything. Businesses cannot fire workers, move elsewhere, shut plants, etc.

Worse yet are totally arcane rules and regulations in Germany.

A prime case in point is Germany’s Apprenticeship System.

After 18 months of study, $2,200 in tuition and three exams, Ewa Feix is now permitted by German law to bake two variations of cupcakes.

“Not pretzels, not Black Forest gâteau, not bread,” said Ms. Feix, a Canadian who moved to Germany in 2009. Becoming a professional bread baker entails a three-year apprenticeship and more exams.

Germany’s thicket of rules and standards shields roughly 150 professions from competition, from ski instructors to well-diggers. Stiff fines await uncertified practitioners. German authorities conduct thousands of enforcement raids each year.

Strong middle-class support, particularly among Chancellor Angela Merkel’s supporters, means the German system has defied repeated attempts at reform.

EU Hypocrites on Free Movement of Persons

The EU “Dublin” rule requires an asylum seeker to register in the first country the refugee landed. How did that work out? And how many cascading walls in how many countries came about as a result? Is bribing a country with payments as Germany did Turkey in the spirit of the rule? What about the positions of Austria, Hungary, Poland, and the Czech Republic?

EU Hypocrites on Free Movement of Capital

Greece is still under capital controls. Cyprus was under capital controls from 2013 to 2015.

Nothing to Negotiate

There is nothing at all to negotiate given outright religious warfare. Moreover, the UK needs to convince all 27 countries across the table to accept the results.

Spain brought up Gibraltar in the negotiation process. This is yet another religious battle that cannot be won.

It’s hard enough dealing with religious zealots, but it’s even harder dealing with 27 religious hypocrites, needing to convince all of them.

Just Leave

There is one and only one solution to this madness: Just leave.

In Don’t trigger Article 50 – Just Leave Ingrid Detter de Frankopan, a professor of international law who holds three doctorates, one specifically on European law, makes a tremendous case doing just that.

Second rate lawyers are misleading everyone in the country by insisting that, in order to leave the European Union it is essential to “trigger” Article 50 in its entirety. This line has been swallowed whole by the government, the media and commentators. It is, however, absolute nonsense. Under international law and under Article 50 (1) itself, only notice to leave is necessary.

The horror that I feel about this misdirection is compounded by that the fact that if Article 50(2) is ‘triggered’ it implies that the UK government accepts that the EU will decide the conditions of UK’s withdrawal. This has serious consequences. An arbitrary two-year negotiation window; a supreme agency problem between negotiating parties (the European Commission and various powerful governments) and a ratification process that is far from certain. All the while we will be contributing approximately £40bn gross, or £20bn net, to the European project. We will be paying for them to negotiate – and once we get to the end of the timeline there will be no real incentive to reach prompt agreement, as well as no reason to be true to their negotiated position. In fact any excuse of an election, a financial crisis or a small war – could derail years and millions of man-hours of work.

Now turn this situation on its head. The United Kingdom withdraws from the European Union (as directed by the people of the country in the referendum of June 2016) in March 2017 with immediate effect. The European Union loses almost 14% of its revenues overnight. I suppose our mission / delegation will be received with a great deal more alacrity then they would otherwise. This would turn the screw on the Commission and force them to conclude negotiations rapidly. It would give them less of a chance to strike back, ask for an “exit” premium and force a rapid conclusion on all parties. While it is true that this could descend into a tariff war – it is likely that we would end up with this situation at the end of two years anyway. There is the Commission, 27 other governments with diverse objectives ranging from using Britain’s exit to foster greater unity or to underline the need for retaining sovereignty within the Union.

After the UK leaves, perhaps the EU will take trade talks a bit more seriously. If not, “Hard Brexit” was an inevitable position from the outset.

In light of various religious battles that cannot possibly be won, “Just Leave” makes perfect sense.

Comments on Mainstream Media Trust

I offered this as an op-ed to the Financial Times, three days ago. Their policy requires three day, and they do not notify on rejections. Other places demand as much as a week or 10 days. No one bothers to send an email, even if something is immediately rejected.

I was pretty sure this would be the result. The Financial Times, like the New York Times, like the Washington Post, like Bloomberg will not publish an opinion article, no matter how well it’s presented, that disagrees with their editorial opinion.

These news media all parrot each other in thought process and political correctness, contributing to the Record Low Trust in Mainstream Media of a mere 32%

Mike “Mish” Shedlock

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December 2nd, 2016

Posted In: Mish Talk

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