The ECB has enough on its hands already: Collapsing Italian banks, a Deutsche Bank derivatives mess, massive Target2 imbalances, and the rise of eurosceptics like Beppe Grillo in Italy and Marine le Pen in France.
Nonetheless, ECB president Mario Draghi decided there was room on his plate for yet another problem: trade politics.
Please consider Draghi Urges EU to Take Tough Line with UK in Brexit Talks.
Mario Draghi has become the latest European official to push for the EU to take a tough line in negotiations with the UK over Brexit, saying Britain should be refused access to the single market unless it sticks to rules on free movement of labour.
“Regardless of the type of relationship that emerges between the European Union and the United Kingdom, it is of utmost importance that the integrity of the single market is respected,” Mr Draghi said, speaking at the European Parliament on Monday. “Any outcome should ensure that all participants are subject to the same rules.”
Referring to rules on the free movement of labour, capital, goods and services, the ECB president said: “The four freedoms go all together. That’s clear.”
Mr Draghi added: “How we come out of this position will impinge on the stability of the union in future.” Allowing the UK to skirt the rules would weaken the EU’s strength in years to come, he said.
Counterproductive Stance
It might feel good to rattle sabers, but nothing good can possibly come of it. The risk of a hard Brexit is very real, and it’s a two-way street.
If the UK loses access to the “single market”, the EU will find itself losing exports to the UK.
No one wins these kinds of trade wars, but the EU will lose far more.
Cherry Picking Math
Please consider “No Cherry Picking” Says Merkel; Risk of Global Trade Collapse says Mish
Bluff or Stupidity?
Germany exports €50,963,643 more to the UK than it takes back in imports.
The EU on the verge of falling into an economic black hole. Threats on the UK will not help matters.
Integrity of the Single Market
“It is of utmost importance that the integrity of the single market is respected,” commented Draghi.
Excuse me, but what integrity is that? Nannycrat rules do not constitute integrity.
Earlier this month, Luxembourg’s foreign minister said “Hungary Should Be Ejected From EU”
On August 16, 2016, the European Council on Foreign Affairs reported Poland Chooses Confrontation Over Compromise with EU.
A bit of digging turned up some interesting facts. It is impossible to kick someone out of the EU, and other than fines stipulated in the treaty, it is impossible for the EU to do much of anything if a country refuses to abide by rules.
If Hungary decided to trade with Russia, what could the EU do really do about it but piss and moan? The answer is nothing unless there is a specific sanction in the treaty covering that kind of scenario.
Risk of Global Trade Collapse
The risk of global trade wars is very high and rising.
- A “Hard Brexit” and a trade collapse between EU and UK is a very real if not likely outcome of the Brexit negotiations.
- On September 17, Over 300,000 Germans Protest EU Trade Deals With US and Canada.
- A US-EU Trade War Looms thanks to an Airbus-Boeing feud, EU fines on Apple, and US fines on Deutsche Bank and Volkswagen.
- Prior to the Brexit vote, president Obama gave a “Back of Queue” Brexit Warning to the UK.
- Donald Trump wants to build a wall on the Mexican border. Supposedly Mexico will pay for it. Hillary talks as tough as Trump. She wants a global trade prosecutor.
- Obama’s Trans-Pacific Partnership (TPP) trade agreement is on the death bed. Hillary Clinton and Donald Trump are both against it.
- On September 23, Germany’s Economy Minister stated the US-EU TTIP Talks are “De Facto Dead”.
- EU trade sanctions on Russia hurt the EU more than Russia.
- Both Japan and China seek to devalue their currencies to maintain exports.
- On September 9 I reported Germany’s Finance Minister Blames ECB For German Trade Surplus. My comment on that line item was “Why the Eurozone Will Destruct”.
Instead of talking nonsense, Draggi ought to ponder this questions: Can the EU Survive as a Prison?
The risk of a global trade collapse is large and growing. Trade talks are collapsing everywhere. Protectionism is high and rising.
The above 10-point list is very real and very scary. It’s also incomplete. Add to the list a very simple construct: no one wins trade wars.
Instead of worrying about real problems, Draghi is worried about the “integrity” of a system that has no integrity to begin with.
Mike “Mish” Shedlock
Draghi is playing to the gallery but nevertheless the EU is likely to take a hard line. They need to prove a country is better off in than out. The hardline Merkel is taking on Deutsche Bank is all part of the ‘discipline’ theme as per Germany vs Greece and now Merkel/Hollande vs Renzi/Italy.
It is understandable but Mish is right that the EU is a prison. Any escapee must be made to suffer. The EU elite see the UK move to the exit as existential and will do everything they can to survive. If the UK comes out OK the EU is weakened. Why join or stay if life is no worse outside? They must make the UK suffer.
The UK will pay a heavy price for its sovereignty.
The hypocrisy of the Germans is glaring. They get a beneficial exchange rate, captive market but refuse to act at home to reduce their trade surplus to help their neighbours. They will force all countries to mould into one under their ultimate control and discipline.
I doubt any other country outside of the UK will have the nerve to try to leave. Imagine the consequences of a Euro member wanting to leave. At least the UK has sterling.
History will judge the EU to have become an extension of a Greater Germany policy with the price paid by other countries unable to escape.
The move to an EU army is the next extension. Should they antagonise Russia the defeat of Napoleon and Hitler will be repeated with awful human consequence. The EU is moving to become an empire determined to rival the US, Russia and China and wanting to flex it’s muscle wherever it can – tax, geopolitics, regulation, competition.
The Germans have canvassed their SMES and determined they are OK with the consequences of a hardline on the UK. The die is cast, there will be trouble.
Should the UK fail to leave and the EU continue as is the UK will be forced/crushed to join the Euro to prevent a 2nd attempt at an exit.
“Who wins trade wars?” That’s another question we wont be hearing in the debates. Along with “Why are the American pharmaceutical markets closed to outside competition? and “Do you know how much of the ‘cost of production’ of the Epi-Pens is actually an accounting trick that factors in the Mylan’s Board of directors compensation, lobbying costs, and monetary support for the election candidates?”
Referring to rules on the “free”(?) movement of labour, capital, goods and services… I think we can switch the word “free” with “EU controlled”. If it was free movement, it would not need government. Might be able to use the words “Goldman Sachs” in there to add a bit more truth.
The position of the UK is not dissimilar to 1939 in my opinion. I am probably in the minority by thinking like that but that is how I see it.
We need all the support we can get but your Obama offered none as if the EU is a superior ally.
Do not rely on the EU. Their true colours and intentions will be become clear. They are not a reliable ally to the US. The US (Gov and business/banks) abandoning the UK will be a grave mistake that will only become apparent some time hence when it is too late.
Do not rely on the EU as a reliable ally.
It is a great shame to see USA/UK ties weaken. It will cost us all, more than just money.
If the UK goes down so does defence of the North East Atlantic and Mediterranean approaches as we will not be able to afford the defence spend. The result will be a strengthened and emboldened Russia able to control the whole European continent & Eurasia.
The Germans are prepared to take the trade hit to instil discipline in the EU and help its survival. It will get nasty. It will hurt. They are prepared.
Schauble will be looking to steer FDI that would have gone to the UK into Eastern Europe also. They see it as a game they can win and get back the cost via alternate routes. That is easier to achieve if the UK has reduced single market access.
Unfortunately we cannot rely on the US. I only hope the UK can flex, cope and manage to bounce back afterwards
Dear Mish,
The same rubbish was said when Putin closed the borders to the Western food exports. Guess what? European food exports are rising beautiful and hitting higher ever.
We Europeans want to see the UK whining for more years. And we want their jobs from manufacturing to bank help desks. It is time to the Britons payback to us Europeans.
Kind Regards
Pay you back for what?
The UK is a net contributor of money to the EU and the EU is a balance of trade creditor.
The UK can and should go after the EU by slashing the corporate tax rate to zero.
It’s time for the UK to play serious hardball with the nannycrat fools.
UK does not have the advantages by itself against EU:
– tourists want to move freely and would rather tour continental Europe
– market size is too small and geographically, it is a dead end
– it has been taking advantage of so many exceptions from general rules in EU like get a discount on what it is suppose to contribute, although indeed net contributor. UK is more parasite than a partner and I tell you that with half of my family being Britons and having gone to UK dozens of times. Even British want to stop playing that leech role and be back as pushing economy on their own agenda (messing more with their pounds for instance).
Where you are totally right is the flaw in EU in its acceptance of limited/absence of duties against the rights earned. There are literally hundreds of directives which have never been implemented in some countries, Greece being probably number one.
The EU has an unconstrained call on the UK Treasury and the EU is facing serious problems that have nothing to do with Brexit and everything to do with needing to toss trillions of EUR to the periphery (in and outside the EU) to stem the tide of those troubles, which is ultimately a losing battle. The UK shouldn’t be walking to the exit while it figures out what it is it doing, it should be running.
Dear Mish,
This is completely rubbish. It says a lot of the lack of your knowledge about Fiscal Policies and even the International Trade:
“The UK can and should go after the EU by slashing the corporate tax rate to zero.”
Sorry to be unpolite but all your ideology is crap. UK and nobody in their sane mind can cut taxes towards zero otherwise the fiscal deficit explodes and UK is the most indebted country of the World.
You are only a guy who follows the other clown and buffoon: Nigel Farage.
Sorry to be hard and crude but is how we play in the markets. We are not pussies.
I will repeat you again: We want their jobs and businesses.And we will get them. No matter how the British Government screams or not.
Best to you
You can’t (or won’t) even defend your women, much less your borders … how do you think you are going to take British jobs and businesses?
Off topic: IMO Hillary just won the presidential election mopping up tonight n the first debate putting the Donald on the defensive- why didn’t he bring up the massive corruption of the Clinton Foundation-this is a total disaster as he has missed several huge opportunities-such a shame!
Julian Assange will deliver the coup de’tat in October. The debate will have no effect except in the pols for about 7 days… that’s it.
He did not do well but there was no knockout. Yes, he missed a bunch of chances.
Curiously, many polls showed Trump won. ZH had a list
“It might feel good to rattle sabers, but nothing good can possibly come of it. ”
There is absolutely zero downside risk for Mr Draghi personally. OPM and OPL don’t matter.
As for the UK being a parasite it is a net budget contributor, net contributor to defence to 2% of GDP (the ONLY member to be so), a net recipient of people and if you look at remittances back to the EU you would be shocked by the money transfer that then stimulates Eastern Europe to a good degree.
It is time to seperate but it’s probably going to get ugly.
Personally, I would withdraw form any defence comittments to the EU in or out of NATO. If we have no friends so be it, we might as well go looking for them elsewhere. The Ukraine mess was not helped by EU intervention just like the Balkans in the 90’s that they didn’t nothing to prevent and then had to call in NATO and specifically the US. The EU’s handling of foreign affairs is a car crash in the making and when they have an army expect them to want to use it one day. Better to be a spectator than a contributor to that tragedy in the making.
I expect they will antagonise the Russians and the EU to then have a surprise waiting for them. It might be best for the UK and US to stand back and let them handle it using the same skills they are using to handle the migrant crisis. For sure, they will undermine NATO to the detrement of the EU and their own security.
If they want the banks, so be it. Notice the Barrosso move to Goldman. He said he was surprised by the furore as “he’s not joing a drug cartel”. Well look at Goldmans tentacles in the EU and the role played in getting Greece onboard. Just one example.
Draghi – where’s he from? Why would Goldman want Barrosso? Why are their people planted all other the establishment, especially the least democratic elected elements?
The EU is controlled by the banks via ex and future employees. A long list.
Take care.
prinjon, half of my family is European and my kids have dual nationality. The pound value is market set, not held back by the weaker countries of the EU, and has been too high for our manufaturers. I know I have the evidence and the reasons. The market will decide and we will have to flex to cope as best we can.
As for the EU rules, I think you will find the UK has been a keen (excessively so) adopter of the regulations and the UK has been advised by other country top tables “to leave by staying”. That is an instruction to stay in the EU but ignore regulations that are unpalatable.
Expect funding transfers to the Eastern Eurropean side to be used as a weapon to get them to accept migrants. No migrants, no funds. However, it was Germany that encouraged the bulk of the migrants. This is a perfect example of the EU in action. Not the migrants fault I hasten to add. Just a screwed up way of going about satisfying the German demographic cliff.
As for the EU parliament, the influence of the UK has been declining over time due to expansion and the real outcome will be a dimunition of the voting control of Germany (who the UK often sided with) unless they get closer to France – which I think is happening – and get France to sideline Italy and the southern states. If that doesn’t happen the paymaster will be voted down by the less Germanic elements. German tax payers won’t like that.
How long before they change the voting rules in the EU?
As for geography – we’ve always been in a corner and isolated.
Sometimes weaknesses become strengths if the country becomes desperate enough to make them so. As Churchill said (paraphrase) – if Great Britain should need to choose between the open seas and contintental Europe it should always choose the open seas – or words to that effect.
Better for all if the UK is left to sail off in peace with open trade. Of course, the EU can’t allow that as it discourages others from wanting to stay. Hence the problem. They must make the UK worse off out rather than in.
It will be an unpleasant period ahead.