At every juncture, EU officials thought, and behaved, as if the UK was bluffing. The big irony is Merkel and the EU are bluffing, not the UK.
How long will German businesses put up with Merkel before her anti-cherry picking charade blows sky high?
Before addressing the question let’s step back and recap how wrong the EU has been every step of the way.
Wrong Six Times And Counting
- The EU thought Cameron would never hold a referendum.
- The EU thought it would never pass.
- The EU thought Cameron would never let Brexit happen after the vote was in.
- The EU thought that Theresa May would quickly reverse Cameron.
- The EU though Theresa May would eventually cave into EU solidarity.
- The EU still thinks the UK has more to lose and Theresa May will come to her senses.
Hello EU, the UK Isn’t Bluffing
All along the EU acted as if the UK was bluffing.
If the EU had a little more common sense and a lot less arrogance at step 1, Brexit might not have happened.
That’s all history. We are at point 6 now. But it’s not the UK that needs to come to its senses, it’s the EU.
How many times does one have to be proven wrong before reality sets in?
Touchy-Feely Kumbaya
After the vote, the EU held a big touchy-feely kumbaya with 27 nations all insisting that the UK must adhere to the EU’s “four principles” and that “no cherry-picking” will be allowed.
It was not May’s decision to have a “hard Brexit”, the EU crammed that stance down May’s throat by its negotiating stance. Add that thought to the growing pile of ironies.
“The be-all and end-all is that Europe doesn’t let itself be divided,” said Merkel.
Excuse me, isn’t the UK part of Europe and isn’t the UK about to split from the EU?
Four Freedoms
- The free movement of goods.
- The free movement of services and freedom of establishment.
- The free movement of persons (and citizenship), including free movement of workers.
- The free movement of capital.
For starters, the EU has trade treaties with the US, China, Japan, and elsewhere. It does not impose four freedoms in any other relationship, but it expects the UK to abide by them.
The worst of the hypocrisy is the EU does not honor it’s own rules. I discussed how the EU violates every one of those principles in Brexit is a Religious Battle (And You Can’t Negotiate Religion).
Germany is arguably the worst of the offender, especially in regards to free movement of services. Oops, add that to the list of ironies.
Merkel’s Solidarity
EU officials are unanimous in spouting “the UK has more to lose”. Really?
EU Prison Run by Germany for Germany
Jean-Claude Juncker and Angela Merkel want to make the EU a prison.
Countries singing kumbaya with Merkel ought to take a good long look at who benefited from European solidarity and who didn’t.
UK Escapes Prison
- The EU agricultural tariffs are a nightmare.
- The EU rules and regulations are a nightmare.
- The EU was never going to be satisfied with a “two-speed” Europe.
- There would have been constant pressure for the UK to adopt the Euro.
- The UK made a smart move to leave
Brexit Tax
Please consider EU Members Face Paying ‘Brexit Tax’ to Fund Shortfall.
The European Union could impose taxes on citizens of member states under radical proposals to help make up a funding shortfall in the wake of Brexit.
Brexit is a key factor driving the proposed reforms as the EU looks to fill the gap in its budget that will be left by the UK’s contributions, an estimated £8bn a year.
One proposed tax in the report is EU-wide VAT of 1 or 2 per cent, which would be deducted from national VAT and paid directly to Brussels.
Germany Investment in UK Will Go Poof
The UK’s €8 billion annual contribution to the EU is peanuts compared to €120 billion German businesses invested in the UK.
From Der Spiegel, translated from German:
An Great Britain exit from the EU would hit German companies hard. They invested around 120 billion euros in the country. A large part of this would be lost through a Brexit, warned Volker Treier, the deputy chief executive of the German Chamber of Industry and Commerce (DIHK). To date, German companies have set up production and operations in the UK worth 120 billion euros, employing some 400,000 people there.
Who Has More to Lose?
- German businesses: €120 billion in investments.
- EU budget: €8 billion.
- Germany runs an export surplus to the UK to the tune of €51 billion.
- The rest of the EU runs another €40 billion or so trade surplus with the UK.
- The UK has already lowered its corporate tax rate to the EU’s ire and may do so again if Brexit talks turn nasty.
- France wants to take London bank jobs. There were announcements on Thursday. But are French banks in any shape to go on a lending spree? The entire Eurozone banking structure is suspect. They may take some London jobs, but what about lending?
- Euroscepticism is on the rise in Italy, France, Greece, and even Germany. In particular, Italy is a huge tinder pile of fat-wood waiting for Beppe Grillo to light the match. Trade wars will not help one bit.
The amazing thing is the EU talks as if it has the upper hand. Are they really that stupid or is it a transparent bluff?
Regardless, the above list is one hell of a price to pay to insist on “four principles” that Germany and the rest of the EU don’t even honor themselves.
So, how long will it be before German businesses pound some sense into Merkel’s head?
Mike “Mish” Shedlock
Why would €120 billion German in investments in UK go away? Because they were crony investments that wouldn’t hold up w/o government subsidies? Retaliation? Default trade agreements that would kick in due to brexit?
On the surface, this statement would seem to fly in the face of what libertarians say about trade, which is that we don’t need government trade agreements in order to facilitate free trade, so I’m curious what’s going on here. It’s sad if such a statement can be made by officials in public and everyone simply nods there head.
I believe this all has to do with cross border access. Take cars for instance. Germany cannot produce cars in the UK and export them elsewhere as it would be in violation of EU trade laws if there is no trade treaty with the UK. Germany is stuck, not by the UK, but by EU rules. It is unclear if Germany can produce cars in the UK even for UK use. But assume they can. Trade taxes kick in and the pound collapsed. How many cars can Germany sell to the UK?
The Libertarian approach would be no tariffs. A position I support. The EU has more to lose than the UK no matter how you slice and dice this mess.
Mish – you are right. it’s a religion.
Last summer the Sigmar Gabriel, or one of the gang of however many, went round German businesses to check they were OK with punishing UK even if i cost Germany – supposedly the answer was OK, get on with it.
UK has no choice but to put backs against the wall, prepare for the worse, and fight. Use every tool in the box and look outwards to India, China, Commonwealth, Africa.
Neither side will back down. EU trade flows will fall. Unemployment will rise. Some devleoping nations will benefit with new trade to the UK outside of the EU tariff wall.
UK is split. One side will crumble the other is up for a real fight.
We shall just have to hope it passes quickly.
Rationality has gone out the window already. Smaller EU nations that were allies have already said they will demand whatever etc.
Any post Brexit deal has to go through 27 nations (and even more parliamenst and regional assemblies) to get the OK. Forget it, it won’t happen, they can agree what day of the week it is.
EU will carry on its merry way and integrate Ukraine, Belrus, Turkey etc for more heads.
The small EU countries like the union because the flower of their youth has emigrated to the western part for work, and UK in particular. That’s why the EUeast are so hostile, not because they like the EU so much. I am surprised that the UK have it so good that the youngsters would like to stay in. I suppose, they will change their mind when become old and decent jobs will be hard to come by.
EU reckons it will hit the UK with a 50Bn – 60Bn Euro divorce bill.
UK has it’s own figures and if not agreed to will say “see you in court”.
EU may have to apply some austerity to Brussells and cut out 3 hour lunches and 10K people earning more than the UK Prime Minister.
A very healthy dose of austerity at the centre would do them the world of good.
Some will have to increase their contributions to NATO too or do more with less and leave NATO for the EU army.
In Brussells, some reckon they can just remove duplications to set up their army – minimise variation on weapon platforms – looks like more spending needed no matter what. How to find the money?
Two ways to get to 2% of GDP (shrink GDP – notice poor old Greece is 2.4%) or spend more. Increase employment in Militayr perhaps via design, build jobs. Wasteful when the capacity exists elsewhere they could use outside the EU as suppliers more cheaply.
UK needs to be armed to the teeth as EU army will be used, ultimately, to threaten. Why else bother? Hence we need more ships, nukes, subs and get ready for a fight someday.
Brussells reckons they need HARD POWER now having sufficient SOFT POWER. This is not a benign change. Prediction – one day EU will come to bog blows with Russia or US – a few years out but will happen under French/German leadership.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/01/17/20170119_nato.jpg
They have about 200M more people than the US and a GDP approaching the US level. Go figure why they aren’t pulling more weight but still can’t get their economies rocking so where’s the money going?
Maybe Europeans look around and do not see an enemy close to their borders, and refuse to to waste money for neocon schemes. Inside the border, that’s another story.
Does anybody really believe Greece, Croatia, and Albania have equal or larger GDP than Germany?
It’s % of GDP. Hence Greece is so high as GDP collapse whilst maintaining defence spend.
Brexit is a starter. If May makes it it will be a stampede for EU exit That is why this all out war on the UK to make it as hard as possible for the UK to succeed. May May succeed.
Absolutely. Expect a fight.
The EU is of the opinion that the pain will be spread over 27 members but concentrated in a single UK.
Well – UK voted for it so lets see if we can take the beatings and offer simialr in return TO 27 COUNTRIES THAT DIDN’T VOTE FOR IT.
We have 3M EU citizens that can migrate back to NO JOBS. Their own countries and the EU – HAVE FAILED THEM.
Imagine the ructions with even half that many people heading back with no job, annoyed, looking for change. EU can expect the ballot box to speak loud.
There are several things here to explain the EU attitude. The UK Foreign Office has always been gung ho about being part of the EU. All the bureaucrats and mandarins that have the majority of diplomatic contact with the EU have always sung to the EU tune, assuring them that everything is under control. Even during Margaret Thatcher’s time there many reports of behind the scenes maneuvering in favour of the EU by such people. This has effectively been going on for the 45 years of our participation. Then there is the general diplomatic view that Britain has been a toothless lion ever since WW2, ripe for bullying into line, again only excepted in the Thatcher years. Add to that, the consensus of the UK political classes is europhile to the extreme and those same people are still doing everything they can to scupper Brexit in any way they can. Even the most ardent Brexiteers were actually surprised at May’s speech, most suspected that she would somehow renegade on the referendum result, indeed, they are still very suspicious. So, all in all, the assessments the EU made would have all been that Brexit would not happen in any case and thus allowed, even encouraged, them to take a super-hard stance.
There are a number that ran to get EU citizenship in Parliament and the House of Lords after the result. Any self respecting Government, after we are out, should remove those people from their seats.
A simple law – only those with single UK nationaility can sit, and ideally, vote, in the UK.
What the EU need to look at too:
1) Remittances back to EU poorer countries – substantial demand creation back at their home countries.
2) Benefits hit – UK pays benefits back to families outside, child benefit etc. Big hit as that will stop.
I think the EU don’t have figures for that stimulus hitting eastern EU that will go to a trickle as benefits are withdrawn.
Will the EU make up the difference?
Will it shit.
– Nonsense to put all the blame on Germany. The UK (think: Cameron) has been using the Brexit to the advantage of the UK. It was meant to play a political game, to extract more favours from the EU. And it backfired.
No – Cameron had to try to stop the move to the exit that was already on the cards. He failed to stop the exit.
If the EU didn’t want the UK to exit then the EU failed too.
Two failures never make a success.
What no one has worked out yet – if there is a big hit to trade – what’s the real global implications?
Are any debtors banking on UK sales? What impact on EU lenders? Executed poorly this will be a straw on the camels back somewhere in a very complex system.
Also – costs of various services in Europe are due to rise. The cost of moving to the continent will be passed to customers – in discussion now, banks to pass costs to EU customers.
Also – in discussion now – some of the big players will only put minimum staff in EU and are pulling back to NY or using it as a reason to expand in growing areas of Asia.
UK & EU will both be poorer. US and Asia will be beneficiaries as both UK and EU are heading down the global ratings and with reduced influence.
Good luck everyone. A rough few years ahead.
– Hello Internet troll. Don’t you have a life ?
– No, the US and a number of asian countries are also basket cases.
Lower cost basket cases with growth.
Favours from EU?
Joke no?
EU Primary Trade negotiator has said UK will be bottom of the list for Trade Deal.
Out means Out and no going back.
Strange they will prioritise smaller markets first – probably why they are not growing.
I don’t see it as out, UK is disassociating itself. It does not want to go back, and as there is no agreement on a negotiated path forward the disassociation will be clean. Trade occurs through deals and is based on mutual accord, if an EU negotiator does not want member countries to trade with UK that is for them to figure out and accept or reject. Either way, a trade deal negotiated with a disparate block of countries headed in negotiation by someone resentful is not something too appetising. There are off the shelf existing frameworks available, or pre-existing default international protocol, from which a tailored agreement might be reached over time.
I have the impression though that EU will purposefully cold shoulder the UK as it has no other way to demonstrate its own importance. Of course the UK will only understand that as tantrums and empty diplomacy…but really we should just let EU be until it figures out exactly what it would like as relationship. Hence all the more reason for a clean exit. There is no onus on UK being the seeker, we approach as equals.
– No joke at all. Cameron played the “Brexit card” in an attempt to get more money from the EU. That’s what all EU members do. But as said before it backfired.
– it’s just like what the members of Congress do here in the US as well. Never heard of the words “Bring home the bacon” ?
Cameron?
Don’t know him, sorry.
What I do know is that the British public voted to leave EU by majority at the first opportunity to in decades.
In fact, yes yes I remember now, they voted someone called Cameron as PM ( that Cameron?) because he promised to let them have a referendum ! Made them wait years too AND tried to get them to stay in EU !!
More money from the EU?
a) UK is a NET contributor to the budget.
b) Trade flows, UK is a NET customer running a deficit with the 27.
c) Remittances and benefits to EU citizens, UK is a NET contributor there too.
d) Employment creation for EU nationals, UK is a NET contributor there too.
All will head DOWN.
Deflationary to the EU? Might help offset German inflation.
France is a failed state. Its banks will struggle to remain relevant outside of France.
The Italian economy is a wreck, and as Mish’s post points out Italy’s political structure rests solely on what kind of day Beppe Grillo is having. Grillo is only human, so he will have a bad day in 2017 – its just a question of when.
Spain and Portugal are still a mess – maybe not enough to take down the rest of Europe, but more than enough that they can’t float the rest of the EU mess. And then there is the perennial economic disaster known as Greece.
Now thanks to Merkel, Germany’s economy is in serious doubt. I don’t share Mish’s cataclysmic views on Deutche Bank, but DB cannot bail out the rest of Europe even if they wanted to (which they don’t). Germany’s existing loans to the rest of the EU are not money good. And then there is the crime spree that is Merkel’s immigration policy…
Turkey has been insulted and put down by the EU too many times to count. Not saying Erdogan is a saint — just saying all of Turkey owes the EU a punch in the nose. If anything, Turkey will allow more illegal immigration into the EU from now until the EU collapses.
I think 2017 is the end of the road for the EU and the Euro. I laugh at people who think the Euro can’t fail as a currency (many other currencies have ended throughout history). And the other scenario is the Euro “continues” on paper, but even EU members start printing and using their own currencies.
The EU in Brussels is already done. They will continue to pass “laws” and drink copious amounts of brandy, but many EU laws were treated as mere suggestions for years even by EU supporters. Now everything out of Brussels will be treated as a suggestion.
NATO will implode too. Maybe it gets much smaller, as the US and UK direct their attention toward the Pacific — shifting spending away from Europe. Or maybe NATO gets formally shut down. Either way, base closures in Europe will hurt EU economies.
The NHS (health service) is currently chasing £300,000 from a women who came here to give birth and has now gone back to her home country.
We will never get it back.
Free movement of workers who contribute ….. yes.
Free movement of people who sponge off the state…… errrr….. No.
Sure, punishing Britain isn’t in the EU or even Germany’s economic interest. But that misses the point. There simply is no political pressure on Merkel to make a decent trade agreement with the UK. Unfortunately, a loss of trade with the UK just doesn’t hurt enough interests in the EU to create a big enough lobby to impact policy.
What we are dealing with here is more an issue of emotions than common sense. Think of Brexit more like a divorce where the jilted spouse wants revenge, regardless of the cost. It doesn’t help to explain to an angry spouse that the only thing they will achieve with their scorched earth approach is to enrich the lawyers.
The world is slowing, trade will slow, no matter what happens to the UK.
Brexit just happens to be another headwind.
Germany is an export machine and paymaster.
German exports (to UK or anywhere else) slow and the EU begins to have real problems.
Cracks will really appear if they screw up the UK leaving or Trump looks to deal with the US trade deficit with Germany not to mention if there is just a cyclical downturn which is likely and probably global this time.
Schaubles last budget was conservative and careful. He knows a thing or two but will it be enough if some bank goes down or the Eurozone places further demands whilst exports sag?
These are very dangerous times.
Its only “dangerous” because of the empty promises and failed Soros / globalists fantasies.
For people who live within their means and understand the real world (not the endless debt world) — these are exciting times. We get to watch the collapse of some really stupid concepts and institutions that we never voted for — and we get to see the rebirth of concepts and institutions we know have worked for centuries.
Good riddance to Soros and all his creepy, lawless puppets in DC, NYC, San Fran and Brussels. Fascists and crime lords eventually get what they deserve, even if it takes longer than many of us would like.
Meanwhile, America can resume helping itself, instead of having to fight against the previous nut job in the White House. As least he was somewhat gracious moving out.
Trump has a LOT of work cut out for him, just to undo the damage done over ~24 years (arguably more). Too much debt. Too many freeloaders and deadbeats. Too much punishing the productive and the honest, to bail out losers and criminals.
The CIA gets a new director tomorrow. Still need to replace Clapper the liar. If Trump reads this, may I suggest Edward Snowden for a pardon and nomination to replace Clapper?
“For starters, the EU has trade treaties with the US, China, Japan, and elsewhere. It does not impose four freedoms in any other relationship, but it expects the UK to abide by them.”
That’s totally understandable. Who wants free movement of labor with China? EU would be flooded with people from China, while very few people from the EU would move to china.
Since when does the EU officially care who floods in from where?
It works the same way in the US. It’s very hard for a foreign national to live and work in the US legally, but you’d be welcomed if you were a refugee/asylum seeker.