Brexit means Brexit

From Citi:

 The sudden withdrawal Monday of Andrea Leadsom for the Conservative party leadership leaves Home Secretary Theresa May as the sole candidate. David Cameron has announced that there will be a new PM by Wednesday night; we expect May to take over as PM shortly.

 Given May’s imminent appointment, discussions about the UK’s strategy for Brexit negotiations can now begin up to 2 months earlier than previously anticipated, accelerating the likely timeline for Brexit. Although various loopholes to avoid Brexit are conceivable, we continue to consider these highly implausible for political reasons, and maintain our 80% probability that Brexit happens.

 While opposition Labour, the Liberal Democrats and the Green Party have demanded new elections, this is not our base case, even if the possibility is nonnegligible. Simply put, the combination of the fragmented state of the opposition and the fixed-term Parliament act make this unlikely in the short-term in our view.

 May supported the unsuccessful campaign for Britain to stay in the EU, but was considered a “soft Remainer”, critical of EU policies, in particular free mobility of labour, throughout her tenure as Home Secretary. She has previously stated that “’Leave’ means leave” and that she would invoke Article 50 TEU, possibly by yearend. This move would kick off negotiations with the EU, ultimately ending with a withdrawal agreement after two years. That deadline could be extended only by unanimous vote of the remaining 27 EU countries.

 May has so far not laid out a full strategy for the EU negotiations. She has said that she would negotiate “the best possible terms” with the EU but has also said that the UK “must regain control of the numbers of people who come” and that “net migration in the tens of thousands is sustainable, but it is going to take time”. She has also highlighted the importance of access to the EU’s single market for financial services, stating that: “we need to […] ensure that we can continue to get the right deal for the UK in terms of financial services as part of the negotiation”.

 This position is in conflict with the fact that the EU currently does not offer full access to the single market—regarded as the “crown jewel” of the union– without also accepting free mobility of labour, stating at its 29 June informal summit that “access to the single market requires acceptance of all four freedoms” of the EU. Both the Norwegian-style EEA membership, which is the only one including full access to the EU’s single market for financial services, and the Swiss model, which does not, include free mobility of labour. Both models may be difficult to reconcile with May’s current stance on immigration, a key lightning rod for public discontent.

Expect a very hard bargain from Europe. the last thing it needs is a successful UK secession.

Latest posts by David Llewellyn-Smith (see all)


    • Hinch likes mass immigration. Even if the immigrants cheated on English exams to come here and would not be able to understand what he says on radio.

      • Yep, he’s a Big Australia supporter.

        Remember former Labor leader Bill Hayden was predicting and advocating a population of 50 million thirty years ago.

        Then the figure came down to 35 million by 2050. Now, it seems, the doomsayers want a population freeze.

        How you sustain an economy, and build a work force paying taxes to pay the pensions and health services for the Baby Boomers in retirement, without a growing population is beyond me.

      • adelaide_economist

        “How you sustain an economy, and build a work force paying taxes to pay the pensions and health services for the Baby Boomers in retirement, without a growing population is beyond me.”

        Yes, it’s clearly beyond him but he’s too egotistical to realise that being skilled at getting publicity for yourself is not quite the same as having a grasp on the financial, economic and demographic impacts of mass migration – especially when we are now encouraging migrants to bring granny over to look after the kids.

      • @ae,
        Yes, it’s clearly beyond him but he’s too egotistica

        Fair enough, but that ‘I’m no cleverer than any of you out there in voter land’ schtick is an feature not a bug in the current anti-expert environment – even if the obvious corollary is ‘I don’t really have any answers’ – as any populist with a distinctive hairstyle is well aware.

    • adelaide_economist

      Hinch is definitely one of the ‘elite’ (in attitudes if not influence) despite the media narrative that he’s a rag tag blowin. I wouldn’t be surprised however if a significant part of his vote came from a Hanson-like voting demographic. I suspect they assumed because he’s all about stringing up those paedophiles waiting behind every tree that he was also on the same wavelength about key economic and social issues – disproven by his own words as contained in AB’s quote.

      • notsofastMEMBER

        “Hanson-like voting demographic”

        You mean like Real Estate Agents and Investment Property Owners? The Election of Hanson means any chance of reducing immigration in the foreseeable future has gone. Which means a floor under Real Estate prices in the short to medium term and the possibility of the return of strong price increases in the longer term.

      • @Gerald – I would hazard a guess that @notsofast’s reasoning is that Hanson will make it even more difficult to have a sensible conversation about immigration levels. She may be raising the issue but she will be too easily dismissed as blatantly racist which will allow people to shut down the discussion about immigration numbers.

  1. As the frictionless, free mobility of immigration, was a key lightning rod for public discontent in the UK,
    the flooding of the labour pool in Straya is causing big issues here: Today we have in Australia
    645,000 so called “international students”. This has grown 19% year to year. But less than 30,000 are genuine to any OECD standard.
    It’s now blatant slum clearance by China and India to send misfit & useless guestworkers here, to steal jobs & send back remittance income. (As The Donald says they dont send their best )
    650,000 working holiday. Also mostly Fake purpose and funds.
    Can’t get in as student ? Sneak in with fake funds & purpose on a working holiday visa.
This has grown 11% year to year.
    680,000 NZ visa, 330,000 non NZ born. This has grown 34% in the non NZ born sneaking in the NZ back door, offset by the genuine NZ born going back.
    200,000 402, 457 visa. Grew 11%
    35,000 special visa. Growing 8%
    85,000 overstayers, maybe 120,000 as DIAC have no idea.
    Growing 10% yearly.
    That is 1 in 10 living here. concentrated in the capital city CBD or inner urban.
    1 in 6 in sydney and 1 in 7 in Melbourne.
    They bring in $7 billion. They send out $36 billion.
    It’s a $105 billion onshore underground tax evasion and blackmarket fake ID industry.

    Punters are very, very angry. They’re working longer hours for lower wages. They’re angry because they’re working two and three jobs and as of the 18 May 16 ,Wage growth hits an18-year low,
    The World Bank has slashed its global growth forecast to an “insipid” 2.4% amid low commodity prices, faltering growth in advanced economies, weak global trade, and shrinking capital flows.
    Real disposable income (per capita) is the best available measure of Australian living standards
    it has disappeared over eight years.


    • Stephen Morris

      I apologise to those who read this last week, but it would be remiss to pass up any opportunity to explode the “free” movement myth.

      So-called “free movement” is not “free” at all. Rather, it is a classic case of privatising gains and socialising risks and costs. THAT is why it is so popular amongst the Elite.

      The reason lies in the limits of dynamic efficiency when it comes to providing infrastructure and services, and the resultant risk of sunk costs and stranded assets.

      This can be vividly illustrated using a simple “thought experiment” in which we imagine applying “free movement” to a private firm. I call this thought experiment “The Republic of Goldman Sachs”.

      Let us imagine that a fiercely private firm – say Goldman Sachs – were required to operate a “free movement” policy. Imagine that Goldman Sachs were required to accept any person who arrived at its front door and wished to offer his or her labour resources to the firm.

      There is NO assumption that Goldman Sachs itself must offer either employment or any kind of a “welfare state” for the new arrivials. Hopeful new employees wouldn’t qualify for the firm’s health insurance or a pension plan. They wouldn’t even be entitled to a wage or salary of any kind. Their ONLY right would be to enter the building and try to offer their labour services.

      We may imagine what would happen.

      Goldman Sachs is a prosperous company. There’s a lot of wealthy people there. And there would be any number of newcomers who would be willing to try their hand at channelling some of that wealth into their own pockets.

      The better educated might spend their time hawking their CVs to managers, trying to grab themselves a place on the dealing desk. Other entrepreneurs might simply go from desk to desk seeking customers for photocopying, or a coffee run, or laundry, or a shoe-shine. In the ensuing melee, others might turn their hand to a little crime, rifling through the jackets of other employees. No doubt some would develop a nice business offering sexual services.

      Inevitably there would be fights and scuffles . . . especially with the old office staff who find their “place in the world” – their sense of status and self-worth – suddenly threatened by the newcomers.

      Again, there is no Goldman Sachs welfare state at work here. Just a “free movement” policy that requires Goldman Sachs to accept any person arriving at the front door and wishing to offer his or her labour resources on the firm’s territory.

      Goldman Sachs’ existing offices would become unworkable within hours. Constrained by the “free movement” policy, the directors would need to start looking for more space to house the teeming hordes. This would involve sunk costs: assuming that one can’t lease and fit out offices by the day, they would need to either buy space or enter into long term contracts to lease it. They would need to hire extra security guards to keep an eye on everyone’s property.

      Goldmans might well succeed in doing this. But it’s not going to happen overnight. There are limits to dynamic efficiency.

      Now let’s ratchet things up a little.

      Imagine that the newcomers were entitled to bunk down for the night on Goldman’s property. (It’s a long way to the border and they can’t physically go home every night.) There is no assumption that Goldman Sachs provide them with a house or anything as socialist as that. But they would be entitled to put their heads down somewhere on Goldman’s floor (its “territory”), and presumably relieve themselves somewhere and perform their ablutions.

      So now – in order to prevent an epidemic of disease – Goldmans will need to find yet more office space and will need to install more toilets and washrooms, and presumably a garbage service to pick up the rubbish left around the office.

      No doubt some entrepreneurial food stores would spring up to feed the new ghetto. A mafia – or competing mafias – would spring up to offer “protection” to the newcomers . . . and to extract rents from the small businesses.

      The Republic of Goldman Sachs would then need to establish a system of office planning system to keep the cooking away from the paper files. It would need to either ordain one of the mafias as its agent, or beef up its own security force to suppress them all.

      There is no welfare state here. Just a “free movement” policy.

      Being a good capitalist firm, Goldmans might try to recover the cost of this from their new residents . . . . if they can. They might try introducing some system of taxation, and employ people to enforce it and hunt down tax-avoiders. And they would need to punish the tax avoiders somehow. A corporate jail perhaps? That’ll employ a few more.

      Goldmans might well succeed in doing this. But it’s not going to happen overnight. There are limits to dynamic efficiency.

      Now let’s ratchet things up a little more.

      Imagine that the newcomers were entitled to bring along their spouses and children, or give birth to children in the office.

      Soon the Republic of Goldman Sachs is stuck with a choice between either providing some sort of hospital service or having mothers giving birth on the dealing room floor.

      Again, there is no welfare state at work here. But the firm cannot continue to function efficiently unless it somehow deals with this issue.

      And then Goldmans must choose between letting the youngsters become unemployed office urchins (falling, like Oliver Twist, into a life of crime), or trying to corral them into child care and school . . . attempting to train them to be the investment bankers of tomorrow.

      In this it might well succeed. This might be the key to building the investment bank of the future.

      But it’s not going to happen overnight. There are limits to dynamic efficiency. For years to come The Republic of Goldman Sachs will be stuck with schooling all its new employees’ families.

      And is there any guarantee that Goldmans will benefit from any of this?

      None at all.

      In ten years time the external conditions might change again, leaving investment banking out of favour. The “free movement” policy means that the Goldman Sachs “community” can walk out the door at any time to seek their fortunes in some other place and some other industry . . . leaving Goldmans with the sunk costs of infrastructure and the bills for educating them.

      There are limits to dynamic efficiency. No firm (especially a “firm” owned by its existing employees) would dream of running a business like this. Instead they would recognize those limits and would recognize the risk of being left with stranded assets if the population inflates rapidly and then moves on.

      Immigration may well be beneficial in the long run. But that doesn’t mean it is risk-free or costless in the short run. A “free movement” policy that ignores the limits to dynamic efficiency would create all sorts of problems . . . with or without a welfare state. That is why any private firm would regulate the RATE and COMPOSITION of its intake of labour.

      Moving back from the Republic of Goldman Sachs to a conventional polity, we can see that what “free movement” actually does is to transfer risks and costs to the taxpayers and other citizens while allowing the benefits to be privatised by those who stand to gain from a larger market and more intense labour competition.

      There are very few things in life that are truly “free”. And “free movement” is not one of them.

      • SM. Copied that to file, but the other argument is the assets are not stranded but in fact are worthless, in any location. The whole paradigm of what constituted the UK,(from a workers perspective) is now under the flag of China, India, Korea, or even the Nordic countries.
        This AI, robotics, (how about now Robocop!) has by passed the whole frigging nation, all that is left is scenes from MidSommer Murders.
        Seems WWII was the catalyst, after paying out the Yanks, the Poms again sat on their hands, and now the aggressive, progressive nations have leap frogged them.
        Straya is soon to follow. Many here say tourism will save us, what, in run down amenities where most of the locals go to Bali.

      • I don’t mean to gush Stephen, but that was beautiful. Thanks for posting it again, I missed it the first time. I too have copied it to file, with a link to the origin of course.

    • Is that you Mike?

      BTW, I agree that immigrants are here to work for illegal wages and make it bloody hard for Aussie voters to get jobs.

    • ErmingtonPlumbingMEMBER

      Working all over Sydney and purchasing 2 to 3 Coffees a day, Ive got into the habit of steering my friendly conversation towards inquiring on my baristas place of origin, whether they are studying or not and do they think they will make Australia their life long home (I always have these questions for my taxi drivers as well).

      Those with clearly less dodgy legal status are always more likely to enguage, most of the others look nervous and pretend to not understand the question.

      I rarely come across Australian born ones of any ethnic heritage,…unless they are an owner operator,….but even then not many.

      • @haroluds,

        If only a few more people like you cut back on caffeine, THAT will destroy the Aussie economy.

  2. Brexit still has to go to Parliament and be voted on before article 50 can be triggered. Article 50 operates under the governance of the nation’s constitution viz. Parliament

  3. Lets face it, the “deal” the Brexiters are after is having your cake and eating too, a deal that no one can agree to. Meanwhile, most +50 yo Englanders are still living in the time of Queen Victoria and Churchill and forget why (and how) they joined the EEC. There has not been any rational discourse and now they quickly scurry away and leave TM, a staunch remainer, to work a deal out that can’t possibly satisfy the smoke and mirrors that Farage and Johnson have sold to the Midlanders to conceal decades of British political and managerial mediocrity. Now the marketing begins by telling people TM is Maggie 2.0. That is their plan.

    • 50 years puts us at 1966. Most memories would’ve been formed in the 70s. You’d have to go pretty far back for anyone to even remember Churchill when he was alive and in power. The number of those people would have to be pretty small at this point.

      • You could probably remember Churchill alive if you were at least twelve when he died – in the UK that turns out to be something like 10 million people, or a surprisingly large 16%.

        The UK’s median age has risen to 40 years – no doubt this is a factor in nostalgic longings for past glories. There are now more people in their forties than there are aged 10-19 or in their twenties in the UK, which could be having an effect on people’s attitudes on a range of things.

    • C.M.BurnsMEMBER

      both sides sold an absolute “pup”

      the deal that those remainers also sold cannot possibly be met – remaining in the EU guarantees increasing levels of inequality that will hit those that voted to leave the hardest.

      in the short and medium term they’re damned if they do, damned if they don’t. So who is best at selling the long term ?

      … I know, I know, I found that last sentence hysterical as well 😉

      • CMB, the EU has plenty of problems, but as has been pointed by Anon, this is a referendum on inequality, and this is a self-inflicted global phenomenon that has been exploited by the very “elites” (like Farage and johnson) that the voters of Brexit decry to ensure their stranglehold on power. The average Joe will, at best, see living conditions stagnate and any talk on inequality will be kicked down the road for a few more years (or, more likely, blamed on the EU for not agreeing to their “deal”).
        In fact, the crux of the matter (immigration) is being driven mostly from non-EU sources (2/3), and I bet they will open those spigots like they have in Australia and NZ. This is just another example of how populism is serving people like Murdoch or Dyson. No rational discourse, no plot, just off the cuff planning and one-line mottos. I am so depressed I have to agree with S. Hawking, we should just stay put on planet earth until we grow up as a species.

  4. This referendum was never really about Europe but about discontent. The EU is an easy target especially because it has done such a poor job in transparency.

    If there is anything good to come out of this hopefully it is further democratisation of the EU. Mind you, it was the UK who held up many reforms that would have allowed this.

    Reading EU continental media paints an entirely different picture regarding Brexit. There is disbelief about Britsh choice, there is some support for the British choice but after the initial shock there is now the feeling of opportunity with the British (English?) getting out. Great Britain was always seen as dragging its heels.

    Europe is not wondering whether the EU will still be there in years time. Europe is wondering what the EU will look like without Britain. Less liberal, more social perhaps?

    Meanwhile English counties who voted overwhelmingly for Brexit are now wondering whether they are still going to get those millions in EU support. Oops.

    • EU’s problem is the failed neo-liberal ideology of the European Commission. Bureaucrats are nominated by the government of the day, and the one nominated is one of the most conservative of the lot. And who sent him there? The Conservatives. And who is responsible for that? The British public.

      • I agree and expect reform to target the role of The Commission.

        During my study a professor (highly regarded expert in EU politics) once explained how businesses back in the day tried to get close to The Council (of National Ministers) but soon found that The Commission with its power for Initiatives was a much better target for lobbying. He certainly always provided that advice to businesses.

        Barosso’s new job certainly seems to indicate that they have gotten a bit too cosy.

        I’m not a big fan of redirecting more power to The Council, which seems to be one of the options considered at the moment. A much better option is for The Commission to be elected either directly (much like a Senate) or indirectly via EU Parliament.

        Whatever way, it needs to become more democratic. The EU also needs to understand it has a much different role compared to nation states. Currently there is too much overlap between what National Parliaments do and what the EU wants to do. There should be better defined areas of responsibility. Strangely, that is something a Federation does. It’s just a big scary word… (not making arguing the EU should now become a Federation, just an interesting observation).

  5. JasonMNan – I could not have summed up this situation any better than that. You are so right. Defo on the Maggie 2.0 point

  6. casewithscience

    Run the figures, does Britain lose more from leaving the EU, or do the remaining EU parties?

    • The UK loses more. The EU holds the whip and now the UK will be made to dance. Half of all trade the UK does is with other EU nations. Yes they import more than they export from the EU, but the imports are essentials (a lot of food) and exports are services (which will be relocated elsewhere).

      • CF there have been a number of attempts for portions of Straya to become the food bowl of Britain, Notably an area of land around Emerald QLD, about half the size of the UK. The deal was cropping and livestock, but mismanagement by the Poms suddenly off the leash in outback QLD, last century, blew the scheme up. It could easily be resurrected. The Man with the Hat is the Go to Person for that.

      • Pre-entering the EEC, as it was back in 1973, the Brits had a fairly large trade deficit with the ECC. Largely as a result of the fact that for the past 120 years, the UK has not been able to feed itself.

  7. McPaddyMEMBER

    Amazing how often female politicians have to wait for a poison chalice before they are allowed to have a go.

  8. Each country carries the seeds of its own destruction, the UK were always going to opt for Brexit, It fitted nicely into the narrative of plucky little bulldogs standing alone, but ultimately being victorious, against the European hordes (including the Irish and increasingly the Scots) as well as deep misgivings about multiculturalism in the north of England, especially in light of the failure of the Labour party to uphold the fair rule of law in the Rotherham sex abuse scandal. You could argue we first saw a glimpse of this world in the opposition to the Iraq invasion back in 2004.

    The UK will get fair treaty, but bordering on botched from the EU, largely because the.UK’s lack of room/willingness to move on the issue of mobility of labor.. So expect something more like the currently deteriorating Swiss agreement than Norway but it’s really in the UK’s court…but any attempt to play the “Iron lady” will backfire badly. So it’s article 50 before the US presidential election and article 7 from NOvember through to Christmas. .

    Going forward a trade war between the EU and the UK is 50/50 probability most likely to be triggered by a free trade treaty between China/UK (which I think would be generous to the UK with the implicit aim of pushing the UK and the EU further apart) which would trigger concerns in the EU about the UK being a back door to cheap Chinese imports. Either way the UK and the EU will grow further apart.

    The bear in the room, pun intentional, is Russia. With the UK absent and the EU and the UK growing further apart, the vacuum is likely to draw them in, initially via a free trade agreement, in the EU the term REntry (Russia + Entry) is appearing so watch this, .

    The US and the UK will be desperate to avoid this as they real political question ( and the political issues may be more long lasting than the economic ones) is are we seeing the beginning of the world that Orwell foresaw and the EU is now slowly drifting from the US’ orbit.