Thursday, July 14, 2016
The BREXIT vote on June 23rd was part of a growing global trend in which ordinary people are expressing a desire to retain national sovereignty regardless of the cost and suffering that may be involved. The result is rightly seen as a repudiation of the political and financial elites, and should be viewed as evidence that the economic optimism presented in the halls of power has found scant credibility on the streets. The same sentiments can be seen on this side of the Atlantic in the surprising successes of the Donald Trump presidential campaign.
Having failed to obtain a ‘re-run’ of the vote, the elite in the UK now appear to be trying to erode BREXIT from within. If successful, this disregard of the people’s wishes may result in a deepening political crisis but could affect investments and currencies in the short to medium term.
The most immediate and apparent result of the Brexit has been the wholesale change in the leadership of Conservative, Labour and UKIP (United Kingdom Independence Party) parties. Perhaps the most stunning development has been the departure of Nigel Farage, the leader of UKIP and perhaps the most recognizable face of the Brexit movement. With the help of senior Conservatives such as Boris Johnson, Michael Gove and Andrea Leadsom, Farage achieved an historic and potentially game changing victory. However, UKIP, which pulls a majority of Thatcherite votes, has long been a thorn in the side of Conservatives who treat it in a manner similar to that in which elite Republicans treat Donald Trump and his supporters. Despite his preeminent role in the victory, Farage was offered no role in the BREXIT negotiating team. Feeling he had done all he could, and perhaps exhausted by the strain, he resigned the UKIP leadership.
The machinations within the Conservative Party, which was split by the Brexit vote, have rivaled the palace intrigues of the Byzantine Court. The most immediate casualty was Prime Minister David Cameron, who had staked his career on the remain vote. His resignation became official today. Although late into the “Leave” camp, Conservative mayor of London Boris Johnson played a significant role in the Brexit victory. With some justification, he felt he should become the next Conservative leader. However, in a fit of excessive ambition, his main ally, Justice Minister Michael Gove, decided to knife Johnson in the back and stand himself as the Conservative leadership candidate. Apparently his disloyalty shocked even Parliamentarians within his own party. He was struck down rapidly. Last week, the Conservatives selected Theresa May, the current Home Secretary to become party leader and Prime Minister. She will be the first female occupant of 10 Downing Street since Margaret Thatcher. Interestingly, May remained largely quiet in the run-up to the Brexit vote and tepidly backed the “remain” camp.
The Labour party, the main proponent of the “remain” campaign, is in similar disarray after having lost the most crucial vote in generations. Many Labourites ascribe the failure to the divisive influence of Party leader Jeremy Corbyn, who many view as too far left on the political spectrum to unite the opposition. As a result, there is a strong movement underway to replace him as the leader. There can be little doubt that this effort will bear fruit in the coming weeks.
Only Britain’s fourth party, the Pro-EU Liberal party, has kept very quiet.
The power of the political and financial establishment in the UK should never be underestimated. While the new Prime Minister has expressed a strong desire to follow the will of the people and to stridently pursue dissolution of the union with Europe, her actual policies may be far more equivocal. It is my belief that Tory grandees have quietly placed a “remain” supporter in the top seat expressly to frustrate the will of the people. The implication of this is that most likely the BREXIT will be watered down and possibly drowned at birth. Such a development is totally in keeping with the massive EU con of enticing peoples into a free trade area only to transform it into a superstate to which all member nations will be subject.
It has become clear increasingly that many powerful EU and international elite rulers want the UK to stay within the EU. Furthermore, some 75 percent of Conservative MPs want to remain. It was apparent from the start that even the most committed BREXIT Prime Minister would have had a difficult task to steer a successful and complex renegotiation through Parliament. A Prime Minister of less conviction will find it all to easy to tell the electorate that, try as they might, they were simply unable to get the new treaty obligations through Parliament.
Already Theresa May has spoken of ‘controlling’ net immigration rather than ‘stopping’ it. This portends a very weak treaty whereby the demands of the EU will be met only by token resistance from a Conservative cabinet with secret ‘remain’ sympathies. Of course, this will all be clouded with high sounding, but largely meaningless, achievements by the UK and painful concessions by the EU.
What will it all mean for investments? The Pound Sterling could soon appear to be oversold, as will UK government bonds and the shares of some British companies. The euro also may be seen as undervalued.
Many assume wrongly that the euro is an ‘economic’ currency. In reality, it is a ‘political’ currency, depending on political will rather than on economic strength. With the recapture of the UK, the EU will appear stronger, a fact that could be reflected in the euro’s price.
Judging from recent events, it is likely that with the aid of the UK and international elites, the EU will succeed in recapturing the UK regardless of the expressed popular will. We may have seen the passing of Britain’s last peaceful attempt to regain its sovereignty.
John Browne is a Senior Economic Consultant to Euro Pacific Capital.
Source: John Brownes Market Commentary