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Beyond Brexit doomsday myths



There is a great deal of distress in the wake of Britain's decision to exit the EU. The pound has fallen to a 31 year low against the greenback, over $US2 trillion has been 'wiped off' extremely inflated global stock markets, and so on.

British poundVarious shocked commentators — including George Soros, one of the main progenitors of financial market attacks on currencies and governments, which became the motive for forming the euro — are forecasting the demise of the Union. That is far from inevitable.

What seems to have been lost in all this noise is that Britain has a separate currency and an independent financial system. Had Greece decided to exit the EU last year the consequences would have been far greater than Britain's exit, because Greece uses the euro as its currency.

Britain has the pound, which means that it has an independent monetary regime. British interest rates are not set in Brussels, they are set by the Bank of England. And it has an independent fiscal and budgetary system, to the extent that it is possible.

The British government has been imposing 'austerity' measures because the government subscribes to the neoliberal orthodoxy, not because it is being told to do so by Brussels, or the Germans.

To see the difference it is worth reading Yanis Varoufakis' description of his 'negotiations' with the German finance minister Wolfgang Schäuble. They were not negotiations at all. Varoufakis had prepared what he thought were intelligent proposals to deal with Greece's debt. He was told in no uncertain terms what would happen; there was no attempt at reasoned debate.

As he commented later, 'we don't even agree to disagree'. The need to protect German and French bank loans was far more important than secondary concerns like respect for the Greek nation, or Greek pensions, or the nation's social fabric.

It is the kind of well dressed thuggery that characterises the EU elite and will continue to do so. Calls for the EU to 'reform' are almost certainly fanciful. It is run for the banks and powerful corporations. Many of the economic losers are starting to work that out and are voting accordingly.


"Claims that Britain will be locked out of the world's largest market are fanciful. Britain and the EU need each other."


Britain, however, experienced none of that financial pressure. Its exit will only have an economic effect, especially on trade, and on the movement of people. Television shows featuring Britons relocating in their retirement in southern Europe will almost certainly be shelved.

Many of the ensuing gaps will be dealt with by establishing treaties, which will probably resemble what was already there. There will be an effect on industries in the UK that have received subsidies from the EU. But both Britain and the EU need each other. The EU accounts for half Britain's trade, and a substantial proportion of Europe's trade is with Britain. Claims that Britain will be locked out of the world's largest market are fanciful.

Likewise, the European banks that have their headquarters in London will not be relocating. The capital markets are global and will remain so; the banks will simply do a deal to continue business as usual. Neither are tax differences between Britain and the EU countries much of an issue. Most large corporations pay negligible amounts of tax anyway.

The development to watch is how countries in the Union that have the euro as their currency will react. Greece decided to stay and, even if it had left, the country was probably not big enough to have imperilled the EU itself. But if Spain, Italy or the Netherlands start their own version of an exit the currency and the Union will collapse.

This would be a time when journalists' various overused adjectives — 'seismic', 'cataclysmic' etc. — might suit. The euro was established when traders, especially Soros, over-rode the central banks of Spain and England and created massive currency volatility. The reasoning was that a united currency could withstand the pressure of attacks by Soros clones. That proved to be true, although there was still a great deal of currency volatility that was unconnected to the economic behaviour. The cross rate between the US dollar and euro, for example, has swung in a wide arc since the euro's establishment and it rarely has had much to do with underlying economic performance.

The most important financial issue, the 'big game' as it were, is the dominance of the US dollar. This was not directly threatened by the euro because over four fifths of the euro trade has the US dollar on the other side. But if a third major currency emerges, notably the Chinese yuan (which at the moment is fixed to the US dollar), then the era of American dominance of the global financial markets would be threatened. If that happens the feverish journalistic adjectives would actually be appropriate.


David JamesDavid James is the managing editor of businessadvantagepng.com

Topic tags: David James, Brexit



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Existing comments

A refreshing voice of reason amidst as you say "the noise".

Jenifer Herrick | 28 June 2016  

I found this article very helpful; thank you

ann laidlaw | 28 June 2016  

It is certainly encouraging to read an article on Brexit without hyperbole. However I didn't think I would ever read an article by David James which included the clause: "Its (Britain's) exit will have only an economic effect". I think David has gone too far on the side of understatement. I have received emails from Scotland and Ireland whose authors see Brexit having much more than an economic effect.

Uncle Pat | 28 June 2016  

The "Euro" is a disaster and a rouse to make Germany rich at the expense of the rest of Europe; rather like the War-aims of the German government in 1914! But the UK was outside of all that, and seems to be exiting for all the wrong reasons, mainly of xenophobia. Hopefully some good will come out of it, in terms of EU reform, but there seems to be only pain in it for the Brits.

Eugene | 28 June 2016  

The Brits must now show what they are made of. Stand tall together, and get on with it, or surrender to the hyperbole of the losers who fear for a not inevitable chaotic transition. Stay calm and carry on!

Kay Bushnell | 28 June 2016  

Incisive and on the ball once again, David. My main connection with the UK is with family and friends in England. England, will, I think, be fine in the mid to long term. Some prognosticators of doom from Brexit - such as George Osborne - have changed their tune. Will the UK break up? If the Scots want to go their own way and Northern Ireland unites with Eire, I have no problem, as long as they take their shares of the national debt with them. I think many Brits were not keen on the infringements of the unelected bureaucrats of Brussels on their traditional liberties and freedoms.

Edward Fido | 28 June 2016  

Please, this xenophobia towards Germans has to stop. Harking back to long ago wars to explain economic conditions today is no less racist in its intent than the ignorant and hideous claims made about Jewish financiers in the Thirties. Moreover, why should ordinary German workers who have to work till they are sixty pay taxes for those Greek citizens who manage to avoid their tax responsibilities and retire by the age of fifty? Of course, this does not refer to all Greeks, just as German bankers are not necessarily representative of ordinary Germans either.

Monica | 28 June 2016  

A very helpful account, thank you, David. I think the effect on the United Kingdom will be more than economic, however. Northern Ireland, Wales and Scotland have been flexing their democratic muscles for some time; England is beginning to do the same. Whether Brexit is misguided or not, it may well be that the countries of Great Britain decide to go their own way. (Bands of Armstrongs and Charltons raiding along the Border again)?

Joan Seymour | 28 June 2016  

David James is correct to say that the EU, “is run for the banks and powerful corporations”, to which I would add, and the gargantuan anti-democratic Eurocrat bureaucracy. It is no secret that multinationals poured millions into the Remain campaign. This established cartel of multinationals keeps out competition and innovation. One Remain campaigner, Lord Rose, lamented that in the event of Brexit, wages for low skilled workers would rise. This closed-shop EU is the only shrinking trade bloc in the world. In 1973 the EU comprised some 36% of the world’s economy, but last year that was down to 17%. 10 years ago the EU took 55% of British exports, but last year it took only 45%. Yet Britain is tied to this shrinking trade bloc that prohibits members from pursuing their own trade deals. While there may be some short-term pain for Britain, freed from the shackles of the EU, there will undoubtedly be long-term success.

Ross Howard | 28 June 2016  

So is it panning out that two oxymoronic labels are unravelling? Great Britain and United Kingdom.

Michael D. Breen | 29 June 2016  

Boris Johnson won't succeed David Cameron as PM. Teresa May will do that. The English establishment members, (those with the 'received pronunciation' and concentrated wealth). are clever and cunning. They will 'prove' that the 'Brexit' vote is not legally binding. The establishment gets what it wants. Prime Minister Cameron promised the referendum, in order to win the last general election. That worked, but back-fired with the successful "Leave" vote. If the establishment doesn't want Britain to leave the EU, then the "Leavers" won't get it.

Claude Rigney | 29 June 2016  

Excellent comments, Ross Howard, and on a rare occasion I heartily agree with David James on many points. I love that Leave meme going around with Columbo scratching his head, asking "So let me get this straight: You pay £8.5 billion a year to be in a club that tells you where to fish, what to farm, who you can let into your country and about 40,000 other things, all so you can be inside its trade barriers which make the world's goods 8% more expensive, and you're debating whether to leave it or not??"

HH | 29 June 2016  

Extremely interesting and makes more sense than that which I read in the U.K. media!

Mrs. E. Christe | 01 July 2016  

"Calls for the EU to 'reform' are almost certainly fanciful. It is run for the banks and powerful corporations. " You mean unlike the Conservative government? The only difference is in it's masters. Murdoch was all for Brexit. Makes it easier for him. The only problem will be that there will be no EU to blame for what ails the Brits. But I am sure they will keep on doing so. The truth is malleable

Andre | 18 July 2016  

Great article! Very refreshing for a change. It seems as though you are apart from the "establishment" of the media servants to the large corporations and banks. Thank-you!

Michael | 12 August 2016