Brexit follow-up   

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Kim Asger Olsen

Kim Asger Olsen

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Kim Asger Olsen

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UK Politics
With Nigel Farage’s resignation as leader of the UK Independence Party, three of the four English parties (not counting SNP) are without effective leadership at a time when the country should be busy laying out the next step after the referendum on 23 June. The referendum has all signs of becoming a watershed in UK politics when new fault lines appeared, unwilling to follow traditional party lines.

EU politics
The first reaction from the EU Commission was that no negotiations with the UK could take place until the country had activated the Article 50, the article that formally launches the exit process. Of course this was meant as mean of keeping EU’s negotiation position as strong as possible and to discourage other possible exit candidates.

At the same time Merkel, Hollande and Renzi pointedly held a meeting without EU Commission president Juncker. It could be an important sign that in the upcoming negotiations, the EU Council of (democratically elected) political leaders will push aside the Commission. That probably signals a more flexible approach, as already signalled by German Chancellor Merkel. It probably also signals a political realisation that the EU cannot ignore that there is a serious backlash against the Union out there and that new thinking is required.

Commission President Juncker did not get that memo as he signalled that UK’s departure would make it possible to progress faster with the Union project among the 27 remaining countries.

Markets
Except for some higher volatility and a weaker sterling, things actually look much like 2 weeks ago. Bond markets are booming, as the doubts about the future growth get stronger. Stock markets saw a sell-off on a higher risk aversion. But since the UK referendum, the markets have rebounded. It does not look healthy, and is most likely a sign that the global liquidity support to the financial markets remains strong. All in all it is not a healthy climate for putting on too much risk.

Good old Keynes pointed out that low bond yields are the result of too much saving and too little investments. Many countries have negative 10 year yields. What prevents such countries from getting some infrastructure projects going, being paid for doing so and creating jobs and consumer spending while the projects are ongoing?

Oh yes, the answer is of course that ideology stands in the way. The Germans may have good instincts about how to salvage the political union. But their ideological purity is very expensive in terms of employment and growth in the European Union. While we are all pointing to the immigration as the main reason for the UK referendum result and for the growth of the right wing nationalism, we forget that nothing feeds extremism as strongly as persistently high unemployment.

Political comment
Referenda are winning the battle for the place as the most democratic institution one can possible imagine. I have come to disagree. Both sides of the leave/remain battle did not exactly tell the truth, with the leavers being mostly off the mark. Leading Brexiteers quickly admitted to have “exaggerated” their points. It is also known as “lying to the voters”. With that in mind, representative democracy suddenly looks like a very attractive alternative when it comes to making longer term policy choices, taking factual elements into consideration.