A Worst Case Sernerio?

by Glenn N. Holliman

The words over the referendum to remove the United Kingdom from the European Union continue.  This is an issue that will consume the U.K. for years to come.  Terry Field, a London School of Economics graduate and retired successful businessman on two continents, continues to mull over the result over this amazing event in British history.  His analysis is troubling and deeply pessimistic.  Whether Remain or Leave, one hopes for the sake of the British people, that the future that Terry describes never occurs.  

England has become Another Thing- Terry Field

The deed appears to have been done.

The nearly 52% compared to 48% vote to 'leave the EU' is done.

All potential leaders of the Tory Party have said that the will of the people to leave the EU will be done.

I have seen nothing similar that has propelled people in Britain into paroxysms of joy or horror, depending upon the individual preferences, as this has done.

Now there is a loathing of the political class, that the news channels today describe as almost at the point of insurrection. I am surprised violent insurrection has not already happened in Britain, concerning a number of matters, not only brexit.

The British will be governed by a newly led Tory Party in a few weeks, a couple of months at the most.

The front runner, Mrs May, says that deportation of European migrants will not be 'ruled out'.

The framework of government has now completely changed. The prior expectation to move to a balanced budget and a relief from austerity is now deferred, in reality for decades. Maybe for the rest of my life. The social and cultural framework of the country will be changed by these economic adjustments, as well as a rolling experience of cultural isolation from a continent now thoroughly rejected.

There is much discussion concerning who will be best to lead the 'negotiations' with the EU.  I have to say that this seems a touch humorous. The 27 have discussed this, and there is an opening statement issued by the major powers, Italy France and Germany, as well as the Commission of the European Union. 

That statement is in two parts. Firstly they state that there will be no offer of access to the single market without acceptance of the four freedoms - including the right of free movement.(now stated to the Swiss as well). Secondly no official at any level will engage in negotiations with Britain until that country has triggered Article 50 - the declaration of leaving the union.

The EU is completely in the driving seat here.  It holds all the cards.

Britain then becomes a supplicant, and the offer structure is entirely made by the 27. And it should be stressed ALL the 27. Any one can veto any softening in the terms. And many will do so.

There is febrile activity by the right in Europe, in Austria where the presidential election is to be rerun, and France and Holland, where there is pressure from the right for referenda on exit.

This may happen, in which all is up in the air, but I do not think it will happen. (For why, I will write another note).

The impression Britain has given to Europe is of a country that loathes the people who are its neighbours, wishes to insulate from them, dislikes the cultural variety that is Europe, and is happy to show violence, intimidation, hate and oppression to large numbers of Europeans living in Britain.

That response is happening across the country, as I write. It is my view that this new image of Britain will run and run in the mind's eye of the world. And it should.

I see a Britain full of arrogant superiority, dreams of the past, obsession with a distorted view of history that commences in the year 1940, and which gives an almost lunatic impression of the potential to 'rejoin the world' as if Victoria was on the throne, and all were supplicants to the British power and will.

This rather nasty xenophobic sweat has developed in Britain over the last few decades. Why? Simple. The only way Britain can deal with the immense failure its society has become when compared to both its past, and the best of the rest of the world.

It is hard to describe the depth of governmental incompetence in Britain since 1945. The results are there for all to see; and the more the reality is stark, the more ill-tempered denial becomes the currency of choice there.

The present condition can be compared to the 'phoney war' in 1940. There has been economic perturbation, and there has been crisis stress experienced but that is all unimportant. The real misery is yet to come, and will become cumulative in effect.

The British economy is burdened with unsupportable debt - both state and private. Why unsupportable? because the interest on the State-issued debt is capitalised, and compounded with interest subsequently.

So what has happened this week that makes the ratchet of impoverishment begin to turn and bite? It is  the loss of triple A credit rating. That will cause the increase in costs of debt finance and that will be progressively felt in the next three decades. Look at UK bond issuance, and shudder.

Terry tends his garden, collecting vegetables and his thoughts.

As for the City, the banks will migrate to Paris, Amsterdam and Frankfurt those activities that require 'passporting' freedoms. This will extend to many other associated activities. Remember that the German stock exchange is now purchasing the London stock exchange, and look today at the actions in France and other states to help the process of moving functions out of London.

There is no possibility that any other sector can make up for this loss of wealth and activity.

The biggest single issue for British ministers will be the acceptance or otherwise of the four freedoms. This will be non-negotiable by an EU that is now quite revolted by British social behaviour displayed over the last fortnight.

Rejection of the four freedoms will rule out access to the Single Market. Furthermore, to choose the 'second grade' market access - the European Economic Area - also requires acceptance of the free movement of peoples.

Exclusion of EEA status leaves only world trade rules. To accept WTO rules would be utterly ruinous. Why? Firstly, other suppliers will take natural and price precedence. Secondly, there would be immense emotional rejection for British goods in Europe. That area takes 48% of goods from the UK. The EU ships less than 2.4% of its output to the UK. Brexiters say the trade deficit means Europe has more to lose; this is childish. They can bury British industrial supply, and the competitor suppliers within Europe itself can easily replace this lost supply.

Non-tarif barriers against financial services and traded goods will be aggressive developed by Europe if it becomes an antagonised competitor with Britain, and not a partner and co-developer.

Britain will be unable to keep up with the avalanche of EU integrationist legislation without which Britain will simply be looked at as a third nation like Argentina, and treated accordingly.

There will be very many corporations who either relocate to Europe, or shift investment accordingly. The City ruthlessly invests where the best yield can be made, and that will, less and less, be considered to be Britain.

All this adds up to absolute impoverishment, and as the EU integrates its fiscal economies and burden shares more via the ECB, it will begin to succeed more and more.

As Britain is seen to fail at the same time.

Of course the die-hard leavers are so twisted that many will glory in the impoverished isolation. Some have started to say so even yesterday!

There is another current flowing here, not discussed, but it will emerge into public consciousness over the coming years. The old dream of the Shire Tory, and now also of the ill-educated racially and culturally threatened urban peasant, of a low-tech, slow-moving local world, untroubled by the frenetic competitive forces found in Europe, the US and elsewhere, is wanted and dreamed of.

The shire Tory loathes the educated middle class. This helps him get rid of a lot of them - or so he hopes.

The Nexus of New Labour and international capitalism is rejected here, and its acceptance of cultural plasticity is vehemently rejected. These brexit urban peasantry folk do not care for prosperity, since they cannot achieve it for themselves. They wish not to be seen as, and feel failures. 

Isolation allows them to feel more content. Or so they imagine.

This is reflected in the voting geography. London is full of clever, quite asset-rich, globally connected people. The country is empty of them, in the main.

In Scotland, there is no Shire Tory tradition, and a fierce rejection of social deference - because of the bitter experience of its reality suffered over many decades.

London and Scotland voted overwhelmingly to remain; the green desert to leave.

The result will be bitter for the young. They will be cut off from the life of working and living in any of the 27 European states. There is not the understanding that, in contrast to the 1960s, when all countries in the old 'first world' were quite porous to travel within , settling and assimilating, now the barriers are getting to be a thousand miles high.

Now, with brexit, exclusion will become total if the Fourth Freedom is rejected by the incoming Prime Minister. And it may well be. Then, there will be nowhere for a young British person to go; the bars to entry will be very effective at excluding, and in effect imprisoning.

As to science and culture; it will be a catastrophe. Now, the EU directs massive resources to these areas. That will stop, and in a country with a permanently declining currency, gigantic current account deficit, reduced GDP, greatly reduced tax-take, reduced overall capital investment, even lower labour productivity (if that is possible) there will be no funds from the centre to replace those from the EU. The membership fee saved from the EU will be peanuts compared to the remorseless decline after brexit.

The pharmaceutical research industry is passported; when that finishes, it will decamp to Europe, That is being planned already. The only world class industry the British have save finance. 40, 000 high skill jobs in pharma research will in all probability migrate over time. EU membership is an absolute condition to UK location.

The brexiters claim the fishing industry will be 'recovered'. A silly argument, since the bulk of fish is shipped to continental packing plants. That will not change. We cannot send a gunboat to stop the Europeans from canning and processing fish.

Industrial final assembly is what the automobile industry does. This will begin the slow strangulation of UK output. This will be achieved in the following way:

The Strangulation:

1 Major sub-componentry will be diverted to continental plants.

2 Continental East European plants will be ramped up or newly constructed, that deal in activity currently undertaken in Britain, or due so to be.

3 Predatory non-price tarrifs will be erected by recipient final assembly plants in Europe

4 Price uncertainty will cause a shift to within-EU-Euro plants at the expense of UK sterling denominated plants. IT is not just the level of sterling that matters, it is its unpredictability that will push this trend.

5 The German 'centre-of-gravity' effect will become unconstrained, as it has been, in the name of European solidarity and integration.

The aviation industry. Bristol no longer owns the wing technology. That was sold to German companies. There will be a switch of wing manufacture from Bristol to the continent. This is already being publicly discussed.

In industry after industry, a leaching away will be the experience.

Relations with India Australia and New Zealand will not stop this; the trade deficit will balloon. The loss in currency value will give no export boost. The lack of industrial muscle means that there is little the world wants. A sad reality. But true.

Most Brexit people give the impression of knowing nothing of finance and economics; indeed many actively glory in this, and only care about 'getting their country back'.

For others, it is a horror on many levels.

I consider the mask Britain has shown to the world has permanently slipped. The real Britain, a sort of Portrait of Dorian Grey, will greatly affect its standing, credit-worthiness, acceptability, and prospects.

For me the worst aspects have been the lies of the Brexit political group, the racism, the foul treatment of minorities - which continues, the abuse of little French children going to school, the violence inflicted on defenceless and now very scared 'foreigners', capped off with Farage's stinking treatment of the European Parliament, sneering his contempt at them, before pitching for trade because 'they would not 'cut their noses off to spite their faces'.

They laughed at him again, and were offended by his blend of arrogance and absurdity.

They will not forget that. They will smash the UK if they can, partly out of pique, partly to discourage the other countries from thinking they can leave and benefit.

And Russia in all this?

If Europe breaks into components again, it will be the regional hegemon. DO not expect the United States to act to protect under the fifth article of the NATO treaty, for a continent at war with itself.

War with Russia may or may not be probable; in fact nobody can be certain. But that Russia looks to recover the Baltic States, and the whole of the Ukraine is certain. It covets Finland. It covets large lumps of present-day Poland.

I can imagine a circumstance after the collapse and fragmentation of Europe after the local fascists have whipped the people into mutual isolation whereby Russia's rapid and radical use of its now immensely capable regional forces could achieve much of this. And the US would do little to reverse or check the situation.

Brexit, and the rest who could follow, will smash European competitiveness, and may result in a regional war and strategic failure.

That is why I regret this new insanity, based on the same tatty dreams all European nationalism has relied upon.  I feel like a social democrat must have felt in 1930s Germany. A mix of sadness, insecurity, disgust at my country and fear for the future.

Terry Field