Friday, June 24, 2016
Returning to a Once Glorious Past
The common wisdom in the pre-Brexit vote gave the “leave” the European Union a mere 25% chance of passage. The stock markets priced based on that assumption. When angry older English voters, mostly outside the biggest cities, defied the clean sweep of pro-remain Scottish and near-clean sweep of Northern Irish voters, and edged the “leave” vote to a 51.9% victory, global markets reacted with shock. Markets plunged. Everywhere… but Japanese, British (the FTSE 250 dropped 11.4%—While there is clearly overreaction among non-UK stock exchanges, the variable that financial players hate most – unpredictable destabilization – kicked in. Despite lots of “buy” opportunities, global financial markets could hear squeaking brakes everywhere.
The “safe haven” currency, the U.S. dollar, watched as almost every global currency dropped in relative value (the U.K. pound, the euro and the yen were particularly slammed). The pound hit a 30-year low against the dollar, and the UK slipped from being the fifth largest economy to sixth (France moved up). U.K. Prime Minister David Cameron, who championed the “remain” movement, resigned. While Article 50 of the Treaty of Lisbon (which allows member nations to leave upon their proper constitutional vote) effecting formal withdrawal from the EU needs to be passed by the UK Parliament, there is a rather clear expectation that this is a mere formality.
With overwhelming support in Northern Ireland and Scotland for “remain,” the schism that gave rise to earlier separatist movements (from the U.K.) in those regions, suggests that separatist movements are going to have new motivations to cut ties to England. “She was anything but ambiguous: ‘The vote makes clear the people of Scotland see their future as part of the European Union.’”
Although the destabilization issues will take a long time to settle down, and finding out whether an angry Europe will extract a measure of treaty/economic revenge against the departing Brits will not be immediately clear, the markets will soon reverse their over-reaction. Meanwhile, British travelers are finding that some Continental banks and hotels have but a moratorium on currency exchanges until the pound settles down.
Oh, and then there’s this: “[Although] leaders of the campaign to exit Europe are crowing over their victory, it seems many Britons may not even know what they had actually voted for… Google reported sharp upticks in searches not only related to the ballot measure but also about basic questions concerning the implications of the vote. At about 1 a.m. Eastern [U.S.] time, about eight hours after the polls closed, Google reported that [U.K.] searches for ‘what happens if we leave the EU’ had more than tripled… But despite the all-out attempts by either side to court voters, Britons were not only mystified by what would happen if they left the E.U.— many seemed not to even know what the European Union is.” Washington Post, June 24th. The Web is crawling with tweets from folks who had no idea of the economic consequences of a “leave” vote, suggesting that they wish they could reverse their choice. There is even a brand new petition circulating in the U.K. for a second vote, rapidly gathering signatures, now that voters have clear evidence of economic reactions.
Despite the fact that the U.K. isn’t remotely as diverse as the U.S. (read: England has a larger percentage of white traditionalists), it’s time to look and the “who” and the “why”… and what commonality we can find right here in the United States.
On the surface, the “leave” vote seems to be a powerful negative reaction to “globalization.” You can see that the English cities with the greatest diversity all voted to stay, while the white, less urban traditional English voters (the least diverse) voted solidly to leave. Was anti-globalization simply a surrogate for the general decline in the economic prospects – the standard and cost of living – for a dwindling middle class, increased wealth in the elitist classes at the expense of everyone else, and souring upward mobility for those at the bottom of the old world economic ladder? I think so. Having workers from lesser EU economies migrating to the U.K. to take jobs and looking at the prospect of displaced migrants (darker-skinned with that negative suspicion cast particularly on those from Islamic regions) sucking down social benefits and mounting possible security threats clearly angered old world English traditionalists.
These voters were quite willing to lose free movement among the 28-nation EU – travel isn’t a big part of their lives anyway – or enjoy the lack of tariffs within Europe, to restore borders and push the European Commission/Parliament out of messing with what they saw as their uniquely British way of engaging with the rest of the world. That the vote will, fairly obviously, increase their cost of living and reduce a number of opportunities for future generations was washed away in a sea of anger and fear. They seemingly voted to “make England great again,” even though the costs of that leave vote on their future were instantly manifest in currency and FTSE values. It will take a very long time for all of the elements of this EU withdrawal to settle down, but as long as big questions remain unresolved, we can expect volatility for the foreseeable future.
But to my mind’s eye, the biggest schism between “leave” vs “remain” vote has to be reactions of younger vs older voters. Look at the above breakdown of the voting skew based on age. Only 20% of younger voters (18-24) embraced the leave choice. “The older generation voted for a future the younger generation simply doesn't want. It tells you a lot about the future of the U.K. This younger segment is really angry at the vote.
As the EU grapples with the underlying issues that pulled the UK out of the Union, issues that ripple as major concerns across Europe, we are likely to see a massive restructuring on EU basics, particularly drilling down on migration/immigration as well as what is perceived as excessive EU central planning interference with what many believe should remain local, national prerogatives. This will not be a quick process, however. Without restructuring, other EU nations might even follow the U.K. out of the Union. Some are asking: “Could the U.K. return to a reconfigured EU?” It is indeed a possibility (except there will be an angry Europe that would have to take them back!), but if does not, expect Scotland to vote for independence in order to rejoin the EU.
The parallels with the United States are glaring and obvious. As Bernie Sanders seduced a younger, better educated voters (at the expense of the concerns of older voters) over issues such as tuition costs and the intolerable burden of student loans, as Donald Trump continues to cater to the U.S.-equivalent of old-world, white traditionalists that embraced the U.K. leave vote, it is clear that these highly divisive schisms are all based on fear and anger. Scapegoats abound. Muslims, Mexicans, immigrants, and even the governing bodies themselves. Power elites, far removed from old-world traditional grassroots constituencies supported by political incumbents, are deeply resented.
But we cannot legislate globalism away. It just is. There is no economy on earth that can stand alone without experiencing an economic contraction that would bring on a severe recession or perhaps even a deep depression to any country foolish enough to believe that isolation is a good answer for voter fears. We cannot legislate a repeal of modern realities and jump joyfully into a “how we were when I was a kid” past as if the massive intervening financial and technological realities, the socio-political changes, had never occurred. Desperation without logic is never a good idea.
We cannot build bricks and mortar walls against changes that aren’t reducible to physical components that can be so simply blocked and controlled. And for those who cannot envision the kind of world defined by Donald Trump, Democrats, Independents and Republicans who bristle at that thought, take a really close look at the “it will never happen here” “leave” vote in the U.K.
I’m Peter Dekom, and what we are really witnessing is the decline of the West – trying desperately to find easy button-solutions to recapture the past – as Asia (and eventually Latin America and Africa) rise with a smile and without a second thought.