The markets feel tired and unfocused. The FOMC thing is out of the way, at least for the moment, and Brexit has been talked to death without anybody having a much clearer view either of what the result will be or what the implication of the UK leaving the union would mean to either party.
So long
Some readers might know that I am, from my bloodlines at least, 100% continental European. I was educated in mainline Europe, speak a number of European languages reasonably well, making me prime “remain” material. In the event, I have come off the fence on which many of my friends are still sitting and have swung the other way.
Somewhat perchance, I have found myself debating the Brexit vote with an old university friend of mine. We met at Manchester and she has gone on to a distinguished academic career is now a senior lecturer at our old alma mater. I would like to share our exchange:
Farewell
Her: What about the billions of pounds in science funding we stand to lose if we pull out? This is the underpinning for new jobs and technologies to keep us ahead of third world countries. It is estimated that the UK received €8.8 billion from the most recently completed EU research programme (2007-2013), having contributed an estimated €5.4 billion. Despite a reduction in UK government research funding to universities between 2009/10 and 2013/14, university research income increased over that period. This was largely due to increases in funding from the EU. Horizon 2020 is by far the EU’s largest research funding programme and the majority of this funding requires international collaboration.
Auf wiedersehen
Me: I get your point to some extent. We are one of the richer nations in the EU and hence, irrespective, we end up as net payers in. We might get more in research funding than we pay in but by the time all the credits and debits are added up, we give more than we get. If not, the poorer members would have to be net contributors … which they are clearly not. But I am not concerned with that. I am concerned with the simple fact that Brussels creates rules which it does not abide by or which it fails to enforce when members don’t. If a UK law or a rule is wrong or doesn’t work, it is changed. That is not so within the European edifice. The Treaty of Rome was written in 1958 and yes, it does include the concept of an ever closer union and a single European state. But time passes. Imagine trying to manage a company today while having your hands tied by a corporate strategy defined in 1958.
I am a strong believer in the original master plan for the union but it has gone awry. Lighting the blue touch paper and withdrawing is not a strategy which I can support. If our exit is the only way in which the system can be shaken up and rethought, so be it.
Her: I agree with an awful lot of what you have written about sovereignty and self-determination. However my main concern is that a vote to leave is a leap into the unknown. As you are no doubt aware, even the uncertainty surrounding leaving the EU is already causing the pound to drop. The leave campaign promises a rosy future but they don’t control the international money markets. I’m certainly not an expert on economics, but in a recent Ipsos MORI poll of more than 600 economists, 72% said a leave vote would probably have a negative impact on UK growth for 10-20 years.
Good night
Very succinct and insightful thinking but I cannot but respect her opinion. It’s not necessarily only the Brits who will lose but also the rest of the union, which would lose a net contributor. British disaffiliation would, in turn, increase the burden on the remaining payers in and most of all on Germany. No wonder so many fear this to be the first step in disintegration.
The yield on the 10-year Bund this morning is back down to 0.041% and, so it would appear, heading for zero. Add this to the news that the powers at Commerzbank are contemplating holding their and their clients’ cash in the vault rather than going to the effort of paying the ECB to hold it for them. That might be tough and demanding of lots of space if they don’t want to get caught holding those toxic bits of paper called €500 notes which the ECB is trying to withdraw. As I observed yesterday, the world is going mad.
Alas, for me at least, it’s that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. Exams are in full swing and I wish good luck to those among you who have young studying for them; by this time next week, they’ll be glued to the TV watching… you know what.