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Thursday, June 23, 2016

Brexit at Tiffany’s: The EU Is Worse than Worthless for Britain

Only vested interests benefit from the continuity of the EU's failed regulatory policies

In this past weekend’s commentary, I discussed the failure of the market to hold its breakout above 2100 and the upcoming negative revisions to GDP. As of Friday, the market was flirting with breaking below important support at 2040.

However, Monday morning, that all changed. Over the weekend, the “Brexit” polls showed a surprising reversal as the “Leave” vote fell back to a neck-and-neck race with “Remain.” Of course, the primary concern for the markets over the last couple of weeks has been the impact of exit by Britain from the EU. (Which is arguably the best thing for them to do.) It all reminded me of the scene from “Breakfast at Tiffany’s:” 

Paul Varjak: Well, uh, holds up ring from Cracker Jack box] We could have this engraved, couldn’t we? I think it would be very smart.

Tiffany’s salesman: [taking ring and examining it] This, I take it, was not purchased at Tiffany’s?

Paul Varjak: No, actually it was purchased concurrent with, uh, well, actually, came inside of… well, a box of Cracker Jack.

Tiffany’s salesman: I see…[continuing to look at ring] Do they still really have prizes in Cracker Jack boxes?

Paul Varjak: Oh yes.

Tiffany’s salesman: That’s nice to know… It gives one a feeling of solidarity, almost of continuity with the past, that sort of thing.

Like the “ring in the cracker jack box,” the EU needs Britain much more than Britain needs the EU. For the EU, which is on the verge of self-destruction due to ongoing failed monetary policies, the need to maintain an image of “continuity” is critical.  A recent Bloomberg Brief with billionaire Peter Hargreaves, the largest U.K. retail broker, with more than $84.1 billion equivalent in assets, crystallized this point.  

“Every year in the EU it gets more political, it gets more legislative, more regulative; we don’t seem to get very much benefit from it. We will be far better out. The EU as an economic mark is declining in the world, when there were only nine countries in, it was 30 percent of the world’s GDP, now there are 28 it is only 17 percent. That’s some serious decline.

There’s a huge amount of vested interest, a lot people making these comments are politically motivated and also work for big banks that aren’t British. They’ve built these enormous dealing rooms and offices in the City of London and Canary Wharf and their bosses are saying we don’t want to endanger this huge investment of ours. I don’t think it will endanger that huge investment. You can’t move the City of London to anywhere else in Europe. It’s madness to suggest it. Frankfurt, the place everybody keeps talking about, only has a population of 700,000, it could not accommodate anything like the City of London. The City of London is absolutely guaranteed, it is bound to survive. The only center that could take over would be Zurich and that’s not in the EU either. It’s absolute drivel that the City of London will be affected. The City of London will go out and it will deal with these emerging economies in the Pacific Basin, Southeast Asia, Africa —  they’re all going to want finance for different things. You can’t set up the City of London anywhere else. It takes years, and during that time the City of London will have grown.

The EU will disintegrate when we leave. They will realize there is nothing left. The political union is going to be a disaster and they’ll want a free-trade area. Do you know who’ll be the first country invited to that free trade area? The U.K.”

He is correct. The whole social experiment of the EU was designed by political parties to socialize the entirety of Europe. Of course, as with all social experiments which require “other people’s money,” it is eventually doomed to failure. However, as Hargreaves correctly states, this is about the vested interest of those that are politically motivated and directly benefit from the monetary interventions of the ECB.

Fair use excerpt from Real Investment Advice.

  • Lance Roberts is the Chief Editor of the Real Investment Report, a weekly subscriber based-newsletter that is distributed globally. He is also writes a daily blog which is read by tens of thousands from individuals to professionals, and his opinions are frequently sought after by major media sources.