BREXIT: It's time to tell the EU to get real or get lost

nough is enough. The EU now needs to offer a comprehensive free trade agreement for goods and services which leaves the UK free to spend it own money, make its own laws, and conduct its own trade policy. If the EU rejects any such suggestion then the UK should simply leave on March 29 2019 without a deal and without paying Brussels a penny

EU summits are a precarious affair

John Redwood MP

On 28 June 2018 11:20

The UK may want the EU summit to be about that post Brexit relationship, but much of the time will be taken up with the rest of the EU trying to stitch together a new migration policy.

That will be followed by a meeting of the Eurozone Heads with Germany wanting to reinforce the austere disciplines of the scheme against possible challenges from Italy and others. The rows over migration may make the issues over the Euro more intractable and fractious.

When the PM is allowed to put the UK case I want her to be strong as well as her usual courteous and helpful self. She should say the UK negotiators have been more than generous so far in responding to EU demands for money we do not owe, and in potentially accepting powers and controls we do not have to accept during a possible transition.

In return the EU now needs to offer a comprehensive free trade agreement for goods and services which leaves the UK free to spend it own money, make its own laws, and conduct its own trade policy. If the EU rejects any such suggestion then the UK should simply leave on March 29 2019.

The public have rightly shrugged off the latest round of Project Fear statements. Airbus has no wish to try to sell planes without wings, and is not about to substitute Chinese wings for UK ones.

There need be no queues of lorries at Dover or other UK ports once we leave. The UK will control those borders and will use the electronic and advance filing systems we already use for our trade to avoid needing to calculate customs dues whilst the driver waits at the border. 

There hasn’t been a new Project Fear worry for some time. The Remain media just seem to like recycling old materials time after time, with no particular purpose.

http://www.thecommentator.com/article/6828/brexit_it_s_time_to_tell_the_eu_to_get_real_or_get_lost

Migration strikes at core of EU's existential crisis

When some writers have said that immigration is an existential matter for Europe, they are not exaggerating. The EU has to decide whether it is a loose association of independent states, or an ever closer union of the likeminded. Soon, it must choose

Angela on the ropes

Tim Hedges

On 26 June 2018 09:33

It was hard to guess what Giuseppe Conte, the new Italian Prime Minister, would be like. Would he, coming from the academic world, be a bit of a ditherer? A politicker of the internal and the trivial? Am I unfair in thinking he was just a bit too good looking?

Would he, when all is said and done, having two masters, just be a mouthpiece for Di Maio one week and Salvini the next? Well, so far I have to admit he has done pretty well.

Conte had the usual surreal introduction to Europe. He was getting ready for a summit, but was invited to a mini-summit a bit earlier. When I say mini-summit, I mean that some supposedly equal members of the EU were not invited. Since some also refused to attend, in the end only 17 appeared.

The purpose of the summit was to keep Angela Merkel in power in Germany, despite a democratic manoeuvre there to pitch her out. The declared purpose was of course not that, but to discuss the immigration crisis.

Merkel’s coalition partners, the Bavarian CSU, are so concerned about the porousness of Germany’s borders (well, Bavaria’s borders) that they are threatening to withdraw support from her, which would cause the coalition to collapse.

At Giuseppe Conte’s office, prior to his departure for this spurious rescue mission, there arrived a document which must have made him feel he had woken up with Alice at the Mad Hatter’s Tea Party. It was a summary of the conclusions of the summit which had not yet taken place.

What the summary said was that everyone (!) agreed that the Dublin Agreement should be strengthened to the effect that if Germany found within its borders someone who had applied for asylum first in Italy, they could immediately send him back.

To Conte this meant ‘You agree to abandon everything you have campaigned for and have been elected on’. He politely said that since they had already decided what had been said there seemed no point in him attending the meeting.

‘No, no, you must attend’ squealed Merkel, ‘please attend. We’ll suspend the summary.’

Now, conscious that no statement from Europe about immigration was worth a centesimo without Italy’s imprimatur, Conte attended but with his own plan. Il Piano Italiano (meaning the Italian plan, not .. er.. piano) says that when a migrant arrives, he has arrived in Europe.

They are not used to this. The European Motor is supposed to be France and Germany. Conte seems to have slipped in a Ferrari engine.

Under the Piano Italiano, each country will be given a quota of the percentage of immigrants they must take, and those who refuse (Hungary, Czechia, Slovakia, Poland, perhaps others) will have their subsidies cut. This is not quite what Merkel meant when she said ‘migrants cannot choose which country they go to.’

What Merkel meant was that there are Italian migrants (quite a lot), German migrants (sometimes we like them, sometimes we don’t) and Hungarian migrants (none at all). What the Piano Italiano means (and says) is that there are European migrants.

In the middle of it all President Macron usefully said there is no Italian migration crisis. No wonder that child treated him like a schoolfriend. Yes there is, Manu, and the Italian people demand something is done. Salvini’s vote is rising, with a strong performance in the recent local elections.

When some writers have said that immigration is an existential matter for Europe, they are not exaggerating. The EU has to decide whether it is a loose association of independent states, or an ever closer union of the likeminded. Soon, it must choose.

There is a flavoursome irony here: in 2011 the EU, led by Merkel, brought down the elected Italian government. It very nearly brought down this one before it even started. Might it be that Italy, by vetoing Merkel’s rescue, could do the same to Germany?

Ciao, Mutti.

Tim Hedges, The Commentator's Italy Correspondent, had a career in corporate finance before moving to Rome where he works as a freelancewriter, novelist, and farmer. You can read more of his articles about Italy here

http://www.thecommentator.com/article/6827/migration_strikes_at_core_of_eu_s_existential_crisis

Theresa May caught in Brexit crossfire over lack of progress in negotiations

Theresa May is facing pressure from all corners after pro-Brexit and pro-EU business leaders wrote to her each urging progress in their separate visions for a trade deal.


Sunday 24 June 2018 10:33am

Theresa May was told to get tough with the EU by pro-Brexit groups (Source: Getty)

Pro-Brexit business leaders urged May to speed up plans for a no-deal Brexit amid warnings that time for negotiating is running out.

The letter, signed by Brexiters including former chancellor Nigel Lawson, MP John Redwood, and Wetherspoon chairman Tim Martin, say the UK should not be afraid to revert to a World Trade Deal under WTO rules if Brussels refuses a free trade deal.

Under WTO rules Britain would not have a preferential trade relationship with the EU and tariffs would be applied to all UK exports.

The government has consistently said it wants as "frictionless" a trade deal with the EU as possible.

Read more: Anti-Brexit campaigners descend on London to demand second referendum

In the letter, organised by the Economists for Free Trade (EFT) and seen by City A.M., the business leaders call on May to take an “assertive” approach at a crunch EU Council meeting in Brussels, and to repeat her mantra that “no deal is better than a bad deal”.

It said in light of the EU's "intransigent and punitive" stance to negotiations May needed to make clear that she would be prepared to crack on with preparations for a no deal.

"To have any real leverage in the Brexit endgame, the UK must reserve the right to walk away without a trade deal and take with it the £39bn it has offered to pay as part of a divorce settlement," it said. "This money covering the final years of the EU budget settlement must be contingent on our securing a satisfactory free trade deal. No trade deal, no money."

"In addition to the £39bn that the EU desperately needs to fill the hole in its budget, you have many things going for you. In spite of the doom-mongers, the UK economy is in rude health. The world is desperate for the UK to once again take up leadership for global free trade and free trade deals are on offer from our major trading partners."

The letter coincides with warnings from the other side of the table that a lack of progress in the negotiations was sending jitters throughout Britain's economy to the extent that many were considering pulling investment out of the country.

A separate letter by Pro-EU groups sent to May and the EU's chief negotiator, Michel Barnier, said "the clock is ticking increasingly loudly and the business community is deeply concerned that time is running out".

It was signed by influential organisations including the British Chamber of Commerce, the EEF Manufacturers' Association, the Federation of Small Businesses and the Institute of Directors.

The most high profile sign of no confidence in May came from Airbus, which warned a no-deal Brexit could force it to quit the country, risking up to 100,000 jobs.

Airbus said the warning was not part of "project fear, but its "dawning reality".

Its chief operating officer for commercial aircraft said it needed "immediate details on the pragmatic steps that should be taken to operate competitively", which the negotiations were not granting.

“Without these, Airbus believes that the impacts on our UK operations could be significant. We have sought to highlight our concerns over the past 12 months, without success. Far from ‘Project Fear’, this is a dawning reality for Airbus. Put simply, a no-deal scenario directly threatens Airbus’s future in the UK.”

http://www.cityam.com/288064/theresa-may-caught-brexit-crossfire-over-lack-progress

MUST READ: A nail in the coffin of Brexit-phobic House of Lords

Despite their disgraceful attempts to do so, the Lords won't stop Brexit. But in shamelessly attempting to thwart the democratic will, they have achieved something: the British people are now alive to the necessity to scrap this corrupt institution and replace it with something better

Empty it and start again

Stephen Mitchell

On 22 June 2018 11:40

This week has put the future of the House of Lords in doubt – even though their attempts to frustrate the EU (Withdrawal) Bill have not succeeded.

Despite all their grandstanding and outrage, attempts by the Upper House to undermine the will of the people and reverse Brexit were forcefully rejected by MPs, and talk of the Lords’ abolition made it to Westminster Hall.

Debates across the Parliamentary estate resulted unfavourably for the bloated, unelected House of Lords.

This began on Monday 18th June, when Robert McBride’s overwhelmingly popular public e-petition – calling for a Referendum on abolishing the House of Lords – was debated in Westminster Hall. With 169,000 signatures behind the petition, it was refreshing to see a passionate gaggle of Parliamentarians from the Conservatives, Labour and Scottish National Party debate in the name of public interest.

Curiously, no Liberal Democrat MP thought the debate worthy of their time, despite theirs being the party which forced the Coalition Government to introduce a reform bill in 2012.

Conservative MP Paul Scully – a passionate Brexiteer – introduced the petition, and eloquently outlined the pivotal faults of the institution. The EU (Withdrawal) Bill amplified these faults, laying bare the snobbery of Peers – the majority of whom are failed politicians enjoying their status – and luscious expense accounts - without needing to worry about accountability.

Parliamentarians from both sides of the aisle came together to criticise the overstepping of the Lords’ constitutional role, and the anachronism of an unelected, increasingly large, Upper Chamber.

As with many debates, especially regarding e-petitions, the immediate effect may be small. In this case, the Minister of the Constitution, Chloe Smith MP, pledged little more than ‘a reduction in size of the Upper House’. BIG DEAL.

Most change in Government is incremental. Hopefully, this debate was nothing less than a step in the right direction. Of all the various futures imagined in Westminster Hall, the status quo or – heaven forbid – a return to the pre-Blair era of only hereditary peerages, was thankfully not discussed.

When right wing Conservatives, the far left of the Labour party and the SNP all find common ground, serious reform is surely afoot.

Not long after the MPs spoke in Westminster Hall, Peers congregated on the red benches to attempt to defeat the Government. Lord Hailsham (former Tory MP, Douglas Hogg) re-introduced the ‘meaningful vote’ amendment to The EU (Withdrawal) Bill – the last of the attempted ‘wrecking’ amendments. In calling Brexit a ‘national calamity’, the worst fears of Brexiteers were confirmed, and the Lords’ true colours revealed.

The EU (Withdrawal) Bill ping-ponged back to the Commons on Wednesday, where it was finally laid to rest. Dominic Grieve MP, former Attorney General and arch-Europhile Conservative, tabled what was essentially the same amendment as Lord Hailsham. It called for a ‘meaningful vote’ whereby Parliament would take control over the negotiations if Theresa May failed to reach a deal - or if Parliament voted down that deal - come the New Year.

Constitutionally perverse, and motivated by ant-Brexit sentiment, this is a red line for Brexiteers.

In the face of public rage - and the potential to bring down the Government - Dominic Grieve finally capitulated. He relented on his vociferous threats and simply crumbled, voting against his own amendment. This left the mafia of anti-Brexit Conservatives – including Anna Soubry, Kenneth Clarke and Antoinette Sandbach – flummoxed, with only 6 Tories rebelling against the Government.

So, it was another loss for the Remoaners, and a final defeat for the Peers. A yank to the ground from their high horses.

As with the Westminster Hall debate, The EU (Withdrawal) Bill highlighted those in both parties who very clearly respect democracy and their constituents. Labour’s Graham Stringer, John Mann, Kate Hoey and Frank Field all rebuffed their Whip and sided with the Great British Public. Frank Field, earlier in the week, penned a piece for the Daily Telegraph calling for the abolition of the House of Lords, which just goes to show how dire the situation is for the likes of Lord Hailsham and co.

Public sentiment has undoubtedly shifted, followed by increasing pressure by the Commons as high-profile Conservative ‘Remoaner’ MPs in prominent ‘Leave’ constituencies are being castigated by their own voters.

Conservative Remainiac, Antoinette Sandbach MP had the temerity to report one of her own constituents to the police, about a perfectly reasonable letter this pensioner wrote to Sandbach to question her loyalty to her predominantly ‘Leave-voting’ constituency.

With the Lords’ posturing over Brexit, it’s clear the public are frustrated with the role of the Lords in the legislative process. One or both of the major parties will, no doubt by 2022, feature reform or abolition of the Lords in their manifestos.

The more the House of Lords attempts to usurp power from the people of the United Kingdom, the more enthusiastic the Great British Public will become for the bloated, outdated, hugely costly and increasingly irrelevant Upper House to be replaced by something – anything – much better.

A recent ComRes poll commissioned by We, The People illustrated the extent of the public’s ire. 76% of respondents think the House of Lords is ‘Out of touch with the British people’; 79% think the chamber is an ‘outdated throwback’; and 79% believe most Peers are ‘cronies, retired or failed politicians’.

This is hardly a surprise when findings from the Electoral Reform Group show the disproportionate number of Peers from London and the South East, and hardly any from the North of England.

The House of Lords has brought upon itself a PR disaster – the sight of well-spoken former Civil Servants, has-been politicians and hereditary peers, patronising the Great British Public has not gone unnoticed.

When 17.4 million proud Britons voted in 2016 to Get Britain Out of the European Union it was seen as a final opportunity for their voice to be heard inside the ‘Westminster Bubble’. The House of Lords have not scored a win in their attempts to block Brexit, but the fact they attempted to has started the countdown to their retirement.

http://www.thecommentator.com/article/6826/a_nail_in_the_coffin_of_brexit_phobic_house_of_lords

Brexit vote two years on: seven charts that tell the story

On 23 June 2016, the UK public voted on whether or not to stay in the European Union (EU). Many expected the UK to remain in the EU, but by a majority of 52% to 48% the Leave campaign won.

Friday 22 June 2018 7:31am

Boris Johnson, the Conservative MP, played an important role in the leave campaign (Source: Getty)

The UK is scheduled to leave the EU at 23:00 UK time on 29 March 2019.

Timeline to Brexit

Key Dates	What's happening?
18-19 October 2018	EU Summit: Set out withdrawal agreement including divorce bill. A political declaration on the framework for the future relationship with the EU.
Autumn 2018	The House of Commons needs to sign off a Brexit deal.
January 2019	EU and UK parliaments must ratify withdrawal treaty before Brexit.
29 March 2019	UK is scheduled to leave the EU at 23:00 UK time, providing everything is agreed.
30 March 2019	UK will begin a transition period, during which it will maintain the benefits of being in the EU but can negotiate its own trade deals.
31 December 2020	Transition period ends. The UK can implement its own trade deals.

What’s happened in markets since Brexit?

Stock markets

In the immediate aftermath of the referendum the FTSE 100 and the FTSE 250 fell 9% and 12%, respectively. But since the close of the market on 23 June 2016, UK shares, as measured by the FTSE All-Share, have risen 31.2% as of 15 June 2018.

The global economic backdrop has been helpful. Global investors have bought into the so-called Goldilocks scenario; a “not too hot, not too cold” combination of stable growth, benign inflation and low interest rates.

Support for the UK market and the economy came from the Bank of England (BoE), which has kept interest rates low and monetary policy loose, ensuring businesses and markets have access to funding.

However, the UK stock market has lagged the rest of the world. Since the Brexit vote, Asian shares have returned 44.1%, according to Thomson Reuters data; US stocks returned 37.2%. Only European shares, of the five main indices we looked at, made less than the UK, returning 19.5%. Global stock markets have returned 33.2%.

Stockmarket returns since the Brexit vote

Past Performance is not a guide to future performance and may not be repeated.

Source: Schroders. Thomson Reuters Datastream data as at 15 June 2018. All stockmarket data is total return (including dividends) and in local currencies except for Asia and World which is in US dollars. MSCI indices used for Asia and World stocks. S&P 500 used for US stocks, FTSE All-Share used for UK shares and Stoxx 600 used for European shares.

Sterling

Sterling is down by 10% against the US dollar since Brexit, according to the Thomson Reuters data, although this masks a recovery from the near-20% fall immediately after the vote (see the chart below).

The uncertainty over the outcome of Brexit negotiations, a slowing UK economy and a spike in inflation at the start of 2018, have forced the BoE to keep interest rates low so as not to slow the economy further.

Low interest rates and economic and political uncertainty aren’t good for a currency. But while a weak pound is bad for those of us going on holiday, it can be good for UK-listed companies which generate their profits overseas. If the pound is weak, then the money companies make in foreign currency is worth more once converted back into sterling.

Read more: How currencies move stockmarkets

You can see the effect the fall in sterling has had on the FTSE All-Share index in the chart below. The weakness in the pound has supported the index’s gains over the last two years. When the currency has strengthened the stock market has weakened and vice versa.

In fact if you convert all the index returns into dollar terms then UK stock market is the worst performing index of those we have highlighted. It is up 18.9% since Brexit, less than European shares which are up 21.8% in dollar terms.

How sterling weakness has supported the UK stock market since the Brexit vote

Past Performance is not a guide to future performance and may not be repeated.

Source: Schroders. Thomson Reuters Datastream data as at 15 June 2018. FTSE All-Share used for UK shares.

Stockmarket sectors

The Goldilocks economy has worked its magic on the sectors benefiting most from more benign global economics, among them basic resources and materials.

Sectors with lower cyclicality - those that produce goods and services for which demand is less affected by the health of the economy - have done less well. The weakest of these have suffered also from regulatory and competitive issues including telecoms, utilities and tobacco.

Elsewhere, real estate and general retailers have continued to underperform but structural concerns, epitomised by the ‘Amazon effect’ – the ongoing evolution of the retail sector brought about by online disruption - appear more significant than Brexit.

Valuations are lower in sectors which are more dominated by domestic-focused companies as the table below illustrates. Telecoms, utilities, retail and banks all look cheap, compared with the UK market average, on a cyclically-adjusted price to earnings (CAPE) multiple. A lower number suggests better value.

CAPE compares the price with average earnings over the past 10 years, with those profits adjusted for inflation. This smooths out short-term fluctuations in earnings. Valuation measures shouldn’t be considered in isolation.

Read more:

• Is the high street really doomed?
• How to value stockmarkets

Sector	Total returns since Brexit	CAPE valuations
Basic resources	109.8%	13.4x
Basic materials	103.7%	14.2x
Food & drug retail	56.5%	14.1x
Beverages	49.3%	37.2x
Tech	46.7%	40.9x
Banks	40.4%	11.8x
Insurance	36.9%	14.9x
Construction & materials	35.9%	22.1x
Financial services	35.1%	29.8x
Industrials	34.0%	22.3x
UK market	31.2%	17.8x
Travel & leisure	25.7%	22.7x
Healthcare	23.4%	19.0x
Media	20.6%	21.1x
Retail	18.8%	14.7x
Real estate	1.5%	20.4x
Utilities	-7.4%	12.5x
Tobacco	-9.9%	20.1x
Telecom	-21.0%	13.4x

Past Performance is not a guide to future performance and may not be repeated.

Source: Schroders. Thomson Reuters UK Index series data correct as at 15 June 2018.

Explaining what has happened in UK equities since the referendum is one thing. Predicting how the market will behave as Brexit negotiations play out is quite another. As the Amazon and regulatory examples show, Brexit will continue to be only one of a number of factors occupying UK equity investors.

View from a fund manager - David Docherty, UK equities:

“A big influence will be the ongoing tightening of US monetary policy. This is bound to have implications for the world economy and markets as investors wonder how long Goldilocks will grace us with her presence. We think this will increase volatility with associated moves in bonds, commodities and currencies causing ripples in UK equities.

“In the meantime, there are other non-Brexit factors such as technological change, international trade, geopolitics and the current takeover (the merger and acquisitions of companies) boom, while recent ructions in Italy show that the eurozone faces serious issues of its own.

“The inevitable twists and turns of the Brexit process are sure to keep investors on their toes, not least because of the implications for UK party politics.

“Significant market moves are eminently possible and making the most of any valuation anomalies which emerge will be the challenge for investors.

“In sector terms we are alert to opportunities in the unloved utilities and retailers, while experience has shown that periods of market turbulence can throw up exciting bottom-up stock ideas across the market as a whole.”

What has happened to the UK economy?

Growth (GDP)

The UK has fallen to the bottom of the G7 growth league. This is a group of the world's seven most powerful industrialised countries - the US, Japan, Germany, the UK, France, Italy and Canada.

As the chart below illustrates, the slide down the rankings came after the UK’s vote to leave the EU.

House prices

One of the best barometers of the health of household finances in the UK is house prices; since Brexit, house price growth has slowed consistently.

It may not be entirely due to Brexit, although it has been cited as a major factor by most providers of house price data. Buy-to-let investors have had to endure an increase in stamp duty and a tightening of mortgage tax relief.

Read more: Can the UK economy cope with sustained house price falls?

Interest rates and inflation

In August 2016 the BoE cut interest rates to an all-time low of 0.25% after a period of uncertainty following the Brexit vote. In the months that followed inflation steadily rose higher, finally peaking at 2.8% in late 2017.

The BoE raised interest rates back to 0.50% in November 2017 as inflation rose and the economy appeared to be on a more stable footing. Investors were so confident of a further rate rise in May 2018 that they had priced in a 100% probability of it happening. It didn’t happen.

Since then the BoE has been unable to raise rates further. Inflation has eased back and the UK economy has slowed significantly. The market is now pricing in the most probable chance of a rate hike to 0.75% at the BoE meeting in November, as the table below shows. This is now aligns with an earlier forecast from Schroders.

Bank of England meeting date	Probability of rate hike
02 August 2018	50%
13 September 2018	51%
01 November 2018	65%
20 December 2018	64%

Source: Schroders. Bloomberg data correct as at 18 June 2018. Forecasts included should not 

be relied upon and are not guaranteed.

The rise and fall and rise again of UK inflation Jan 2010 - May 2018

Inflation (%)

Source: Schroders. Office for National Statistics (ONS). Data correct as at 21 June 2018.

Schroders Senior Economist Azad Zangana said:

"The Bank of England (BoE) is closely monitoring Brexit events and the reaction in the economy. After aborting a rate hike in May, the consensus has shifted dramatically away from a rise in the near-term, to one possibly by the end of the year (63% chance priced by markets).

"The next BoE Inflation Report is due in August, which provides the Bank another opportunity to consider its policy stance, but given recent weakness in both UK and overseas data, the bank rate is likely to remain on hold.

"We forecast the BoE to hike once more in 2018 (November), and two more times in 2019 after the March 29 Brexit deadline."

http://www.cityam.com/287982/brexit-vote-two-years-seven-charts-tell-story