EU to UK on Brexit: “What About ‘Nein’ Don’t You Understand?”

As we described yesterday, it was evident when British Prime Minister Cameron spoke at a regularly scheduled session of the European Parliament that Cameron’s demand for what amounted to a special deal as part of a Brexit, in terms of concessions on immigration, was a non-starter as far as the Europeans were concerned. We inferred from the write-ups of the meeting in what is effectively the house organ of the Conservative party, the Telegraph, that the Tories were ignoring the message.

Apparently it was so clear at the European Parliament meeting itself that the UK representatives were in their own bubble that European officials took the atypical step of not simply reiterating their position, but stating it even more firmly in an effort to puncture the delusion. From EU leaders harden stance against Brexit concessions in the Financial Times:

Europe’s leaders have dug in their heels over uncontrolled migration in the single market, scotching UK hopes for a favourable deal in a direct snub to prime minister David Cameron’s plea to recognise British voters’ concerns..

“There will be no single market à la carte,” said Donald Tusk, the EU Council president, as the group met to set out the terms of engagement for any divorce talks following the Brexit referendum.

Diplomats said the joint statement was deliberately toughened up after Mr Cameron said he would have avoided Brexit if European leaders had let him control migration.

With the explicit consent of German chancellor Angela Merkel, a sentence was unexpectedly added to the statement yesterday saying that “access to the single market requires acceptance of all four freedoms”, a reference to EU principles on the free movement of capital, labour, services and goods.

“That was our response to Cameron,” said one senior EU diplomat, who added that leaders were not expected to go into policy issues at this stage.

This is very significant from a negotiating perspective. Details can always be horse-traded but principles are another matter entirely, and the EU members are taking a unified position.

The UK has pushed the Europeans for years for concessions and received them many times, resulting in them getting a particularly favorable deal. But the Brits went too far, particularly since their demand for even more waivers comes of what the EU leaders correctly regard as a power play within the Conservative party that has gone disastrously awry. Moreover, they view giving in to the UK as feeding separatist movements. That’s bad enough for an EU member. It would be disastrous for Eurozone members like Spain (Catalan and Basque) and Belgium in particular. Making sure the UK gets no coddling is also important to tamp down Front National in France. While the UK leaving will be traumatic and costly, any fracture of the Eurozone would strike at its fragile structures and would precipitate a full-blown economic crisis. Accordingly, the most exposed EU members are also opposed to Scotland’s idea of coming in as a member without joining the queue of applicants seeking membership. Again from the pink paper:

On Scotland remaining an EU member, Spanish prime minister, Mariano Rajoy, said: “I am radically against it, the treaties are radically against it, and I think everyone else is radically against it.”

In fact, it is not clear if Spain’s position is as widely shared as Rajoy claims. But as we’ve also stressed, Eurocrats take very strict interpretations of their agreements. If Rajoy is correct that the existing treaties do not accommodate Scotland’s desire to come in as a current member when it is not a signatory and has gone through various entry procedures, Rajoy may indeed be accurately presenting the state of play.

The EU statement also formally reiterated their position that there would be no pre-negotiation, that talks would commence only after the UK formally initiated the departure process:

“There can be no negotiations of any kind before this notification has taken place,” the statement said.

In addition, the Europeans made clear that a UK exit would lead to some immediate, unfavorable changes:

Seizing the chance offered by Brexit, French president François Hollande said the eurozone would repatriate the clearing of euro-denominated trading from the City of London, claiming the current situation was “exorbitant” for France. “As soon as the UK is not part of the EU, there is no reason that this continues,” he said.

The European Central Bank is preparing to resurrect its so-called “location policy” on clearing houses, according to officials — a move that had been thwarted by the UK after a four-year battle through the European courts.

The reason the UK prevailed was that moving Euro clearing out of London was deemed to be discriminating against a EU member. No EU membership, no discrimination.

For a quick reading on whether the European message to the UK is beginning to get through, I again used the Telegraph as a quick proxy. UK reader input on reactions in the tabloids say would be very helpful.

Unfortunately, the initial signs were not good. The Telegraph is consumed with the withdrawal of Boris Johnson for the Prime Minister race, as well as the upheaval in Labor. But this article is on the front page: Freedom of movement reform ‘on the table’ for Brexit talks, suggests French minister as he breaks ranks with rest of EU.

This is in contradiction of a memo agreed by Eurozone leaders, including Hollande himself. Unlike the Greek negotiations, which were handled by the Finance ministers, any Brexit negotiations will be led by the foreign ministers. Recall that when the news of Brexit broke and the group of founding EU member foreign ministers met, they took a very hard line and Merkel has been working to soften it. With that said, the finance ministers will be very deeply involved on the trade issues. But the message so far from the European leaders is that the existential threat posed by a Brexit is more important than the economic issues. If that view holds, the normally very powerful finance ministers will be curbed by their national leaders. So Sapin is speaking out of school.

In addition, hat despite the important role of finance ministries in the Greece negotiations, it was Hollande, not Sapin, that called the shots at key junctures in the 2015 Greece negotiations. Now perhaps Sapin can turn Hollande and the French foreign minister around, but the Telegraph emphasis on this story over the big bath of cold water dispensed in the formal statement after the European Parliament meeting looks like a case of Tory confirmation bias.

Similarly, Ambrose Evans-Pritchard, who is typically a very astute commentator, also seems unduly optimistic about the strength of the UK bargaining position. Recall that he has long believed the UK should depart and issue a particularly forceful appeal for a Leave vote. Also recall that, perhaps reflecting his Euroskeptic views, he repeatedly said during the Greek negotiations that Greece had the better set of cards, when that was clearly not the case.

The economic part of the analysis in AEP’s latest piece, Was Brexit fear a giant hoax or is this the calm before the next storm? is compelling. He gives a careful, balanced recap of many of the key risks that may be triggered as a Brexit progresses, such as:

More worrying is what S&P also said: that debt coming due over the next 12 months is 755pc of Britain’s external receipts and large sums have to be rolled over continuously. This is the highest for all 131 rated states, thanks to London’s role as a global financial hub. We will not know whether there is any mismatch, either in currencies or maturities, until the repayment deadlines hit and the skeletons come out of the closet. The test lies ahead.

But in his next paragraph, we have this:

What we have learnt from the market moves since Brexit is that Europe is just as vulnerable as Britain. The vote has already triggered a banking crisis in Italy, where the government is struggling to put together a €40bn (£33bn) rescue but is paralysed by the constraints of euro membership.

Huh? Italy has been in a banking crisis for quite some time. The government already tried to get Eurozone support earlier this year for a “good bank/bad bank” bailout vehicle but was rebuffed. The rationale for Italy trying again was that emergency circumstances allow for special support. From Bloomberg:

The government in Berlin rejects the argument that the U.K. vote to leave the EU constitutes an “exceptional circumstance” which, under EU basic law, can allow a national government to grant aid to a company outside of the state-aid rules.

The Eurocrats are keen to make Italy the test case of their shiny new bank bail-in rules, which require shareholders and creditors to take losses. The problem with this barmy idea is that depositors are also in line to take hits in a bail-in, as took place in Cyprus. That means bail-ins are almost certain to produce runs on Italian banks. Moreover, there is a constitutional election in Italy this fall. More generally, if Renzi can’t forestall a bank-in, his government may fall, and his party would take losses to the benefit of Beppe Grillo’s Five Star movement, with the odds decent that Renzi will be out. Merkel is likely to come to regret not giving Renzi his bank rescue.

This is the part of AEP’s article that gives pause:

Yet it should be dawning on European politicians by now that the economic fates of the UK and the eurozone are entwined, that if we go over a cliff, so do they and just as hard, and therefore that their bargaining position is not as strong as they think. They cannot dictate terms.

Um, the Europeans most certainly can dictate terms. It will come at a cost. It may wind up being much greater than they perceive, as with the Germans obstinate failure to move towards a workable system of integrated banking regulations, deposit guarantees, and other backstops. If the Europeans were economically rational, the Continent would not be sliding into a depression. The Germans have been cutting off their noses to spite their faces for decades. Why should now be any different?

From the EU perspective, Brexit economic and political considerations are diametrically opposed. Minimizing economic fallout would mean accommodating the UK. But that is seen as too dangerous on the political front, at least as of now. tThere’s no immediate reason to think that ranking of priorities will change.

The Europeans recognize that what the UK has asked for is a divorce. Unless the parting partners manage to re-marry well, divorce leaves both spouses less well off financially. The EU members recognize that they will wind up with lower living standards and are prepared to deal with the fallout. The Brits, by contrast, act as if they can still live in the same house, share the checking account, but sleep around and do no housework. Someone needs to tell the Brits that the days of the Imperial ability to get such one-sided deals are long past.

Print Friendly, PDF & Email


  1. Kukulkan

    With the explicit consent of German chancellor Angela Merkel, a sentence was unexpectedly added to the statement yesterday saying that “access to the single market requires acceptance of all four freedoms”, a reference to EU principles on the free movement of capital, labour, services and goods.

    I always thought the Four Freedoms were:
    * Freedom of Speech
    * Freedom of Worship
    * Freedom from Want
    * Freedom from Fear.

    I guess it shouldn’t surprise me that the Neoliberals would redefine them into something else — into freedoms of things rather than people. Especially since Want and Fear are the primary weapons they use against the rest of us.

    If I were the British, I tell the European Parliament that the UK would be perfectly willing to accept the Four Freedoms, provided the EU does as well.

    1. Frenchman in Bavaria

      They’re talking about the freedoms of the European single market. Completely different topic. There is also the EU Charter of Fundamental Rights which takes care of the civic freedoms. So I’m not quite sure what your point is, other than something… something… neoliberalism baaad, mmmkay.

      By the way, the Brits have historically been the biggest neoliberals in the EU.

      1. Schofield

        What is the purpose of a market let alone a European single market if it doesn’t incorporate avoiding Freedom from Want and Freedom from Fear? Are you from planet Neo-Liberal Sociopathic otherwise known as The Pan-Global Gravy Train Party?

        1. Frenchman in Bavaria

          “Freedom from Want” and “Freedom From Fear” are intangibles that need to be defined and not just tossed into the conversation so you can furiously virtue signal about your proper condemnation of neoliberal economic policies.

          1. 1 Kings

            Wow, you’d think that a Bavarian-Frenchie would at least have a smidgen of wit in their soul. But alas, no.
            Hey FB, we know the difference between neo-lib ‘freedom’ and the real type. That’s the point.

          2. jsn

            Is the rising mortality rate in Greece definable? While measured at 50% in a bunch of southern EU countries, youth employment is quantified, is it virtue signaling to point it out? Bank runs did in fact accompany the bail ins in Cypress and that impacted “the completely different topic” of Merkel’s four freedoms, rather negatively it seems to me, but that’s probably just my virtue signaling too as only depositors in Cypriot banks were looted and they must have all been Russians why else would they bank in Cypress?

            Want is pretty easy to see, define and quantify if you don’t assume those who have it deserve it.

            Or do I detect neo-liberal virtue signaling in your comment?

            1. reslez

              The phrase “virtue signaling” is a way for too-clever types to denigrate values that make a society actually work. In the absence of virtue and the appearance of virtue you get passivity and corruption, the handmaidens of neoliberalism.

              The phrase is a quick way to identify useless sell-outs.

  2. Pavel

    I’m just following the reaction to the news that Boris isn’t standing for PM. Quelle surprise — the chickenshit bully didn’t want to grasp the nettle of Brexit that he himself caused (along, of course, with David Cameron).

    A Guardian commentator made a great point, saying Cameron and Johnson were acting just as they did in their Bullington Club days at Oxford, smashing up restaurants, escaping responsibility, and letting others pay the price. Greedy, dishonest, sociopath politicians (calling to mind the Clintons, of course), calling to mind that great Gatsby quote (often applied but worth repeating):

    They were careless people, Tom and Daisy – they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made.

    Yves, thanks for all the excellent Brexit coverage and analysis the last few days.

    1. Yves Smith Post author

      I love that Great Gatsby quote and I have used it in the context of the US launching unnecessary wars and leaving failed nations in their wake. But it applies here too.

      Yes, I have yet to digest the Johnson news and I must must must turn in. There was almost no possibility of an effort to back out of a Brexit with him as PM. With others, the odds are higher (but that still may not mean all that high). The campaign for who is on the short list will now start. If we see a lot of messaging about “unifying the UK” and “respecting the views of all who voted/the close vote,” that is a very clear sign of an effort to soften up public opinion.

      1. Foppe

        I’m inclined to agree that it was impossible for Boris, because of how he would be caught between a rock and a hard place (having to weigh his ego against his future employment opportunities). But even if he had become PM, I’m not convinced he would’ve dared, if only because I’m wholly unconvinced that they ever expected (or desired) to win (if he had, he/they would’ve had an idea of what to do next). I’d say they [he+Dave] were just hoping for a close-ish stay vote so they could hold the outcome over Brussels’s head for years to come. (And even if he wanted it once, Scotland’s (idiotic) threat to leave (how are Schäuble et al any better than the English Exchequer when it comes to protecting the welfare state? Does Scotland really think that they’ll get more from the EU than they are currently receiving from England?) is bound to create fear in their sad little hearts, because I really don’t see England (as opposed to Britain) keeping their permanent seat on the UN Security Council etc.. So I’m not at all surprised that he’s bowing out, just as I’m not at all surprised that Cameron chose to resign ‘in 90 days,’ and without pressing the button.

    2. Rob

      “A Guardian commentator made a great point, saying Cameron and Johnson were acting just as they did in their Bullington Club days at Oxford, smashing up restaurants, escaping responsibility, and letting others pay the price.”

      Not really fair comment. Tony Blair opened Pandora’s box when he promised the electorate a referendum on the EU Constitution (which was morphed in true European democracy style into Lisbon Treaty). When he changed his mind UKIP gained huge momentum. The Tories offered a referendum on it as part of their 2010 manifesto (but was denied it by the Lib Dem coalition partners) and again it was in the 2015 manifesto. In many ways they made it as difficult as possible for a Leave vote to happen – Project Doomsday. Cameron honoured a manifesto commitment – that’s hardly greedy/dishonest etc. Boris has stood down (arguably a selfless act when he could otherwise push for the crown) to let Gove go forward as he knows his persona lacks the needed gravitas.

    3. animalogic

      Thank you for the “Gatsby” quote. It is one of the greatest works of fiction, ever, certainly of the last 100 years. It’s relevance and power continue to grow.
      To say it should be mandatory reading in the final year/s of high school should be beyond debate.

  3. Expat

    Those Four Freedoms were set out by Roosevelt over 70 years ago, but only as desired, not enforced.

    So far in the US, none of them have been implemented so using this as a point to bash Europe is hypocritical.

    I might agree that Freedom of Worship is in effect except that in many places in the US, whatever constitutional guarantees exist, freedom of worship is tenuous. In many places, freedom to NOT worship is definitely out of bounds. Try being an overt atheist in South Caroline or Texas.

    Freedom from Fear is a joke since the entire premise for the Fascist Regime put in place since 9-11 is constant fear.
    Freedom from Want is a joke with record numbers of Americans on food stamps. And even the rich want more…where will they put it?
    Freedom of Speech is a joke. Try entering the US with a Fuck GW and Waterboard Cheney! t-shirt or something similar. How fast can you say, “Don’t tase me, bro!”

    I am not absolving Europe of its faults but I will say that as an American and a Frenchman, I much prefer European rule to US rule. Any time I have to interact with America, I fear the worst. Here, I fear only being annoyed.

    1. Kukulkan

      Expat wrote:
      Those Four Freedoms were set out by Roosevelt over 70 years ago, but only as desired, not enforced.

      There’s also a series of four paintings by Norman Rockwell about them, and a plaza dedicated to them. I know where they come from.

      What I don’t like is the fact that the EU has done a bait-and-switch with them, redefining them as something different. It’s a classic double-bind: if you say you support the Four Freedoms, you get hit with this freedom of movement nonsense, and if you say you don’t support the Four Freedoms, you get condemned as an intolerant bigot who doesn’t support freedom of speech, religion, etc.

      Frenchman in Bavaria wrote:
      So I’m not quite sure what your point is, other than something… something… neoliberalism baaad, mmmkay.

      My point is that I don’t like this sort of duplicitous bullshit.

      If the EU wants to prioritize the rights of property over the rights of people, that’s their option. But they can call it something else rather than hijacking and devaluing an existing ideal and the term used to refer to it. Doing so demonstrates a fundamental bad faith on their part.

      1. Frenchman in Bavaria

        Free movement of labour is a personal right, not a property right. And they’re talking about the SINGLE MARKET and MARKETS are about goods and services. You conflated this with some BS about civil rights that has NOTHING to do with it in order to make some incoherent point about the evils of neoliberalism. You don’t actually have a point.

        1. efschumacher

          “Free movement of labor” is of course a property right: the right for pan-national employers to rent your labor at the lowest cost. The State of Britain has less problem with “free movement of labor” than free movement of the inconvenient family baggage that goes along with it. The people of the English regions just see that their jobs, their lives, their housing stock and their urban infrastructure have been consistently and comprehensively trashed, ever since Thatcher.

          I don’t mind seeing a poorer London if what ensues leads to a fairer England. But that won’t happen under a Tory government (and no alternative to that is in sight).

          1. vlade

            no, because it allows you to move wherever you’ll get the most for your labour, if you wish so. Which is why the uk was the destination of choice for young spaniards, italians and greeks, who would otherwise be unemployed home. The UK EU migration in the last five years wa driven by the ‘old’ Europe, not the mythical polish plumber.

            not that facts make much difference to people

            or, translated, to US, how well would you like it if you could move from Texas to California on,y if you got a work permit?

            1. a different chris

              It allows corporations to move labor in however way they can pay the least. All the plumbing in Poland is complete?

              And why was the UK this “destination of choice” but now it is the country most on the road the hell? Not computing…

            2. reslez

              It’s as much about “freedom” as “right to work” is about actual rights.

              People aren’t interchangeable cogs. Moving to a different nation state is disruptive to family and social ties, to put it minimally.

              The end result is to devalue labor, to bury it under heel, and foster immigration from countries with fewer labor regulations so the serfs won’t complain.

            3. Scylla

              @vlade: I have to disagree. The problem is that you define this as an opportunity. People do not pack up and migrate across half a dozen nations due to opportunity. They do it out of desperation. The decision is forced upon them, and that does not sound like freedom to me at all. If labor were truly free, it would be free to go or to stay (where it already has family and social support). Freedom of labor movement in the EU is more accurately described as the freedom to exploit labor (especially in conjunction with what is essentially destruction of the local market/production via economic warfare). The system of US states cannot be compared to EU nations, as there are many states that are essentially allowed to run constant deficits- these are helped out with federal funding. You do not see people on the news in the US advocating that we should do to Alabama or Mississippi what is being done to Greece-which is what creates that desperation.

      2. Expat

        While I don’t like duplicitous bullshit either, I also don’t like nonsensical bullshit.
        Your replies are, shall we say, unintelligible nonsense.

      3. different clue

        Call the four Roosevelt freedoms the Four Roosevelt Freedoms and you can escape that double-bind trap.

    2. Carolinian

      Try being an overt atheist in South Caroline or Texas.

      Clearly you know a lot about those places, not even being able to spell them. The rest of your rant pretty much follows suit.

      1. Expat

        Let me guess. You are a Southern Baptist? Ever been more than 100 miles from home?
        And yes, I misspelled “Carolina”. I guess that negates my entire existence and everything I ever said or wrote.
        If you were not so provincial, you might even realize that “Caroline” is Carolina in French, which is what I am.
        I rarely bother to respond to childish ad hominems on this site, but your attitude and ignorance pushed me beyond my usual limit.

        1. Carolinian

          Actually I’ve toured all over France by bicycle when younger. Somehow I doubt you’ve ever been to SC.

          There’s no greater form of dumbassery than assuming everyone else is a dumbass.

    3. tongorad

      I rather like this Ad Reinhardt illustration re The Four Freedoms – freedom for fear, rather than our current neolib freedom to consume:
      Ad Reinhardt Four Freedoms
      Freedom from:
      Fear of Penniless Old Age
      Fear of Sickness and No Doctor
      Fear of Losing What You Have
      Fear of Losing Your Job

      Pretty good, save for that last one. Jobs, who needs ’em?

    4. different clue

      Question for Expat,

      If someone tried entering Europe wearing a Hitler Was Right tee-shirt . . . or a big button saying “je suis Coulibaly . . . . how would the European security-on-the-spot respond to that person?

  4. Rob

    What the UK needs is tariff free trade with the Single Market – it doesn’t need “membership”. Consider the EU-South Korea trade deal – cessation of all tariffs. Difficult to reasonably argue why UK can’t have such a deal. Sure not being a member means you can’t set the rules but does that really matter? As an example, the English set the rules for soccer (!!).

    1. Frenchman in Bavaria

      A free trade deal for phyiscal goods will probably be easy to attain, especially considering that the UK is running a trade deficit in all physical goods sectors except aerospace and defense. The UK’s main expports are Financial Services and Insurance Services. It will be much harder to get free trade agreements for that.

    2. Expat

      Britain will certainly get MFN status with Europe but that won’t necessarily mean free trade either. There will still be restrictions on quantities and quality. Additionally, there might be issues with EU qualified goods being exempt from VAT.

      There are lots of issues at stake. For example, London is probably the fourth or fifth largest French city! What will happen to all the French, Germans, Italians, etc. working there? As someone in the City joked (sort of), “Who will make my lattes now?”

      1. Rob

        Well as you rightly say both sides have a lot at stake so whilst there is aggressive posturing it will be tempered over time. The concern about other leaving states, well the best lock-in EU has on member states is currency – if you need to leave and re-denominate it’s “going-to-be-awful” hence the later requirements that all new joiners must commit to the Euro.

        On the Financial side – consider this – if EU impose their long desired Financial Transactions Tax then surely all of that EU business will want to Passport themselves into London – not the other way round. The AIFM directive provides for recognition of equivalent standards of regulation by non-EU providers which is intended to be granted to Hong Kong and Singapore, so could scarcely be refused to the UK.

        1. Expat

          I would guess that the EU has figured out that loophole and will tax anything ordered from within the EU. So if you are a French citizen living in the EU, whatever trade you do in London is taxed.
          In any case, if the EU implements this tax they would likely change the standards of regulation! So HK and Singapore would no longer qualify since they don’t tax trades. The FTT is more of a policy measure than a fiscal measure so this would pass.

          1. Rob

            Well we do really venture from knowns into real unknowns and the myriad of policy responses. Surely the concept of putting a subsidiary in London to conduct financial business without incurring border tariffs is an interesting possibility (which would be a Brexit boost) and like the challenges all govts face with Corp Tax shifting actually quite hard to prevent by legislation. Euro clearing – possibly controllable through ECB mandate but everything else could be up for grabs.

      2. Pavel

        You’re right, that’s only “sort of” a joke. Lots of young French have moved to London recently as it is considered more “entrepreneurial” than France (well, that’s pretty true, given the horrid French bureaucracy and regulations :).

        I visit London frequently and I cannot remember the last time I encountered a “native Brit” working at a hotel or pub. Rather similar to many places in the US who count on foreign-born staff. I was stunned when I met friends on the uber-posh Martha’s Vineyard and some of the restaurant staff were from the Ukraine! There are lots of issues involved but I can’t imagine the UK without the EU migrants doing a lot of the day to day essential work.

        I remember vividly a BBC documentary from 3 years ago or so investigating why there was a need for migrant workers. They took two unemployed “native English” 20 year olds and had one pick potatoes or strawberries or something in a field, and the other work as a waiter in a restaurant. Each one lasted only a couple of days before being fired for incompetence, laziness, and general poor performance. Only a couple of anecdotes but…

        1. a different chris

          I met a lot of Ukrainians like 10 years ago when we went to… .Colonial Williamsburg.

          I don’t have a clue how they could have possibly got there since the US isn’t part of the so-badly-necessary EU?

          1. Petter

            I ate at a seafood restaurant in Booth Bay, Maine a few years ago and the staff were young Bulgarians. They were working their heinies off.

        2. lyman alpha blob

          Friend of mine works for one of the companies that imports those Ukranians (and other foreign workers) and it isn’t just happening in Martha’s Vineyard but all over the East Coast (and probably elsewhere).

          In some ways it’s a decent program – it allows young people from other countries to be able to afford to travel for a few months. It also allows businesses in tourist destinations to staff themselves fully. There aren’t enough people living year round in MV or Cape Cod to staff all the restaurants and other businesses that are only open a few months per year.

          However it does beg the question of why can’t these companies recruit from Nebraska or inner city NY? Wouldn’t young people there also like a chance to see places they might otherwise not be able to get to? And when I see it happening in Maine and other locations where there is a large year round population looking for decent paying work (and yes making $15 -25/hr in a restaurant is a lot better than the prevailing wage in most of the state), it’s clear these companies that recruit foreign workers aren’t just doing it out the goodness of their hearts.

          But evidently according to the global elites anyway, one is a racist now for suggesting that maybe there ought to be some limits on these types of practices so the race to the bottom continues.

          PS. I have a hard time believing anecdotes about lazy natives really translate to actual evidence. My own anecdote comes from having worked with a lot of low paid immigrants and when I asked how they could afford to live in the US and still send $$ back home, they told me they packed several people into a small apartment to keep rent cheap, had one vehicle shared among several people and got a lot of their food from free meals at work. Not too many US workers people are willing to work full time and still live in poverty (and nor should they have to). If manual laborers were paid $25/hour I suspect you’d find any number of native people willing to take those jobs and perform them well.

          1. PlutoniumKun

            It comes down to the quality of people you can attract. In general, the type of young person who wants to travel and work will be outgoing and educated and keen to work hard to make money. The ‘local’s who are like that will already have better jobs and be the customers, not the staff of a good restaurant. Its pretty much a ‘constant’ that all other things being equal, ‘immigrants’ are generally better quality of workers. The irony is that in parts of Eastern Europe you get a lot of Ukrainians working in Poland or the Baltic States because so many of the best workers there have gone to Germany or the UK.

          2. Pavel

            lyman alpha blob
            Many thanks for the explanation… I realised the general dynamics but not the detail.

            And as you say the immigrants are willing to suffer crazy (to US people at least) housing conditions and still manage to send some money home… rather puts things in perspective in many ways.

            1. lyman alpha blob

              Yes in a lot of ways it’s extremely admirable bordering on heroic to come to the US and live in poverty so that you can send money home so that the rest of your family doesn’t have to. But it’s also a sign of desperation.

              There will always be people with a sense of adventure and wanderlust who move from place to place, country to country but that demographic is relatively small I’d wager. Most of those who immigrate do so because they feel they have to in order to escape war and/or poverty.

              If the West is really so concerned about the recent waves of immigrants, maybe they ought to consider reining in the warmongers and bankers who make a lot of money of of destruction and impoverishment.

  5. vidimi

    i am starting to have doubts about whether the UK will leave in the end, though I think Europe, rightfully, would like to see them leave were it not for the example it would set for eurosceptics continent-wide.

    the reason for my doubts is that the US is starting to freak out. Britain was their trojan in the union that allowed them to sabotage any efforts to develop into something more than just a market. With that trojan removed, there is a fear that the EU may enter into political union. There’s a lot still standing in the way, sure, not least of which is domestic opposition at home, but with the kill switch gone, it’s now a realistic threat. so i expect the godfather to put his foot down and talk some sense into his family.

    1. Mathias Mond

      Agreed, this is clearly something to watch. The US would however need to be very careful to not trigger the next escalation somewhere else, e.g. Marine Le Pen becoming French president next year – but then again, the US may not care that much because a EU destroyed may be better for them than a EU as a full-scale political union.

      At the same time, it is quite interesting to watch how some very powerful EU leaders are what I see as venting their frustrations with the UK that have built up over a long time, and are essentially saying “Don’t let the door hit you on your way out”. That clearly has to do with the unhelpful position towards strengthening the EU that the UK has taken over the past decades, and it may also be driven by unhappiness about the trojan horse role played by the UK on behalf of the US.

      In essence there is a significant conflict of interest brewing from what you point out, between the US and the EU (ex UK).

    2. Ed

      This is a good analysis.

      I suspect that eventually the increasing habit of just ignoring results of elections and referernda will have some effect. I’m not claiming to know when “eventually” occurs or what the effect will be. The issue will probably be addressed by no longer having elections or referenda.

    3. Expat

      I think Europe is fed up with Britain. The British have done little to assist in building Europe and have instead turned Europe-Bashing into a national, political sport. From Thatcher’s “We want our money back!” to this debacle, Britain has tried to get the best of both worlds without committing.

      While Britain might be America’s BFF (or America’s bitch, as some might instead assert), the Special Relationship is based more on Britain rolling over for the US at the slightest yap from Washington. An independent Britain either sucks up to America even more or is cast aside in favor of Europe.

      America has plenty of “trojan horses” to ride on the Continent. There are 62k US military personnel in Europe of which only 9k are in the UK. America would prefer to have Britain in Europe, but frankly, it’s not a big deal for us.

    4. PlutoniumKun

      What I find interesting though is that the markets seem surprisingly calm so far about the whole thing – shares have even gone up significantly today. I wonder if it is because they have a ‘wait and see’ attitude, whether they think the economic impacts will not actually be that great, or whether they are in some sort of shocked denial. I suspect its the latter.

      1. Yves Smith Post author

        The lesson of 2008 was that banks get what they want. I think a lot of people in finance are in denial that the Europeans will put what they think is necessary to save the EU over fealty to the Market Gods. They think it won’t be allowed to come to that. But Europeans have way less respect for capitalism and bankers than Anglos do.

        1. Pavel

          Good point about the “less respect for capitalism and bankers”, Yves.

          I think the role of the banks and their potential losses are key here. We know that Goldman and JPM and the IMF etc all came out against Brexit. This “passporting” issue whereby the UK financial firms will lose easy access to EU markets or certain privileges is just one example of the Brexit repercussions. Meanwhile Deutsch Bank is on virtual death watch along with Credit Suisse and others.

          But certainly the French don’t have the reverence for the banks and “financial services” which the Brits display, and I guess the French economy (basket case though it may be) is a bit more diversified. So they and other EU members may prefer to take a financial hit to penalise the UK.

          Let’s also remember that the City of London with its own rules and regulations is the global cesspit of financial corruption, money laundering, and the like. Personally I’d love to see it implode.

        2. Jim A.

          Yeah, I think that many financiers in the city just don’t realize that to many in the halls of power in the EU, this represents an “existential crisis,” and they are willing to pay a high price to punish the UK. The UK never really wanted to be fully in and many in the EU want them to be fully out at this point. They’ve been so used to getting their way that they can’t conceive NOT getting their way. I’m surprised that I haven’t heard the “amputating a gangrenous limb” analogy yet. In time calmer heads may prevail, but that is NOT how people in Brussels are talking now.

        3. John k

          Germans have greater fealty to their automakers because jobs. The loss of 50b exports to Brit is 1% of German gdp, could push them into recession and bring down gov.

          The deal will be, if you want to continue exporting your surplus cars to uk, you will have to allow us continued financial services access.
          Free trade in trade and services, no migration.
          It will take a while, but Brit is not Greece… Not least because not in euro.

    5. efschumacher

      “Britain was their trojan in the union”

      That’s a really great image, given what Trojans are in the US!

    6. Skip Intro

      If the EU can make walking back the brexit vote painful and humiliating enough, calling UK’s ‘bluff’ and raising, as it were. The results, even as a failure will serve as a powerful object lesson for politicians in other countries as well. The vote could be turned into a factor that strengthens the hand of the EU against euro-skeptic pols in the rest of the EU. And of course if Article 50 is triggered, it must also hurt, ‘pour discourager…’
      I once spoke with a german who adamantly rode through intersections with they had the light, as if they’d gladly take the hit from an auto as long as they were in the right.

  6. Frenchguy

    The Telegraph is wildly extrapolating from what Sapin said. He just said that freedom of movement could be discussed during the upcoming EU-UK negociations as it obviously will be. But he never said anything that contradicted the EU position: no freedom of movement, no total access to the single market.

    Also, Sapin has close to zero personal political power and no horse in the race. He will do what Hollande says.

    Ps: and technically there is a referendum this fall in Italy, no elections. (your point stands though)

    1. Yves Smith Post author

      Aiee, correct! Sorry. Tweaked the post.

      However, I separately think Renzi’s government would fall if there was a bail in, even of a small bank. Runs would start elsewhere, even if a slow-motion run. Now maybe Renzi could shoot a small bank and see the expected bad results elsewhere, and then get his “emergency” rescue. But the Germans might still hang tough.

      So that means Renzi tries to hang on as long as possible. I believe the next general elections are not till 2018. No way will the banks not start failing before then. And since he is just trying to keep them afloat, the first one to hit the wall may not be a small one. A medium or big one would freak out Italians and have bigger ripple effects elsewhere.

      1. Frenchguy

        No worries, it doesn’t change anything if it’s a referendum or elections since Renzi has pledged to step down if the referendum doesn’t pass. (not sure if the commitment is rock solid and I just put up the first link I found but that has been my understanding for some time)

        As for banks, I don’t have much to add. Except maybe that the solution of kicking the can down the road might finally work. Growth is (very slowly) coming back and the NPLs ratio has stabilized in the last year. It’s far from the optimal solution of course…

  7. PlutoniumKun

    I think the situation with Scotland is far more complicated than Rajoy thinks. For one obvious point is that they should not have to join a queue to join the EU because they are already in it. There must surely be potential to pursue the option of simply taking over the UK’s membership – there is a precedent with Denmark and Greenland – Greenland opting out, while Denmark staying in (Greenland having the sort of weird constitutional link with Denmark that the smaller nations have with England within the UK). Scotland may be able to legally force the issue that an A.50 may require the Scottish parliaments consent (maybe Northern Ireland too), and if they withheld that consent, then basically it is England and Wales going alone. This is not an argument Spain and Germany will necessarily like, but Scotland does have friends in the EU, most notably Ireland and possibly other smaller countries such as the Netherlands and Denmark and some eastern European countries. Possibly France too, because it will be an argument against Le Pen, that leaving the EU could break France up.

    1. DJG

      Rajoy’s thinking is dominated by two things: The current stalemate in Spain. The last two elections have produced almost identical parliaments. The second problem is the Basques and the Catalans (and the shadow of the Spanish Civil War). Would the Basque Country and Catalonia be viable states outside of Spain? Probably. Do they have as much historical precedent in their favor as Scotland? Catalonia undoubtedly, considering that they once ruled wide swaths of the Mediterranean. But Rajoy doesn’t want Scotland to become independent, because then even Galicia might decide that it is truly part of Portugal.

      The central issue here is whether a successor state can enter the EU by default. Can Scotland remain if England leaves? There seems to be much doubt, and I think that you are more optimistic than I would be. I can’t imagine that the EU would let Brittany or Flanders in on their own.

      1. PlutoniumKun

        I don’t see how allowing Scotland to stay in makes a difference to the Spanish situation. Its not the same as saying ‘you can split away from a country and stay within the EU’, its saying ‘if you wish to leave the EU, don’t assume all your restive regions are going to follow’. Its a completely different argument and I can’t see how allowing Scotland to stay in any way strengthens the arguments of the Catalans or Basques.

      2. Jim A.

        Does the timing matter? What if the SNP manages to hold a snap referrendum BEFORE the UK submits an article 50 request?

    2. Yves Smith Post author

      “Surely must be” is not based on knowing the particulars of the status of Greenland and Denmark as government entities versus Scotland’s “devolved” status.

      I don’t see the cases as comparable. Greenland was a colony of Denmark. Denmark was always in charge of foreign relations, so EU treaties were executed by Denmark.

      Scotland is not a signatory to any EU agreements.

      And as we’ve discussed repeatedly, the Eurocrats interpret agreements narrowly. They do not do creative lawyering.

  8. JW

    Maybe the rather ‘anti-UK’ tone of this article is correct, perhaps the EU will shoot itself in the foot by being ‘tough’ on negotiations. So what?
    UK’s trade with the EU is negative, and its been falling every year for the last decade. The Euro was supposed to cause the ‘end of the City’ .it didn’t.
    It would be nice if an accomodation is found, nice but not necessary. ‘Free access to the single market’ is available to every country, without the political and legal interference from Brussels/Strasburg.
    So much rubbish is written and discussed as if trade never existed before the introduction of FTAs.

    1. Yves Smith Post author

      What you wrote about “free access to the single market” is factually inaccurate. Making stuff up is against our site policies.

  9. PlutoniumKun

    I’m trying to think on what possible basis the British think they have a strong hand in withdrawing from the EU. There is zero incentive for the major players to make it easy for Britain – doing so would only encourage other countries. The only threat the UK has is in taking retaliatory action against imports – this would certainly harm some countries, but if it comes to tit for tat tariffs, the EU is collectively in a much stronger position. Supply chains are so stretched in manufacturing that any attempt by the UK to pick on imports could have a devastating impact right through British manufacturing (or what is left of it). Britain is highly dependent on food imports. And of course, strong action on finance and money movements could cripple London’s role in a range of financial services.

    I also think that the very strong mercantilist traditions in Germany and France could come into play – both will see it as an opportunity to further strengthen their own industrial and financial bases, and smaller EU players will be very keen to attract foreign investment fleeing the UK. It could become quite a feeding frenzy.

    1. a different chris

      Unless I’ve miscalculated somehow, > 1 out of 7 people in the EU are British. That’s not a bad hand, with at least another 1 out of the 7 being p*ssed off at the EU, and 2 more not real happy.

      The Germans would be way overplaying their particular hand if there was anybody competent in England at all. Give BoJo credit for knowing that he doesn’t fit that description. I don’t think anybody by definition in the Tory party actually fits that description.

      So a mess will be made, but like I said crisis does focus the mind. Somebody we haven’t even heard of yet might arise, unfortunately it may well be (likely even) a sharp mind from the far right.

  10. DJG

    What is interesting to me about this crisis is that I get to be a bystander (unfortunately, again) to the antics and delusions of the right wing. Imagine negotiations coordinated by the distasteful Donald Tusk, the ambitious Angela Merkel, and the Monty Pythonesque Tories? Why not throw in the egregious prime minister of Hungary and the Italian Lega Nord to make it a true right-wing meltdown?

    I’d also point out that, against this background of right-wing incompetence and tantrums, which has led to the continuing financial crisis in Greece and Cyprus, let alone the human-rights disaster of refugee policy being relegated to bribing the odious Erdogan and Turkey, the terrorism being used as an excuse by these same governments is right-wing terrorism: ISIS isn’t exactly the Green Party.

    And as the U.S. Democratic Party continues to swing rightward, building a party platform that would be the glory of the Tories (trade treaties, privatized health care, and all), we see the same tensions in the U S of A. Typically, because of the incompetence and tantrums of our own right wing, no one knows what truly went on in Benghazi, no one is allowed to know how much torture has gone on in the last 15 or so years (a lot), no one is allowed to bring up Guantanamo…

    Light at the end of the tunnel? I don’t know. I’ll have to have another glass of wine or a rye (neat) and a think.

  11. EmilianoZ

    The 4 Freedoms: the free movement of capital, labour, services and goods.

    That sounds like the Universal Declaration of the Rights of the Multinational Corporation.

  12. BruceK

    Good article in the Guardian about Teresa May.

    Quote from May:

    “The reality is that we do not know on what terms we would have access to the single market,” she said. “We do know that in the negotiations we would need to make concessions in order to access it, and those concessions could well be about accepting EU regulations over which we would have no say, making financial contributions just as we do now, accepting free movement rules. It is not clear why other EU member states would give Britain a better deal than they themselves enjoy.”

    Article goes on to say this will put her at a disadvantage compared to Gove (i.e. UK public still delusional), so all public statements from Tory leadership contenders are posturing until after the leadership election.

  13. George Phillies

    Both sides can manage to be quite unpleasant to each other. The British do want their banks to be able to continue to sell their services in Europe. The Germans do not want the sale of German automobiles to be banned in England, especially since there is a large trade imbalance in real goods between those countries. And, yes, once you start dumping treaties, you can dump several of them as need be to get to these outcomes. Similarly, the UK probably wants its 1.2 million expats to be allowed to stay in Europe, and the Europeans probably do not want the 3+ million Europeans in the UK to be told that they are not being given work visas and will be obliged to go home.

    Curiously, the UK in the most recent foofaraw seems to have skipped an interesting point, namely that the EU parliament should be allowed to originate legislation, if it is to claim to be a parliament.

  14. JustAnObserver

    One thing I feel is not being addressed in all the comments, both here on NC and more generally in all public statements in the UK, is the sheer difficulty of negotiating with all the other 26 members of the EU. Each one will have its own national political, economic perspectives together with its own collection of feuding GoT-style factions.

    To put it differently:

    o Which aspects of any renegotiated “relationship” will require all 26 states to consent?

    o Which can be done by majority (maybe qualified) ?

    o Which can be done at the European Commission (Eurocrat) level ?

    o To which does the European Parliament, however toothless, have to give its assent ?

    Etc. etc. Any NC readers out there knowledgeable enough to give an opinion on any of this stuff ?

    And, of course, there’s the thing that’s been pointed out here a number of times: The lack of competence and/or experience in the Foreign Office civil servants & diplomats that will have this can of writhing worms dumped on their heads … a big cheer here for the “small government” destruction of what was once a very good civil service.

    1. PlutoniumKun

      You are quite right that this is a major issue. Its a mistake something to just assume that ‘Merkel and Holland decide everything’. With the Euro, to an extent thats true thanks to the centralising of power in the ECB. But my understanding of how this works is that there is a tendency to defer to those countries more directly affected in order to prevent things getting complicated. There will be a lot of background horse trading to ensure nobody steps out of line. The Scots have already had meetings with various senior people, including the Irish Prime Minister, with the intention of getting them in line (this is why i’m sceptical that the Spanish will have things entirely their own way on the Scots). But you are right in saying that the UK has a big disadvantage in that it just doesn’t have the ‘on the ground’ negotiating power you need sometimes. They simply don’t have any close allies or countries who will ‘do a deal’. Some of the more Eurosceptic eastern european countries, especially the Poles, might be expected to be more sympathetic, but the stories of racism against east Europeans in the UK in the aftermath won’t have helped them at all.

  15. Jim A

    On the one hand, after people calm down, the chance of finding agreement improves. So I don’t think that we should regard the positions that people have taken in the midst of their shock and anger should be regarded as chiseled in stone. On the other hand everybody seems to be talking past each other because they feel that the other side(s) can’t possibly be serious, they can’t really mean what they’re saying. That is not a good beginning for ANY negotiation….

  16. DarkMatters

    “Free movement of labor” is a canard in several senses. The expression is obviously propagandistic, meant to conflate “freedom” (whatever that has now come to mean) with worker migration (conceptualizing all migrants as industrious well-intentioned and motivated persons).
    The term is defective because it fails to recognize that the differences between 2 stages, leaving, and entering.
    Regarding the first stage, I’m guessing that most would have no problem supporting a person who wishes to exit some environment, say Jews leaving Nazi Germany or East Germans crossing the wall, or refugees fleeing a war zone That stage is easily accepted, although not universally practiced. Placing limitations on the amount of possessions or money an emigrant can take is a common restriction; note also that it is a restriction on property rights.
    But the second stage of entering a new region is not so readily accepted, since the migrant necessarily makes demands on the new host. These involve a hierarchy ranging from the trivial to unreasonable. This range varies from the space needed just to live, to food and shelter, to medical care, to providing all the amenities provided by the new host to its own citizens, to extra-cultural demands that require the new host to accommodate behavior which might be considered unacceptable by its own cultural norms, and finally at the present time, to expecting the new host to adopt aspects of the culture brought by the migrant. (Again, we find that these decisions also involve property rights, those specifically granted to the immigrant.) There’s a real decision of what rights a given country grant to migrants, and what terms it may reasonably impose. (Criminal activity, for example, may unconditionally disqualify a person completely). Sovereign states ought to have the right to make this policy for themselves, even though, as in the case regarding the acceptance of Jewish emigrants from Germany, left undiscussed at the Bermuda Conference in 1943, the decision might be later criticized on humanitarian grounds.
    However, intelligent deliberation by the EU on this issue is long overdue, and its inaction has made its incompetence and impotence manifest to all. This failure has caused widespread conflict throughout Europe and disqualified it from leadership in the eyes of many. Should we be surprised at the popular enmity?

  17. /L

    I haven’t heard much or any bidding from the brits but all kind of EU elite babble about this and that the brits won’t get or must do. Seems to be for the home crowds’ consumption. It’s never good to negotiate by media, it’s so much harder to back down on things trumpeted out all over the place as rigid principles. Negotiation is about give and take, if it should lead somewhere.
    But as Juncker coined; ‘When it becomes serious, you have to lie’

  18. Richard Barbrook

    “In using the referendum as a vehicle for individual political ambition and a solution to internecine Tory political problems, Cameron and his opponents have acted against the interests of their own party, against their own class, as well as the interests of the nation as a whole. They divided the country like no event in its history. They have weakened the economy and lost money for their rich pals. They have threatened the disintegration of the UK while simultaneously wrecking its reputation internationally.” – Matt Carr

  19. Oregoncharles

    ” a reference to EU principles on the free movement of capital, labour, services and goods.”

    Interestingly, this is a direct and presumably conscious violation of Pareto’s(?) requirements for “comparative advantage,” which are that production factors – capital and labor – do not move between countries, as they mostly didn’t in the 19th Century. Herman Daley made this case years ago, and showed that the requirements, were indeed necessary.

    Yet “comparative advantage” is invoked today by most economists to justify “free trade,” specifically including the free movement of capital (long since proven to be very destructive).

    Granted, the “four freedoms” are part of the plan that the EU is to be a single nation – but it isn’t yet, and conditions in the various countries are so different that it can’t actually function as one. So the Pareto conditions are not met and free movement will lead to a race to the bottom, rather than optimization.

    Modern economics consists largely of suborned superstition, but that’s hardly news on this site.

  20. Cirsium

    Thanks Yves for a very interesting post and NC readers for a good discussion. This is why NC is daily go-to site

Comments are closed.