UK’s Brexit Derangement Becomes More Visible as May Puts Foot in Mouth and Chews

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As short seller David Einhorn has said, “No matter how bad you think it is, it’s worse.”

I thought I was at risk of being unduly dire in my early readings on Brexit, which was that the two sides have a large gap between their positions and have been talking past each other. Early on, I remarked that the dynamics were troublingly similar to the Greek-Troika negotiations, in which Greece badly overestimated its negotiating leverage, playing a game of chicken and assuming that the Europeans and the IMF would find it necessary to relent from some of their demands to avoid a Greek default. We stressed that the ECB held the whip by virtue of it already bending its rules beyond the breaking point in keeping the Greek banking system on life support. All the ECB had to do was withdraw it and it would bring the Greek economy to its knees. It did that in July 2015 and Greece capitulated in less than three weeks.

Are the EU and UK already playing chicken? The EU and UK now appear to have gone past what was already a dangerous dynamic, of talking past each other, to clearly incompatible stances on multiple issues.

Normally the large distance between the two sides could have been discounted as pandering to domestic audiences. However, the UK had already burned so many bridges with Europe even before the Brexit vote that it effectively has no trust and no good back channels for defusing confrontational and uninformed-looking statements. So what might normally be shrugged off braggadocio and posturing instead looked an awful lot like official positions. And not only is that increasingly the case, both sides are digging in when the gap between them was already so large as to appear unsurmountable.

The level of posturing and rancor, which is coming almost entirely from on the UK side and is being met by Europeans defining red lines unusually early on, is looking uncomfortably like a rerun of the 2015 Greek bailout game of chicken. May has repeatedly taken aggressive anti-EU positions in public. There was a brief period where it seemed as if she recognized how weak the British bargaining position actually was, shortly after filing the formal Article 50 notice, when she softened some of her rhetoric while on an official trip to the Middle East. But having decided on snap elections to deliver a crushing blow to Labour, give her her own mandate, and push out the day of Tory reckoning for Brexit from 2020 to 2022, she’s gone back to her old high bluster to content approach.

By contrast, the Europeans were unusually fast, unified, and firm in their responses to the Brexit announcement, staking out positions from the day after the Brexit vote, such as “No access to the single market without accepting the four freedoms” which includes the free movement of people. Importantly, Merkel backed these statements, as well as other important ones, such as “No cherry picking,” “No negotiations until Article 50 is triggered,” and “No negotiation of a trade deal until exit arrangements have been finalized”. And some of these tough positions weren’t due to the Europeans seeking to be difficult; they came about as the result of treaty requirements.

Over the last few months, not only has the European side not wavered, its internal cohesion has increased. As Greece did in 2015, the UK has achieved the seemingly impossible task of unifying the rest of the EU against it.

May reveals dangerous lack of seriousness about Brexit. The yawning gap between the two sides has been exposed as even larger than most surmised by virtue of a EU-UK dinner at 10 Downing Street last week, headed Theresa May and Jean-Claude Juncker. I’ve never thought I’d come out supporting Juncker, who is regularly self-indulgent and clumsy. But he came off as the adult in the room compared to May, who after the dinner details were leaked to the German paper FAZ, then doubled down on her shambolic performance.

Juncker’s side was obviously the source for the FAZ story. But I’m not unsympathetic. The May/UK positions are so hopelessly detached from any reality that the EU needs to prepare for a disorderly Brexit and give its political and business leaders as much advance warning as possible so as to minimize the damage. That means going public and making clear that the problem is on the UK side, and not due to intransigence by the Europeans.

Here are some of the jaw-dropping May beliefs exposed by the leak:

Recall that the EU has put negotiating the status and protection of expats as the first issue to be resolved. May said she thought the issue could be settled at EU Council sesssion at the end of June. For a sanity check, read this Financial Times article Brexit and the rights of UK and EU expats (Google the headline) and be sure to skim the well-informed comments. Just consider this issue: many UK expats are living in Europe and haven’t registered locally. That means they are freeloading on the health care system (in that the UK is supposed to be compensating Spain, France, etc but isn’t). And they haven’t registered because they are not working, as in retirees. That means their health care is likely to be costly. Now it would be perfectly reasonable for Spain to insist that any UK national that stays in Spain either have the UK foot his health bill or buy private insurance, which is particularly costly for older people. There are literally dozens of issues like that to be sorted out.

May wants the talks to be confidential. Junkcer said that’s impossible given the need for ratification and other member state and European Parliament procedures.

Junkcer tried to explain to May how detailed trade deals were by showing her how bulky Croatia’ entry deal and Canada’s recent trade deals are. May blew that off as if the UK could some get a thin-form agreement. Any UK agreement is certain to be more complex by virtue of needing to negotiate a terms for the financial services industry. Services deals are harder to negotiate and typically more complex that deals only involving only physical goods.

May said the UK would not pay an exit bill. Juncker said fine, you won’t get a trade deal. And that was not bluster. The EU has set forth the order for negotiating exit issues. After sorting out what happens to EU and UK citizens, next is squaring up accounts. And the EU has never budged from the position that the exit negotiations have to be pretty well finalized before they will talk about trade.

And we also have this:

May puts foot in mouth and chews. May confirmed the EU view of the dinner, that May was disconcertingly poorly briefed, by her attempt to hit back at Juncker. As an aside, May did not deny any of the positions attributed to her in the FAZ account but gave a weak deflection by trying to depict them as “Brussels gossip”.

I gasped out loud when I read this in the BBC:

Theresa May says she will be a “bloody difficult woman” towards European Commission president Jean-Claude Juncker during Brexit talks.

What planet is she on? Juncker isn’t negotiating this deal. Neither is she. It’s Michel Barnier v. her David Davis. Even this blog, which has only been following the high points of this saga, took note of the appointment of Barnier. From a post last July:

The yet-to-be started Brexit negotiations look to be getting off on a tit-for-tat footing. After the new Prime Minister took the provocative step of appointing Boris Johnson as Foreign Minister and David Davis as its chief negotiator, the European Commission has responded in kind by naming Michel Barnier as Chief Negotiator in charge of the Preparation and Conduct of the Negotiations with the United Kingdom under Article 50 of the TEU

But the appointment of Barnier looks to be a particularly astute move. First, in contrast to the role of the EC in the Grexit talks, where it was a secondary player by virtue of not being a funding source, the Commission legitimately is one of the lead actors. Second, Barnier has extensive international experience, having been France’s minister for agriculture, then its foreign minister, and also a member of the European Parliament. He has also served two terms at the European Commission. In his second post, as head of the single market commissioner, he negotiated post-crisis reforms. The memories of the tough stance he took there has the City in fits.

And what is scary isn’t that May exposed no clue as to who is doing what to whom. It is that she thinks a Prime Minister could handle this task. This is an overtime time job from when the negotiations get started until they get done or fall apart, with at most a truncated version of the European August holiday and a year-end respite. May would have to abandon all her official duties to negotiate, and that isn’t on. And she’s so obviously so far behind the eight ball that catchup would be a huge task.

May got an unusually fast smackdown. From The Times:

Theresa May will be barred from negotiating the terms of Brexit with her fellow European Union leaders, senior figures in Brussels have warned.

In a sign of an increasingly hardline approach, the prime minister will be prevented from joining discussions at future EU heads of state meetings, she has been told. The only person with whom she can sit down for talks is the European Commission’s chief negotiator, Michel Barnier…

A commission spokesman confirmed that, under the EU’s negotiating mandate, talks would be run entirely by Mr Barnier with no discussion at meetings of the 27 leaders and Britain.

Asked if there would be any direct negotiation between Mrs May and the other member states on the divorce settlement, the spokesman said: “No. The commission is the union negotiator and Michel Barnier is the person who will negotiate on behalf of the EU. We are very clear about that.”

May continues to labor under the delusion that this deal is so simple that it can be handled at the executive level. It can’t be and it won’t be.

EU gives May another poke in the eye by upping Brexit exit bill estimate from €60 billion to €100 billion. It may just have been an accident of timing that this story broke on the heels of the Downing Street dinner fiasco, but it sure looks as if the EU has decided it needs to move to Mafia-style negotiating tactics to penetrate the UK’s fog.1 From the Financial Times:

The EU has raised its opening demand for Britain’s Brexit bill to an upfront gross payment of up to €100bn, according to Financial Times analysis of new stricter demands driven by France and Germany.

Following direct requests from several member states, EU negotiators have revised their calculations to maximise the liabilities Britain is asked to cover, including post-Brexit farm payments and EU administration fees in 2019 and 2020.

Although over coming decades Britain’s net bill would be lower than the €100bn upfront settlement, the more stringent approach to Britain’s outstanding obligations significantly increases the estimated €60bn charge mentioned by Jean-Claude Juncker, the European Commission president.

It also reflects the steadily hardening position of many EU member states, which have abandoned early reservations about the bill’s political risks to pile on demands that will help to plug a Brexit-related hole in the bloc’s common budget.

Paris and Warsaw have pushed for the inclusion of post-Brexit annual farm payments, while Berlin is against granting Britain a share of EU assets….

Michel Barnier, the EU’s chief negotiator, has said no figure will be set until the end of the Brexit process and payments could be staggered. But he wants Britain to agree a methodology before trade talks can begin, including a definition of EU liabilities the UK would be expected to share. He will unveil a draft negotiating mandate, including the Brexit bill assumptions, on Wednesday…

According to FT calculations, this brings the upfront gross settlement demand to €91bn-€113bn, depending on how Britain’s share is calculated. Over a decade or more, this would be reduced in net terms to €55bn-€75bn as Britain received its share of EU spending and repaid EU loans.

Using similar assumptions, the Bruegel think-tank estimates that Britain would make an upfront payment of €82bn-€109bn, which would net out to €42bn-€65bn over the long term.

Note also that Poland, which has regularly been depicted in the UK press as being a British ally in the talks, is a hardliner on this issue. And even if one views the German position of excluding the UK assets as a negotiating chip that it expects to bargain away, it won’t reduce the bill to the UK as much as most Brexit boosters seem to believe. The FT reports they are only worth somewhere between €3 billion and €9 billion.

During the Greek negotiations, many readers were upset because we focused on the negotiating positions and relative power of both sides, and were early (indeed, alone) in concluding that the there was no overlap in the bargaining position of the two camps and that Greece would not prevail in a raw power struggle. Many commentors were not prepared to hear that Greece could choose only between bad and worse, and mistook our description of what was likely to (and in fact did) happen as advocacy for the Troika. The fact that the Greeks had the better economic analysis and the moral high ground did not mean they would prevail.

Greece in 2015 had a new leaders who had every reason to try to get the Eurocrats to see reason. Greece had been on the rack for years, and the policy of abusive austerity was a clear failure. Even with the IMF admitting that making depressed countries wear an economic hairshirt only made matters worse, giving Greece a real break would mean that the European countries would need to take debt writedowns, which would in turn mean they’d need to show the losses in their budgets. That was a political third rail.

By contrast, the UK had an exceptionally favorable deal with the EU. Cameron tried to get further waivers and was rebuffed. The Brexit vote was never a serious policy measure; it was a stunt by Boris Johnson to advance himself in the Tories. But years of savaging the EU in the British press meant it was a convenient scapegoat for anti-ordinary worker policies, particularly for labor-crushing immigration policies, when in fact there are more non-EU than EU immigrants in the UK. That is not to say that the EU is entirely blameless for the distress outside the southeast, but Thatcherism is the much bigger culprit.

It is hard to work up much sympathy for what passes for UK leadership, particularly as it is showing itself to be more and more incompetent and reckless with every passing day. Sadly, these failings will be inflicted on British citizens, particularly the ones who believed Brexit would better their lives.

1 Mafia-style negotiations mean that when the party on the other side rejects an offer, the next round offer is made worse. The movie The Godfather gives a prototypical example:

Michael: Well, when Johnny was first starting out, he was signed to a personal services contract with this big-band leader. And as his career got better and better, he wanted to get out of it. But the band leader wouldn’t let him. Now, Johnny is my father’s godson. So my father went to see this bandleader and offered him $10,000 to let Johnny go, but the bandleader said no. So the next day, my father went back, only this time with Luca Brasi. Within an hour, he had a signed release for a certified check of $1000.

Kay Adams: How did he do that?

Michael: My father made him an offer he couldn’t refuse.

Kay Adams: What was that?

Michael: Luca Brasi held a gun to his head, and my father assured him that either his brains or his signature would be on the contract.

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  1. Anonymous2

    Your usual sane, highly intelligent perspective is on show again here, Yves.

    My one straw I am hanging on to, as a Briton, is that May has shown herself capable of very abrupt 180 degree turns. She of course did this with Brexit, having originally been a Remainer, and also when the Budget proposals came under fire. I am hoping that after the election is out of the way she starts to show a more realistic approach but I am well short of 100% confident!

      1. Harry

        It’s precisely that which gives me pause in shorting sterling. When a chink of reality finally manages to break through the gloom of current British thinking, will they click their heals three times saying there is no place like home, no place like home. …

        Yves has very clearly demonstrated that the apparent British position is DOA. The question is what will their fallback position be – hard brexit or beg to be taken back?

      2. Simon Wiltshire

        Couldn’t disagree more.

        There is a tendency to put a strong EU bias on this site which I find disappointing. It is clear that the EU have to make things difficult for the UK because leaving means other countries have to step up to fill the budget hole.

        The UK’s favourable deal with the EU? Second biggest net contributor to a system which gives the Germans a massive advantage that the Dm would not have allowed them.

        The “Downing Street fiasco” as you call is was Junkers saying one thing to one group of people and another to the German press. I thought May was the only one with any dignity. I expect Junker was pissed again.

        Varoufakis gives some very interesting soundbites on what it is like to ‘negotiate’ with the EU.

        1. Yves Smith Post author

          You Brexit fans love to depict clinical analysis as bias. I ran into precisely the same problem when I was the only person to say as of Feb 2015 that Greece and the Trokia had no overlap in their bargaining positions, and the negotiating dynamics were rapidly getting toxic, which meant it was very unlikely that the gap would be closed. And in the event of an impasse, the Troika clearly had the trump card by being able to shut down the Greek banking system (the ECB was already bending the rules past the breaking point by keeping it afloat). And that is exactly what happened.

          Making an accurate forecast is not the same as favoring that outcome. Do you think that oncologists that tell patients that have stage 4 cancer that the odds are 80% that they will be dead in five years or less? That is the ludicrous insinuation you are making.

          We are talking about Brexit, not about the former arrangement. Who has leverage is a function of which side has more to lose if there is no deal.

          The fact that the UK suffers vastly more in a disorderly Brexit gives the EU the whip hand. Nothing else is relevant. Contrary to what Brexit boosters have falsely been told by the British media, there will be no default to the WTO. None other than the Director General of the WTO has said that repeatedly. WTO deals need to be negotiated, and the UK cannot legally negotiate a new trade deal until it is out of the EU. Moreover, WTO deals take over 5 years to negotiate (7+ is typical). And the WTO head also made clear that the UK will not be able to jump the queue ahead of other countries that started the WTO process before the UK.

          So all the EU has to do is set red lines, play non-negotiable, and offer minor concessions to feign being reasonable. If the UK walks from the negotiations, it will only hurt its own cause.

    1. Adamski

      Supporting Brexit wasn’t a 180 degree turn since it was a manifesto promise that she may feel compelled to go along with. The budget proposals don’t have the same public expectations and are a smaller matter. However, she may have called the election so that she can more easily wriggle out of the “no freedom of movement, no European Court of Justice” than she could before 2020.

  2. Richard

    Er, excuse me. I think you have completely misread the situation here.
    1. The U.K is LEAVING THE EU. This means that at the end of the day, the U.K. will no longer be beholden to ANY of the strictures of the EU. Where you have apparently misunderstood the situation is that the EU is trying desperately to force the U.K. into adhering to various aspects of the EU AFTER the divorce. (E.g. the European Court of Justice). The U.K. will have none of it.
    2. After divorce, the U.K. will be (once again) an INDEPENDENT COUNTRY, which means they can make whatever laws they like and deal with immigration in whatever way they like. The EU will have none of it.
    What is so hard to understand about all this?
    The EU is trying its best to humiliate the U.K. (e.g. by not “allowing” May to speak to anyone except Michel Barnier). The tactic does not and will not work. The British understand the temperament of the Europeans. Trust them.
    3. The original adherence of the U.K. in 1973 was built upon a LIE: it was set up as the “Common Market”, a trade group exactly like NAFTA. The U.S., last I looked, is not beholden to Mexican law. The transition to the current EU status was done by stealth and wholly UNsupported by the U.K. over 40 years. THAT is why they are leaving. The whole thing spun out of control.
    Give some credit to the country which owned a quarter of the surface of the earth. They know a thing or three about scum such as the EU gnomes. They’ll take care of themselves and they’ll leave happily without a deal if they have to. They truly, TRULY have the upper hand in all this.
    And, by the way, when it comes to “jobs lost” to Europe from Brexit, let me assure you that Britain will ultimately be seen as the bastion of freedom after Brexit and the jobs will come flying back. Guaranteed!

    1. Yves Smith Post author

      This is a classic case of what happens if you live on a steady diet of domestic propaganda.

      1. The UK needs to trade with the EU far more than the EU needs the UK. The biggest export sectors are financial services and transportation. The EU is already in the process of forcing Euroclearing to at a minimum be EU regulated and may succeed in forcing it to move to the Continent. It has the power to do that. It can also force any financial products that are sold to European parties to be sold through entities with EU licenses, which includes having the people facing the customers have EU licenses and be EU residents. That means moving those jobs to the EU. The EU can force Airbus parts manufacture to the EU.

      If the UK looks like it will go through a disorderly Brexit, many of the transport manufacturers will move production to the EU. That means yet more job losses.

      Lower exports means the pound will fall further. But as the example of what happened to the UK during the crisis showed, even then it didn’t get an export boos. The UK’s export mix is particularly unfavorable.

      So the sterling will fall, without much benefit to improving exports. That means more costly energy and food. This will hit lower income people particularly hard. And the loss of jobs and related salaries will also force higher taxes on the public and/or lower benefits, like NHS cuts.

      2. Sorry, but even the Brits who comment on this site are quite clear that the UK has no friends in Europe. And the Europeans are indeed united against the UK. So the UK’s actions show they don’t understand the EU at all. They are laboring under the delusion that they have some allies there when the few they might have had are all now opposed due to the UK’s high-handednesss. As a more astute member of your country wrote:

      The Conservative government have made several proposals that require the EU negotiators to violate the EU treaties or are wholly impractical, but sound awesome: negotiate before TEU Article 50 notice, negotiate a comprehensive FTA with an EU member as not allowed by TFEU Article 118, settle the citizen rights matter “instantly”. They have not suggested any measures to make these things possible, like a treaty amending TEU 50 and TFEU 118 etc.

      It is possible to imagine that the Conservative government and their experts know very little about the EU treaties, but it is also possible to imagine that they are making these proposals in the full knowledge that they cannot work but sound very good to potential english voters, that is as rhetorical traps for the EU negotiators. In the second case they are giving for granted that the negotiations are going to fail…

      3. Regarding your #3, one British FT reader pointed out:

      Matters are complicated because we are, in effect, inventing a new country – call it Brexitannia. Membership of the EU is intertwined with every aspect of life in the UK. After 43 years how could it be otherwise? Now we are having to unpick all these interconnections, or at least to identify and address them, even if we don’t want to change them (for now). If you want a quick sense of the scale of the matter, consider the Acquis Communautaire, which now runs to over 1 billion words and if printed weighs more than a ton. And, in truth, this if anything understates the full scale because membership of the EU was so taken for granted, that the assumption penetrates areas that even the formal Acquis does not cover.

      Inventing a new country is not a quick and easy process, and doing so is not helped if members of the government, from the PM down, all seem to regard it as child’s play. 

      Your final comment demonstrates classic misplaced British arrogance. It is now a full three generations since the UK was a colonial power. The current UK leadership is running on brand fumes. It can’t even run a negotiation, let alone administer anything of any complexity any more. You are in denial that it has been America’s poodle for quite some time, and it shows.

      1. Richard

        Your arguments are so off-the-beaten-track, it hurts.

        You insist on assuming that the status quo (“Europe forcing Euroclearing to be EU-regulated) will carry the day. It only applies now because the U.K. currently agrees. If, through taxes or other regulation post-Brexit the European financial community chooses to do their business in London, NOTHING CAN STOP THEM. No way can the EU “force Airbus parts manufacture to the EU”. If GM wants to manufacture cars in China, there is nothing that the U.S or anyone else can do to stop them. Ditto Airbus. You are mesmerized by your interpretation of the power of the EU. It is misplaced.

        You ignore my final comment about commerical freedom in the U.K. which will prevent industries such as the “transport manufacturers” you cite from moving to Europe.

        Britain has, indeed, no “friends in Europe”. It never did. It is quite used to that state-of-affairs. “The wogs begin at Calais”, remember?

        I have lived all over Europe. I speak French, German, Spanish, Portuguese and Swedish fluently. I can assure you that all those countries belong naturally to “Europe”. Britain does not. I have immense respect for European culture. It was just a terrible mistake to try to mix it in with the Anglo-Saxon variety.

        The one aspect of your critique I will agree with is that the U.K. is, indeed, America’s poodle, thanks to the socialists. More’s the shame. Arrogance? Nah… I don’t think so. History and pragmatism are on the side of the U.K. You don’t just change your stripes over half a century.

        Check back in a couple of years. You may be surprised!

        1. James Levy

          America’s poodle “because of the socialists”?!? You do remember a person named Margaret Hilda Thatcher, don’t you? When America said, jump, she smiled and exclaimed “how high”.

          1. Colonel Smithers

            Thank you, James.

            Ali G once suggested to Tony Benn that Milk Snatcher was a communist..

          2. Paul Greenwood

            Actually it was that American Spencer-Churchill with his secret correspondence with FDR behind Chamberlain’s back that sold the pass

        2. makedoanmend

          Thanks for the insights and comments.

          Once again (assuming bone fide of the above stated background portrayed) the exceptionalism of the ‘anglo-saxon’ is evident. I’m sure anglo-saxon Europe will be a big success. The fragment of Europe outside this exceptional sphere will just have to plod along without such an august companion.

          Au revoir

        3. Yves Smith Post author

          You seem not to have heard of the old saying, “When you are in a hole, quit digging”.

          1. The overwhelming majority of transports part manufacture in the UK is done by multinationals. There are no more UK car manufacturers. All of the UK marks are owned by foreign companies. They can and will move production out of the UK if it makes commercial sense, particularly if a hard Brexit looks likely. Similarly, Airbus parts manufacturer is done by contractors

          2. Other readers debunked your uninformed views on Airbus long ago.

          From PlutoniumKun on 1/18:

          The issue of both car parts and Airbus parts illustrate precisely why the British will get their lunch eaten. The UK companies which supply Airbus are not part of EADS (the main contractor). The role of the UK in Airbus is peripheral due to the refusal of successive UK governments to get involved in such corporatist set-ups. I suspect that all Airbus contractors in the UK will be informed that they must move to France if they wish to continue to supply parts. It will be that simple. And there is no way that they could find alternative markets in the US in the timespan, so they will do that. The Europeans will fear Trump will try to block Airbus sales (for example, to Iran) by blocking US contractors from supplying parts, so they will be working hard to onshore everything within the EU. This will also apply to military programmes, which is a strong sector for the UK. BAE will really struggle, it will be informally shut out of a lot of European projects.

          3. The fact that you can get on as a tourist in Europe does not appear to have resulted in any appreciation for national politics.

          1. Davenport

            Yves, the wings of all Airbus aircraft are assembled in Broughton, by Airbus itself. It’s not an easy business and it will be very difficult to transfer to the continent.

            Rolls Royce engines and Messier Dowty landing gear may be a different story, as well as other suppliers further down the food chain.

            1. Paul Greenwood

              Since some airlines use GE-SNECMA engines on Airbus and others specify RR that is a different issue besides which RR has plants in Germany and USA.

            2. Yves Smith Post author

              This article in the Financial Times suggests that even the wing assembly is vulnerable even if it can’t be moved out of the UK quickly. And it turns out the UK has an advantaged position on the A380, wings for newer planes are going to the Continent.

              Stephen Cheetham says he is “scared witless” about the impact of Brexit on British manufacturing.

              But the chief executive of PK Engineering, a small aerospace supplier in the West Midlands, is pressing ahead with a £500,000 investment in new equipment to keep up with the demands of its clients…

              PK Engineering, which employs just over 40 people and makes precision machined parts, is not the only supplier to the aerospace industry with mixed expectations…..

              Within the next year Boeing is expected to decide on the launch of its next new aircraft, likely to be a single-aisle, mid-range passenger jet. Airbus will have to respond and a new era of aircraft innovation will begin. 

              “As work on research and development goes on, there will be opportunities to pull work away from the UK,” says an executive from one of the UK’s biggest aerospace companies. 

              The UK is already falling behind its continental European rivals on key aerospace infrastructure, such as test beds for engines and aircraft structures, that support the development of high-value design and cutting-edge technology, according to a recent report by Roland Berger for the Aerospace Technology Institute.

              Airbus, one of the UK’s biggest employers in the sector, will face pressure to bring jobs back to France, Germany and Spain, its original stakeholder countries, say several suppliers. “We are very worried about the impact of Brexit on the whole Airbus discussion,” says one.

              The UK plays a leading role in wing technology, one of the most critical and lucrative parts of aircraft manufacture, and work that other countries are keen to grab.

              Britain’s position weakened during the shift from aluminium to lighter composite materials. While UK companies designed and manufactured virtually the entire wing for Airbus’s superjumbo, the A380, the top and bottom skins of the wing for the newer A350 went to Spain and Germany, both keen to accelerate development of their aerospace sectors….

              “There is a constant move by Germany to get as much wing work out of the UK because it is the most valuable,” says the aerospace executive. “There will be countries looking at the UK’s position as the world’s second-largest aerospace sector and thinking that if it wasn’t [in the EU] this could actually benefit them.” 

              “There is a recognition there is a threat there,” said one government official, citing this as the spur to government investment last year in a new £37m wing integration research facility in Filton, north of Bristol.

              Access to highly skilled EU labour, to Europe’s research projects and funding and its relationship with Airbus are critical to Britain’s position as the world’s most important aerospace sector after the US. 

              “In the UK that is particularly important because we do not manufacture a whole aircraft any more,” says Malcolm Scott, corporate development director of the ATI. 

              Many companies are worried that their competitiveness will be dulled by restricted access to their employees in continental Europe. About a quarter of Rolls-Royce’s workforce is in the EU outside the UK, and like many aerospace companies these workers are often transferred at short notice to deal with temporary production challenges. “Free movement is a big issue for us,” said one senior executive….

              Concerns are also mounting over the UK’s membership of the European Aviation Safety Agency, which certifies aircraft, engines and their components. 

              If the UK opts to create its own regulatory regime, and UK suppliers still have to seek certification from Easa, costs would rise. 

              Although aircraft and their parts are exempt from tariffs under World Trade Organisation rules, there is a niggling fear that competitors could encourage governments to find loopholes during exit negotiations that would raise the cost of business for UK companies. For example, the UK’s aerospace supply chain could be hit if EU exemptions for the raw materials used to make those components are reversed. 

              Finally there are worries that the decision to go it alone could lead to big non-tariff penalties such as costly delays at borders if the UK withdraws from the customs union. 


              In the event of a hard Brexit, customs becomes a nightmare. That concern alone would lead to a lot of pressure to move many operations out of the UK regardless of the short-term costs.

              1. Paul Greenwood

                That has the advantage of reducing imports which both U.K. and USA will need to do as the world’s major deficit nations

                1. Yves Smith Post author

                  Huh? Virtually all of the UK’s manufacturing exports are part of extended supply chains. The UK is not making steel and starting from scratch. It is most often taking lower-value intermediate goods and producing either final parts (still not final products) or more advanced intermediate products.

                  Your perverse argument is tantamount to saying, “The UK would be so much better off it if got out of manufacturing entirely!”

                  1. fajensen

                    Well, I remember that Margaret Thatcher actually DID say at least something along those lines, words about “… replacing the failing smokestack industries with a modern service economy …”

                    Unfortunately Google cannot dig it out.

        4. JohnnyGL

          “If, through taxes or other regulation post-Brexit the European financial community chooses to do their business in London, NOTHING CAN STOP THEM.”

          What you stated here is correct, however that’s not the issue. If the EU and ECB say that banks cannot trade EUR currency in London, then the banks cannot trade EUR in London. That means all the EUR trading volume for trade flows and capital markets goes immediately to Frankfurt.

          No ability to trade EUR will be a substantial dagger in the heart of the raison d’etre of the City of London. Yes, Barclays, HSBC, Standard Chartered, and the others will do just fine, but they’ll need to expand operations in Frankfurt and correspondingly shrink their London footprint.

          The above hits London property prices as staff have to relocate or get made redundant.

          The additional immigration restrictions which will reduce the attractiveness of London as a home for shady flight capital from various countries (Gulf States and Russia come to mind). Once again, that whacks London real estate.

          If you can’t manufacture and you can’t do as much financial services (like pumping real estate bubbles) and you lose EU farm subsidies, economic matters suddenly look very different, don’t they?

          1. Paul Greenwood

            Getting work permits in Frankfurt will overwhelm German bureaucracy already submerged in Merkel’s Marauders…….let alone Einwohnermeldeamt

            1. Anonymous

              They’re not asylum seekers – entirely different government agency and a much less involved process.

              German civil services are, by and large, quick and efficient, a fact that becomes apparent once you had the misfortune to having to deal with civil servants in France, Italy or Belgium – let alone Eastern Europe. Though the failed city state of Berlin is an exception from the rule.

              1. Paul Greenwood

                You should try Einwohnermeldeamt which registers ALL persons. As for BAMF they then try to offload their customers onto Bundesarbeitsministerium which is the same organisation processing work permits.

                There are 96,000 Britons in Germany, 110,000 Americans, 500,000 Syrians, 3 million Turks, 2 million Russian-Germans.

                German Beamte are very slow….go try see what a mess there is in Berlin. Do you deal with them regularly ?

        5. reslez

          > And the loss of jobs and related salaries will also force higher taxes on the public and/or lower benefits, like NHS cuts

          “Force” higher taxes? Yves, how conveniently you forget MMT when it comes to Brexit. Please consider what motivated you to make that remark when you understand very well the UK controls its own currency. We also know the BoE is aware that taxes don’t fund government spending. Especially for something like health care where the main expense is salaries as opposed to material that needs to be imported. Could the UK have trouble paying for foreign pharmaceuticals someday, sure, but being “forced” to lower benefits or raise taxes, no. Benefits will be cut because the Tories want to do it, not for any other reason.

          Brexit is an excuse to impose even more austerity. Brexit will be an ordeal, but it’s necessary. The elites keep creating layers of indirection and buck-passing between themselves and the people, and that has got to end if we’re to have any chance of taking back control. The EU has to go!

          1. Yves Smith Post author

            The UK is run by neoliberal Tories. Labour is about to be crushed in the June 8 elections.

            They won’t fund shortfalls with deficits.

            And on top of that, with sterling almost certain to fall further, the UK could well have inflation due to rising costs of critical imports. So inflation could become an issue. MMT stresses that the constraint on currency issuance is inflation.

            1. Harry

              So that is definitely the received wisdom, and I dont really disagree. I just think the handicapping is a little off because the media is so universally Corbyn averse.

              He trails by 17 points. But May is dreadful and her handlers know it – thats why they never let her off leash. Corbyn has the advantage of being a decent person, despite being constantly pilloried in the press. However there are a lot of anomalies in the polls. My guess is that he is only say 7 points behind. Still a big defeat but not quite the utter destruction the UK polls are currently forecasting.

              I would add that the Tories are slightly more pragmatic than they appear to be – although May isnt. David Runciman wrote up a good piece on her political DNA in the LRB (which I probably saw in links here). So while they wont bless increasing deficits they probably wont be quite as ruthless as their economic dogma suggests they should be.

              Still, I am hardly making a bullish case am I? More likely clutching at straws.

              1. Yves Smith Post author

                I’m sorry to seem so hard on Corbyn. The Blairites would rather see Corbyn fail that Labour succeed. Most pundits, as well as many NC readers, saw the timing of the June 8 election motivated to a significant degree by the opportunity to crush Labour. I hope that proves to be wrong.

              2. fajensen

                Tony Blair coming out of the closet supporting “Remain” will ensure even more support for “Brexit”, unless perhaps Corby comes out and declare the man to be the cheat, liar, fraud and war-criminal that he is – but I think Corbyn does not yet have the clout within Labour to really take Blair on directly.

            2. Adamski

              What about the balance of payments? Has been bad in the UK for 30 yrs and especially bad now.

            3. Paul Greenwood

              Inflation is an issue in Germany…..I wish Americans could pay German electricity prices and taxes it to mention rents and food

        6. vlade

          “You insist on assuming that the status quo (“Europe forcing Euroclearing to be EU-regulated) will carry the day. It only applies now because the U.K. currently agrees.”

          You’re delusional.

          If EU says EUR must be cleared within EU, then nothing short of war can give the clearing to the UK.

          If EU says it’s illegal to sell financial products to the EU buyers by non-EU firms, then it’s illegal. Of course, the question is whether they can go and fine a non-EU domiciled company easily enough, but worst comes to worst, they can always go after the clients to discourage it.

          In other words, EU can control access to its market entirely.

          Britain may not be part of Europe as you call it (although Scotland always felt more part of Europen than England did), but I’d wonder whether say cultural differences between Swedes and Portugese are really much smaller than English and say Dutch.

          1. Paul Greenwood

            Scotland doesn’t feel more European that is a fiction…….Scotland has the population of Yorkshire in vast wilderness which in the North feels Scandinavian and where Glasgow and Edinburgh are so vastly different.

            There are 3 Note-Issuing Banks in Scotland which must back issue with Sterling reserves……..they should back issue with Euros to show their strength and forego UK subsidies of £20bn a year

            1. Anonymous2

              Well as a Scot I can assure you that I not only feel European but am European.

              Amusingly you say that the North is like Scandinavia. Scandinavia is of course European, as is Scotland.

          2. Mick

            …cultural differences between Swedes and Portugese

            But which Portuguese? The northern Celts or the southern Latins? (a point I only make to illustrate the futility of talking about cultural differences in a continent suffused with modern American cultural influences).

        7. dw

          well Euoclearing deals with contracts, after BREXIT how will they get enforced in the EU or UK, with out the UK being in the EU or some trade agreement? and how will UK sales staff make contracts with EU citizens, if they dont have an EU license (an cant get one without being in the EU?). and while its possible that Airbus might not move their plants in the K, but they would then be subject to any tariffs that the EU would levy? and with no trade agreement, they wont even get WTO rules as they didnt join (and they need members approval to do so, including the EU). same problem applies to auto plants. while they can move them to China, the transport cost and WTO tariffs will make them noncompetitive. given time can they fix all of the above? sure. just wont happen in 2 years

      2. Paul Greenwood

        Why you rely on Nikkei Keizai as the Financial Times is in reality, eludes me. It has always been opposed to Brexit and has never been other than wholeheartedly EU-fixated even under Richard Lambert and Pearson. It is as “neutral” as WaPo is on Donald Trump.

        The biggest export sectors are financial services and transportation

        You will have to expand this comment for clarity. Germany car exports $152 bn worldwide which is 23% global car exports. UK exports $39 bn. UK car exports to EU £15bn imports from EU £45 bn. The deficit exceeds the entire earnings from Services including FIRE sector. Top 3-selling cars in UK are imported from EU.

        The deficit in vehicles and vehicle parts has risen by £10 billion in just five years: from £18.3 billion in 2011; to £19.2 billion in 2012; £22.7 billion in 2013; and £24.5 billion in 2014. HMRC Archive, compiled year end data………
        £14.6 billion to EU; £18.6 billion to the rest of the world. HMRC 2015 data, February 9th 2016 release………… from Eurostat, tell an astonishing tale for the period 1994 to 2013. During this period, Germany has held, or increased its overall market share in a vastly expanded EU in both chemicals and computers & electronics. Its market share in machinery equipment has fallen substantially since 1995, but still more than doubled in € value. No other country comes close to Germany’s ability to hold EU market share over this 19-year period, with the sole exception of Netherlands, which, since 1994 has slightly increased its portion of intra-EU trade in food products

        1. Yves Smith Post author

          Presumptuous aren’t we?

          Wikipedia is my source for UK exports. I suggest you acquaint yourself with Google. And perhaps bone up on reading comprehension. I am discussing UK xports, which is what the UK is keen to preserve and the EU to take away, and not trade balances by sector.

          1. Paul Greenwood

            Wikipedia is a source but I prefer Economics sources. I am grateful for your encouragement of my reading comprehension since clearly you wish to be didactic. I am acquainted with US Big Data Spyware at Google funded by CIA through Stanford. You seem to think exports are so vital when I think they are irrelevant when you import three times what you export of the same product. Trade balances by sector are ALL that is important unless you are a glib journalist. Sectoral Imbalances are key and should be eradicated.

    2. Jeff

      Your country has no agriculture to feed its people, no manufacture to build stuff you can sell to others for food, and no services to take care of your old & weak.

      It is true yours is a country that enslaved (‘owned’ as you say) a quarter of the surface of the earth. But that time is long gone, as are the slaves.

      I think the people in your “bastion of freedom” will remain free to die as they wish. With a bit of luck, they may ask for refugee status somewhere.

      1. Richard

        1. “Your country”. Huh?

        2. Singapore has no agriculture, no manufacture… Next? (Your statement isn’t even true).

        3. Yes, OWNED! The Brits abolished slavery long before the Yanks.

        4. Don’t understand your last paragraph.

        Did we get out of bed on the wrong side this morning?

        1. Yves Smith Post author

          No, you “got out of the wrong side of bed”.

          Singapore is a net exporter so it can afford to buy the things it needs. The UK is not, and its balance of trade will get much worse as a result of Brexit. It is also a tiny country and on top of that, its export mix does not resemble of the UK much. Its main services exports relate to its status as a major port:

          The country mainly exports services, such as maintenance and repair, business management and transportation services

          1. Paul Greenwood

            I fail to see how balance of trade could worsen. Import Substitution is a goal. Simply changing tax law on company cars and personal leases will kill off over-priced car imports. There is no reason for police to use BMWs and no reason for every oil in the City to get a new one every 2 years. BMW is more common than Ford on most used lots nowadays.

            It is remarkable how many countries handicap imports – like Germany with barriers. Try finding Dutch Advokaat and see how German copies abound, or how Germany produces Emmenthaler, or blocks Polish pork products whereas in UK they are abundant in Polski Sklep…..then again try finding Polski Sklep in Germany.

            In a German company try asking for a non-German car as company vehicle……..LOL

            Denmark depends on UK – Danish Bacon Company is UK-focused. It has the highest labour costs in pork production on the planet but is fully automated. Canada doesn’t get a look-in. Germany produces lousy pork in poor welfare conditions, milk from cows fed in stalls and low-grade, vegetables low in iodine with scandalous deficiencies in thyroids in Germany…….but all hushed up and sold cheap in Aldi or Lidl or Netto

            Insurance in Germany is dire with no customer focus and rules from 1930s……no competition. Cartel with right to change insurer only once a year at defined date

            1. Jeff

              The issue in the UK is that they are a net importer in every class tracked by eurostat, except (financial) services. They are for instance a net importer of fossil fuels.
              So it is not so much import substitution, but something to export that pays for the required imports. While UK could do with less imports and more home-grown products, that requires a/ a plan and b/ lots of time (about two generations), and neither is available, or even being looked for.
              When thinking about UK in 2 years, Zimbabwe comes to mind.

              1. Paul Greenwood

                I doubt there is an export group the UK could dominate. Gordon Brown auctioned 3G licences and ALL handset production moved to China. The UK is not able to produce those items whose market share expands most rapidly. It is simply not a flexible and fast-moving production centre and lacks clusters. My point is simply that if you cannot afford luxury imports you cannot buy them

            2. fajensen

              Denmark depends on UK – Danish Bacon Company is UK-focused.

              Now, That should come with at Trigger Warning, this going right into a key divide in the Danish population.

              Danish agriculture, especially the industrial pork production, has, IMMOO (In Mine and Many Others Opinion) evolved into a parasitic, extractive, industry that could not survive even for one year without access to cheap credit, lenient – some would even say negligent** – regulation and generous government support!

              Last I Checked* – The outstanding debt on Danish Agriculture is about 380 Billion DKK, aggregated profit is about 4 Billion per year so Good Luck ever getting those loans paid back!

              At least half the Danes, probably more, will only be happy to see that business finally be scaled well down to a sustainable level, taking a lot of the banks with it in the fall (finance needs to be scaled back too, 2008 was a wasted opportunity).

              If normal laws of physics were applied to agriculture then, 25% of danish agriculture is a straight bankruptcy, 50% might be sustainable and 25% are running OK.

              On top of that, the meat produced is infected with MRSA CC398 and most of the people working with pork and pigs are also infected with this bug. Consequences are that they have to be treated separately when going to hospital. If one carry this bug, a normally trivial operation can transfer the staphylococcus to the blood where it can cause life-threatening infections.

              This is caused by overuse of antibiotics needed for the industrial farming of pigs combined with total refusal to deal with the problem from the governments side – because if “agriculture” takes losses, banks will die, so it’s much better that some people die.

              IOW – Denmark depends on the UK buying our crapified pork in about the same way that americans depend on US water companies being allowed to use lead piping!



              1. Paul Greenwood

                That is a great comment and just the kind of feedback I wish to hear. I am really happy to hear such information which is otherwise hidden from discussion. Please continue…….

        2. PKMKII

          Singapore has no agriculture, no manufacture… Next?

          Singapore is also located in a prime shipping location for southeast Asia, and doesn’t suffer as much competition from its neighbors in that regards as their economies are much less developed. The same is not true of Britain. They are not the Singapore to the EU’s Malayasia. Way this is headed, the more apt comparison is not Singapore or the glory days of the British empire, but more the Carolingian period when Britain was an undeveloped backwater, standing in the shadow of a Franco-Germanic empire.

          1. Mel

            Interesting (not vitally important) sidelight to Singapore’s development in Croquis d’Extrême-Orient, 1898 by Claude Farrère, a quick French business guide to the far east. Singapore was The most convenient stopover for shipping between Europe and the really far east, China and Japan. There was a French scheme to dig a canal across the Malaysian peninsula so that Saigon could take that business, but they got talked out of it. Perfidious Albion.

      2. Paul Greenwood

        If you are deriding U.K. you are potty. It survived Napoleon’s Continental System, two world wars, and fed itself. You might ask how NL grows vegetables in hot houses to undercut Italy andSpain and Greece

  3. Jesper

    Am not sure about the freeloading on healthcare. My understanding is that if not registered as living in a country then the costs of any healthcare is charged back to the country of registered residence:
    Might be that in practice it does not work, any and all are treated without proof of residence or checks whether or not the costs should be charged to country of residence

    1. Yves Smith Post author

      An FT reader explained how the expats game the system: they get health services using a tourist card, not a retiree’s card:

      The Pouca

      I have regularly pointed out a serious problem – that a large proportion of UK nationals resident or mostly resident in the EU 27 have not in fact established ‘residency’ in the country where they in fact mostly live and have their main actual home. Thus if you run the ‘official’ number of U.K. nationals resident in Spain, i.e., circa 300,000, past anyone familiar with direct knowledge, they grimace or guffaw. The best governmental estimates put the number north of 700,000 (possibly well over 1 million mostly resident in Spain) – and there are similar issues in Italy, France, Malta, Portugal, Croatia, etc.

      The basic issue derives from the large proportion of those UK nationals who are retired or semi-retired. Because they are not in employment (or doing only casual work or remote consulting), they do not need to establish themselves in the way that younger EU nationals in the U.K. do, by for example app,young for a UK National Insurance number. Indeed, there is an incentive to claim non-resident status (in Spain this is easy), which is avoiding local taxes – often higher than the U.K. The result is that a lot of those older ex-patriates you see are not officially ex-pats – they keep a bank account in the U.K. and some sort of address – they use a European Health Insurance Card (EHIC) meant for temporary travel, and not the long term retirees S-1.

      The reason this is a problem is around the treatment of so many UK nationals in this situation. First, let’s assume for the sake of argument that there is an agreement – EU 27 nationals resident in the U.K. As of 23 June 2016 can remain; the same applies to U.K. nationals resident in the EU 27. What do you do about those UK nationals who are officially non-resident, but who in fact live in the EU 27. Remember, many will have made false statements, declaring themselves non-resident on legal forms – lawbreaking in fact. Many may have significant past tax liabilities as a result. But most importantly, they cannot prove their residency in the country they live in – because they avoided it so deliberately.

      This is not by the way a symmetrical problem – there will be many more UK nationals caught in this way than EU 27. A lot will be expensive in health care terms too, being elderly – or at least older.

      And later comment by the same individual:

      @reallyanavater The asymmetry is not quite as you think. Yes, EHIC and S-1 costs are supposed to be charged back to the EU Nationals own country, but I understand that in practice Spain, Italy, Portugal and France do not do this completely – moreover, if elderly U.K. nationals will have to buy private health insurance, it will be astronomically expensive. The U.K.-expats are expensive in health care terms being mostly old or elderly. They also require local resources – roads, policing, etc. for which they don’t pay tax other than VAT.

      By contrast EU 27 nationals in the U.K. are paying income tax and NICs and are young and consequently very cheap in healthcare terms. They also for the most part don’t take jobs that U.K. nationals are willing or qualified to do. The fact that they pay tax and NICs is why they are formally resident, whatever Byzantine and ludicrous requirements the past nincumpoop of a Home Secretary though wise, and her doltish successor has kept in place.

      1. PlutoniumKun

        Oh, I’m sorry I replied to that, your comment is so much more comprehensive and interesting!

        From anecdote, I do indeed think that many UK citizens are in Spain who never clarified their status for tax reasons. They are caught with a double edged sword now, as a falling sterling greatly reduces their income. It seems to me that a chaotic Brexit will almost certainly mean a very sharp further fall in sterling.

      2. JTMcPhee

        “Cheating ex-pats to get the axe”? Sounds like time for another invocation of Rule #2 of neoliberalism, and a great opportunity to “clear out the deadwood and underbrush:”

        “Just die.”

        It’s not like that’s not happening all over the place anyway.

        So there’s this Globalist Sub-Project called the EU, with certain beneficiaries in a large country or two and among those who have looted their way to immunity and impunity, and a lot of people dragged along for the ride. Sold in part as a cure for the impulse to warfare, the remedy being the ligatures of “trade,” and “open borders,” so people can meet and interact and come to love each others’ differences and cuisine and stuff. As civil litigation is sold as an alternative to trial by combat, all under something called “the rule of law.” And all this “trade” supposedly now makes the world go ’round, sine qua non. And now there’s the experience of disruption past and present, the GFC and GWOT and ISDS/WTO, and the internationalization and post-and supranationalization of militarization and its industries and trade partners, and disruption galore on the horizon, as political-economic tissues of different organs and disparate organisms, stitched together by “surgeons” inspired by Dr. Frankenstein, do what in medical lingo is called “dehiscence.” Coupled with the decimation of the sort of social equivalent of the human body’s immune system, so that the present and coming stresses render the ol’ body politic ever more vulnerable to the environmental changes under way due to “our” apparently ineluctable infatuation with “progress” and “technology” and the pleasures and profits of externality-manifesting exploitation of everything.

        Individuals count for nothing, except to themselves (barring some psych dysfunction) or their little or large affinity groupings. Let us praise ourselves, as a species, for bringing most of us to this point of manifest, enormous, vulnerability — the larger set balanced on the point of a self-forged, carefully whetted dagger, with a self-forged Danoclean Sword hanging by that mythical thread over our heads…

        Nah, I’m sure that can’t be right. People are smarter than that. It’s all just a matter of sitting down and confronting, and then somehow reasoning together, by our Betters — who will then set a subset of us to the tasks of trying to sort it all out, suturing where possible, using Steri-Strips ™ and butterfly plasters to put it all together, irrigating the eviscerated tissues left after the surgeons excise the necrotic bits and irrigate with saline (will ocean rise suffice?) and leave it to the nurses to try to keep the patient alive… Maybe there will be signs of “disseminated intravascular coagulopathy,”… So maybe a few limbs will have to be amputated, to keep the core functions going a while longer…

        Nah, that can’t be right.

        1. DJPS

          Luckily, they don’t have to “just die”, because they have the right to return home, if they want to take advantage of the social safety net.

      3. Jesper

        So the implication is that if the UK had stayed within the EU then Spain et al would not have looked at charging UK for health care provided (even though they could)?
        Seems unlikely to me, I believe that they’d either they’d start charging irrespective of UKs membership or they’d continue not charging.

      4. vlade

        I’d also point out that if all those freeloading retirees come home, the impact on NHS is going to be significant, as will the impact on housing, care and other services. At the same time as a number of people in those services will be leaving (being EU nationals fed up with the Brits).

        Of course, since it will be a Tory gov’t they probably won’t give a toss.

    2. PlutoniumKun

      I think its a bit of both. A doctor friend was recently telling me that the Spanish health system has invested specifically in the Costa del Sol and areas such as that as its seen as a financial earner to charge northern European retirees, and they can cross subsidise other services using this money. The high quality of the hospitals there is one of the draws (I’ve met retirees there who sing the praises of the Spanish healthcare system at every opportunity), but no doubt they make a profit on the cross-country charges.

      However, in my experience around Europe it is very rare for hospitals to bother asking anyone where they are from. Its just too much administrative hassle, and the assumption is that it all balances out in the end. An English born Australian friend of mine was struck down with an aggressive cancer while travelling in France. They put him through 3 months of state of the art treatment (his wife was a nurse and she confirmed that it was as good as he would get anywhere in the world) and they only asked for an address (he gave a friends French address). He never got a bill and nobody asked him any questions.

    3. Paul Greenwood

      UK paid £674 million to other EU nations and received only £49 million in return as EU nationals used NHS. It is the difference between insurance-based and taxpayer-funded healthcare in terms of ID

  4. PlutoniumKun

    I believe that the issue of the UK’s financial contribution alone will make a deal impossible. The countries most distant from the UK – in an arc from the Baltic States down to Spain – will see it as a fundamental principle that they, the poorest members, will not pay one cent more in their contributions to make up for Brexit. And I can’t see how May can survive politically if she commits to giving the billions required. And there is zero chance of the Germans or anyone else offering to make up the gap. It really is an unbridgeable issue unless May can come up with some sort of fancy face saving formula to hide their payments. There is no incentive whatever for countries such as Slovakia or Lithuania to compromise on an issue like this – and they all have blocking votes.

    There is a very real possibility of it getting very nasty. The UK media will put enormous pressure on the government by not telling the truth to the public and insisting its all those nasty Europeans fault. There is enormous scope for Europe to retaliate in other ways – for example, blocking deals between the UK and other countries (if given a choice, what country would choose a bilateral deal with the UK if it means losing the EU market?). And not least, individual European countries could start putting overt pressure on UK based manufacturers to relocate ‘or else’.

    I find it very hard to see any good coming out of this for anyone. And the fault is overwhelmingly on the idiocies of the London government.

    1. Musicismath

      The main domestic metaphors for representing British virtue, and its relationship to Europe and the wider world, derive from the language of empire and popular understandings of WWI and WWII. This is the frame which newspapers like the Mail and the Telegraph use to structure international news, and it’s how Brexiteers (particularly the older age cohorts) understand their place in the world.

      So, expect the cost of leaving the EU to be represented in the U.K. media as some form of unjustly levied imperial “tribute,” or worse, just like the terms levied on Germany under the Treaty of Versailles.

      Empire, WWI and WWII: they’re the only tools of historical understanding the Brexit lot has. And they’re pretty blunt and outdated tools at that.

        1. ennui

          Adam Curtis’s The Mayfair Set is a really fascinating documentary which circles around the wave of pre-Thatcher British corporate raiders, in particular James Goldsmith, the godfather of Brexit (and UKIP incidentally.)

          It interesting how much revisionist views of British imperialism went hand in hand with the rise of finance. But, as is natural, there is an elite view of Brexit which is quite apart from the plainclothes fascism of UKIP, people who would never be admitted to the private gaming clubs of London.

      1. Adamski

        I think this like Yves’s comment above about “brand fumes” is only half right. It was the Tories who joined the EEC, and in the 70s the conservative Spectator mag had been hysterical at the prospect of staying trapped outside. Today there’s 27 countries and many rank and file Tories wanted to leave. The 1975 referendum was 67% Remain. Did the country become more arrogant and xenophobic in 40 years?

        The change was Thatcherism combined with the increasing power of the EU. If you’re a market fundamentalist, you blame the EU for everything. Just think all the damage the EU red tape simply MUST be doing to your profits or your personal wealth! And it’s all decided by foreigners and not British governments you can more easily lobby! And the foreign governments are centre-left pinkos like France and Germany and not rugged Thatcherites at all! (But pay no attention to Wolfgang Schaeuble)

        But the vote was 52% Leave, not all affluent suburban Thatcherites. What about working class voters? The right-wing tabloids have softened them up with decades of scapegoating the EU for poverty with stories about “stupid laws” and daily stories saying IMMIGRATION IS MAKING YOU POORER! Imagine how many such stories the average person reads in only one year. Now add the effect of the Great Recession and very slow recovery.

        So it’s not all about Brits being hung up on their imperial past, just as racism doesn’t explain Trump, it was just one factor in electing him. There is an ideological disagreement with the EU. And the “tribute” will be resented by economically desperate Leave voters not for patriotic reasons but because they thought Leave would mean more jobs and govt spending. Having to hand money back?!

        1. Yves Smith Post author

          The “brand fumes” comment was about the competence of UK leadership. Please tell me who is a competent prominent political figure in the UK. The world is suffering from a dearth of leaders who are up to the task, particularly in English speaking countries.

          1. Brian M

            Jay-Rod Kushner! He is an expert in EVERYTHING.

            Make May can borrow him from Trump?

          2. Adamski

            OK, I thought you meant brand fumes was sense of self-importance and complacency from the country’s powerful past; you were referring to current leaders, and musicismath to public understanding and they seem to overlap. Held back by outdated views.

            I quite agree about poor leadership, the Keynesian period wasn’t *that* many decades ago and internationally-coordinated stimulus was less than ten years ago. Yet the slow recovery from the Great Recession is the main economic and political problem everywhere and the necessary action is not taken. In partial defence of English-speaking countries, the UK isn’t as bad as the eurozone, and America’s recession was shallower with no double-dip from Osborne-scale austerity. Trump has no brain and May has no clue, now consider the eurozone repeatedly coming to the brink of disaster and then bare minimum action being taken to continue.

          3. fajensen

            The world is suffering from a dearth of leaders who are up to the task, particularly in English speaking countries.

            Yes, it is a scary thought that Vladimir Putin is, right now, probably the most competent leader on the northern hemisphere. Without even making a particularly good show of anything, except for the removal of (most of) the poison gas from Syria, which was a brilliant move.

      2. PlutoniumKun

        I think an important element comes down to language. It struck me when I lived in England that the EU was always ‘them’. I’d point out that the EU was actually ‘us’ and get usually puzzled looks in response. For many English (I’d exclude the Scots and NI from this), the EU is ‘Brussels’, while for many in other countries the EU is their burgundy passport. I’d commented here before that there was a joke circulating on Chinese social media that the UK is like a husband who has declared to his wife ‘I want a divorce – oh, and by the way, I still expect sex every night and my dinner cooked!’ (one of the versions I’ve heard is much ruder, but you get the idea).

        I think this accounts to a large degree to the huge age difference in voters. In my experience, the under 40’s I know in England genuinely felt European and liked it – I think it simply comes down to having travelled around Europe and knowing you had the same rights as everyone else. Even if only a small minority would ever go to, say, Germany or Italy to live or work, the fact that they could was important to people. The older generation, and I include all those with their French holiday home or plans to retire to Spain, always felt it was ‘them’.

        It also, incidentally, reflects I think much of the hostility in Europe to the UK now. Young people in particular in the more struggling countries really value the EU, they are very proud of their EU passports. It means a lot to a typical Czech or Spanish or Latvian 25 year old that they can go to Denmark or Germany and be treated legally as equals. Many really took Brexit as a deliberate rejection – not unlike the wife who’s been told she’s been dumped for no discernable reason. And like many a wronged wife, they will want revenge.

      3. Paul Greenwood

        Maybe we could look at the London Agreement 1953 and ask Germany why it got such an easy deal

      4. Paul Greenwood

        Considering Germany failed to honour the Versailles Treaty I found comments in today’s “Welt” that Britain is bound by treaties to be ridiculous. Germany finally shed the Dawes Plan and Young Plan (named after Bankers) in the London Conference 1953 when even Greece agreed to a 50% haircut on German Debt without which Erhard would not have succeeded in reviving Germany after the Morgenthau Plan JCS1067 was replaced by JCS1779

    2. AbateMagicThinking but Not money

      This being a political site, the “London government” blame should be sheeted home to the great rift in the Conservative party. It was their forty years-plus conflict over Europe that came to a head with David Cameron as their chirpy leader with zero political aplomb, who pushed the Brexit button. There was no plan B, and probably no plan A either.

      In the West, the word “revolutionary” easily attaches itself to the Left, but its seems to me that it is the Right that practices it more often – internal party factions being the catalyst.

      pip pip

      1. Adamski

        Exactly, it was to get around division in their ranks and among their voters the same as when Labour called the EEC referendum in 1975. But decades of the Tories and the right-wing press using Euroscepticism to scapegoat the EU for economic problems and get voters for the party have backfired. Most Tory MPs wanted to Remain, but the newspapers were split, and polling for the ConservativeHome website for Tory supporters showed 75% would vote to leave the EU, and UKIP were getting 20% of vote in elections. They created a monster!

        A little like in the States, Gingrich revolution => the conservative Limbaugh, Fox media ecosystem => Tea Party, Paul Ryan, Freedom Caucus => Trump …

  5. AbateMagicThinking but Not money

    Many in Britain regard the European Union as a rich man’s club, but this has been tempered somewhat by the actions of those who have taken full advantage of EU citizenship by moving to another member country.

    If the EU causes those EU citizens who are avowedly pro-EU (ex-pats) to suffer as a result of Britain’s withdrawal, the whole project is in question. What would EU citizenship count for? For citizenship to function there can be no half measures.

    If Texas were to secede would Texans have to go home? What does the constitution say?

    Let us hope that cool heads and moderation prevails.

    Pip Pip

    1. Adamski

      Today British expats have EU citizenship because they are British citizens. If Britain ceases to be a Member State, then those Brits are no longer EU citizens. The EU would not have deprived them of EU citizenship. It’s the UK which is depriving them of EU citizenship.

      1. a different chris

        If you have a job in Britain b/c you couldn’t get one in Europe and the powers-that-be (on both sides) make you go “home” you are going to not be happy. And as an “EU citizen” your anger may be at everybody involved, but the EU will have to deal with it.

        People don’t care about “citizenship”, they care about feeding themselves.

    1. Yves Smith Post author

      You did not read our Comments Policies before posting. You attacked another reader, PlutoniumKun,which resulted in you being put in moderation. It appears that in keeping with your wild claims about what the UK can and cannot do, that the concept that there are rules and mechanisms for enforcing them appears to be beyond your grasp.

      The Policies explain how our moderation process works.

      And your comments are now our intellectual property by virtue of you having commented. Our Policies clearly state, “Commenting on Naked Capitalism is deemed acceptance of these policies.” So I am not removing them.

      Indeed, your entire performance is an epitome of why, if Brexit negotiators operate as you do, the entire affair will be a train wreck. You wander into my site, which is private hosted space, and act as if you have rights. You don’t. We clearly state that commenting is a privilege, not a right. The UK has refused to understand not just the EU’s rules but bizarrely, its own restrictions due to having signed many EU treaties.

      1. witters

        The only thing I’m not sure of is this: ” You wander into my site, which is private hosted space, and act as if you have rights. You don’t.”

        1. Yves Smith Post author

          I also suggest that you read our Policies section. It appears you haven’t.

          We have turned off commments in their entirety in the past. There is no right to comment here or for that matter anywhere on the Internet unless you are paying for the space yourself. The fact that some places may operate as chat boards does not alter the fact that they can change how they operate on a dime. I do not fathom why you would think otherwise since this is site is privately hosted space.

    2. Clive

      And in case you’re mistakenly thinking that this is just a Remoaner-fest blog, I and several other regular commenters and contributors voted Brexit but nevertheless entirely concur with Yves’ assessment — the U.K. government is making a difficult task absolutely impossible, has grossly underestimated the complexity of the programme it has embarked on (to the point of being negligent in office) and has fallen into the same ideological trap that Greece succumbed to in thinking that it can get what it wants by the sole virtue of threatening to become a pain in the ass. The latter didn’t work for Greece and won’t work for the U.K. either.

      My own belief was that leaving the EU was the right thing to do. But that didn’t give the U.K. government carte blanche to manage Brexit in a way which is the height of irresponsibility and inflict the most collateral damage it can on the country.

      The May administration should be making nice to the Commission (yes, it might have had to be done through gritted teeth but they’re supposed to be adults not a bunch of stroppy children), worked out what bribes it needed to bung the EU to secure important concessions, sweet-talked the other governments into extending the timescale and used diplomatic manoeuvres to get key players who have specific agendas (e.g. Poland) on side. Yes, it is messy and yes, you need to compromise and not stand on principles just to cut off your nose to spite your face. And you have to stop playing to the Daily Mail gallery, however nice it seems to do that and whatever short-term electoral boondoggles it might seems to bring. Act like grownups, in other words.

      Like I said, I’m a Brexiter too so you can’t accuse me of being partisan. I hope that serves to make my advice more palatable; you’d be wise to take it and spread it around to those in your social circle because we’re going to need a change of approach if we’re not to end up in the you-know-what creek lacking a paddle.

      1. a different chris

        What Clive said (and as a USian I have no dog in this fight, unlike Clive!).

        1. flora

          Yes. I’m also a USian with no dog in this fight. per Clive:
          “the U.K. government is making a difficult task absolutely impossible, has grossly underestimated the complexity of the programme it has embarked on (to the point of being negligent in office) ”

          There’s a time honored (?) tactic, at least in the US, where bureaucracies that are forced to take an unwanted direction will deliberately do the worst job possible in order to ‘teach them a lesson’, in hopes of getting the new direction reversed or changed to the bureaucracies’ liking.

          It’s hard to imagine the UK govt would deliberately do the worst job possible on Brexit just to ‘teach the voters a lesson’, hoping to get them to reverse course. On the other hand, it’s hard to imagine the UK govt is doing the Brexit job this badly out of simple incompetence. One wonders if the govt thinks it can play a double game here (delusion) and win.

      2. Eustache de Saint Pierre


        I am in full agreement with all of that, although I not liking either side decided not to vote. I have to grit my teeth sometimes to read Brexit posts on this wonderful site, as I almost feel like a schoolboy preparing myself for hard & unwelcome truths from the headmistress.

        I have a probably unfounded suspicion that May, whose cabinet is I believe made up of Remainers, is not really serious about Brexit, but is through the election attempting to sideline the Eurosceptics from a position of added strength. This is perhaps just me clutching at straws & perhaps, as seems to be the case, she will screw the whole thing up.

        If that is indeed the outcome, then as Roddy Doyle’s hero in his novel ” A Star Called Henry ” said as a reply, after the Irish kicked out the Brits, to someone voicing that the new regime were a bunch of bastards: ” Well at least they are our own bastards “, is all we will be left with & of course our permanent status as Uncle Sam’s poodle.

      3. voteforno6

        Just out of curiosity, why do you support Brexit? It seems like it’s going to be a very messy process.

        1. DJPS

          I support it because they to gave us a vote. The media and the government told everyone how bad it would be over and over again. Yet the people turned out to vote in record numbers and chose to leave anyway because,for a majority, it was important enough to take that risk.

          Direct democracy in action.

          Should we instead entrust our future to those selfless, Philosopher Kings who tell us is “too hard” or “too messy” now? They never wanted it in the first place, and have been busy selling us out to all and sundry for decades to enrich themselves.

          Time to give up on democracy, or bite the bullet?

        2. Clive

          Well, for what it’s worth, I’d increasingly come to regard the EU as an illiberal institution running on a historical liberalism tradition brand fumes. Which was bad, but not necessarily fatal. It was also veering away from a genuine equal partnership of nations into a conglomerate where some were much more equal than others. Germany in particular had started to become frankly brazen in flouting EU laws at the behest of its pet big businesses (here is a worked example). Again, annoying but not a deal-breaker.

          But then we had the seriously miscalculated overreach that was the EU’s ill-fated attempted expansion into Ukraine — which seemed to blow up overnight but in reality was the EU playing a long and dangerous game. That, for me, was a red line. It could have become an absolute catastrophe and it was only luck NATO wasn’t dragged into the EU/US orchestrated proxy war.

          Some things are unforgivable — and that for me was one.

          And then of course there was Greece…

  6. Adamski

    Yves, I think this and your previous posts about the UK’s lack of leverage are good, but it’s David Davis, and not Davies. And when May said she would be bloody difficult to Juncker, surely she meant she would be difficult *via* Davis.

    As for Johnson and the Brexit referendum, it was a Tory party manifesto commitment to hold it and to implement the result, whatever it would be. Johnson only decided to stand as an MP at the last minute. His position on the issue — Leave — was the careerist thing. The promise of the referendum had nothing to do with him.

    It was because the Tories weren’t polling well enough for a parliamentary majority for several years, and UKIP were a threat to their vote share. The promise of a referendum was to show a bit of leg to UKIP voters.

    1. Yves Smith Post author

      Will correct, thanks! I am so time pressed that I very rarely proof my posts and on top of that, I have name dyslexia (some of my butcherings are impressively embarrassing).

      Re Johnson, I am pretty sure I saw more than one (but it may have been only two) op-eds laying blame for the Brexit referendum at his feet as a Tory power play that got out of control. Are you sure that the manifesto was all that binding? US party platforms have all sorts of grand commitments that don’t get done or kinda-sorta get started but are allowed to peter out. In other words, the impression I have is this manifesto could have gone by the wayside if Johnson hadn’t decided to make it a pet cause.

      1. Adamski

        I appreciate from past comments you’re v busy, I hope you get R&R and don’t burn out on us. This post was about feet in mouths though and non-British readers may wanna google Davis… Manifestoes are not legally binding, which means the Tories could change the policy now if they want, or Tory rebels in the Commons could combine with the other parties to block Brexit. But it is the manifesto which made the party hold the referendum, and not Johnson’s sudden decision to become an MP.

        I think you’ve been confused by op-eds blaming his popularity for helping the Brexit side during referendum campaign itself. Maybe he helped, but the promise to honour the result was made already. Forced to hold it because it was *his* pet cause? No, and he acted at the last minute on that, too. The referendum campaign had already begun before he chose to publicly support Leave.

        It is the electoral threat of UKIP and demand from the Tories’ own members and existing voters for the referendum that made it happen and is forcing them to implement the result. Decades of pent-up Euroscepticism.

        As for British party manifestoes vs US party platforms, with no separation of powers, one ruling chamber, and no White House, the party which wins an election can legislate as it pleases. So they must find agreement on this to get votes from the public. Hence tighter party disclipline in parliamentary systems vs presidential ones.

        US legislators are more isolated individuals (ironic given today’s polarisation). Manifesto promises can be broken — Labour said they would not introduce college tuition top-up fees and would “legislate to prevent them” but then introduced them anyway! But blocking Brexit could allow UKIP or others to eat away the Tories’ small Commons majority. Party before country, as it were.

        1. PlutoniumKun

          From memory, Johnson was considered anti-EU based on his writing output, but had to put on a pro-EU face when Mayor of London. It was considered quite a coup for the Brexiters when he declared against Cameron. But I think the general surprise over his stance reflected that he was never seen as a core Brexiter within the Tory Party.

          The Manifesto committment was there, but many a commitment has been fudged or ignored, although realistically the Tory party was and is such a mess of squabbling schoolboys the government would have collapsed if they hadn’t. This goes back a long way – remember Majors ‘bastards’ comment?

          However, what I think was the unforgiveable thing is how they worded the referendum. There was no attempt to clarify exactly what was meant by leaving the EU, and what alternatives they were seeking. It was an open invitation for people to express anger at the current system by voting ‘leave’, which was probably the intention.

          1. Adamski

            Well I know he was eurosceptic for decades in his journalism, I dunno if it was to the point of saying we should leave, rather than stop further integration.

            But they didn’t mean for us to leave the EU, so they couldn’t have offered a blueprint. And making it a leap in the dark was what those in control of the party preferred because they didn’t want us to vote for it. Imagine if the SNP had to word the independence referendum as anything other than yes or no.

          2. Paul Greenwood

            Johnson was always a fraud. His father was an EU Commission Official which is what paid his Eton fees. Johnson has always been a calculating buffoon and his presence in Bullingdon sums him up together with Osborne and Cameron. Johnson’s track record on adultery and mistress-abortion about sums up his total vacuity.

            Noone outside Media-London cares about Johnson.

      2. paul

        I don’t think it was a cause for johnson, he has never had any identifying positions beyond the natural right of the tories to rule with him as leader.
        He just thought he could use the vote to gain a little market share in the tory leadership stakes, to show him as a principled man cf osbourne.
        I’d give a pound to a penny that he had every confidence that the leave side would lose.

      3. Harry

        Blame for brexit lies with Cameron’s hubris. You can’t blame Boris’ Johnsons hubris anymore than one can blame him for bad weather. I suppose one could choose to blame that crap school in Windsor they both attended on the grounds that neither of them have got any conception of principle or public service

        1. Paul Greenwood

          It certainly has an exceedingly poor History Department but so does Fettes

  7. jCandlish

    *I find it very hard to see any good coming out of this for anyone. And the fault is overwhelmingly on the idiocies of the London government.*


    1. Adamski

      Isn’t leaving the EU good because British good, EU bad?! Merely disrupting a third of our international trade. But… indyref2 would disrupt a bigger percentage of Scotland’s trade (with rUK) AND mean losing the 6% of Scots GDP which is the net fiscal transfer from the UK. Thus, Glasgow voted Yes in indyref1 kind of like how EU-funded areas of England went big for Leave in the EUref.

      Except that as a whole, the UK is a net contributor to the EU budget. Whereas Scotland receives more in public spending than it pays for in taxes. It wouldn’t be like the SNP to try and brazen their way past this and hope no one notices would it?!

      1. paul

        Why would indyref2 disrupt trade with the rest of the uk?

        The whole of the UK spends more than it raises, its called a deficit and 99% of countries seem to have one.

        The net fiscal transfer is decided by westminster under the current constitution, an independent Scotland controlling its own revenues and finance would be quite a different proposition.

        1. Adamski

          Then Brexit is fine, because it will somehow not disrupt trade between the UK and EU? (Why does anyone want EU membership then?) Scotland’s biggest trading partner would be outside the single market and customs union. That is disruptive.

          Leaving the EU means losing EU grants, and leaving the UK means losing the UK net fiscal transfer, permanently. Losing 6% of GDP overnight is a similar size to the Great Recession.

          No country has a budget deficit of 6% of GDP permanently. A big deficit to stimulate a recovery from the Great Recession is fine. Trying to do it forever would cause a sovereign debt crisis. Cutting the English out of decision-making doesn’t make the money come back.

          Yes, an indy Scotland would control its own finances. So, are you gonna cut public spending by 15% permanently or raise taxes by 15%?

          How many Yessers know this btw? Everyone in Northern Ireland knows leaving the UK means big cuts or big tax rises.

          1. paul

            Independence from the rest of the UK is quite different from brexit. The UK is a sovereign nation along with 27 others (with the advantage over many in having control of its own currency), Scotland is a region and one with far richer resources and a more balanced economy than Northern Ireland.

            The UK has considerable autonomy within europe regarding its own economy and it has by and large made terrible choices.
            If we are a basket case (and that is debatable), then that is down to Westminster, not Holyrood, as it has no significant economic powers.

            For a government so committed to reducing deficits, you might be forgiven for wondering why the UK establishment is so reluctant to let go of this supposed burden.

            What spending decisions we now have are there purely at the discretion of Westminster It is not beyond imagination that these might well be removed by an authoritarian such as May under the cover of the national emergency they seem bent on collapsing into.

            Brexit rhetoric is about taking powers back that they already had, Independence is about gaining powers we never had.

            I don’t doubt there would be difficulties, but there are going to be ones within the UK anyway.

            ‘Yessers’ are no more deluded or ignorant than anyone else in my experience.

            1. Adamski

              Yessers are deluded about the economy compared to Northern Irish nationalists. The next fiscal transfer to Northern Ireland is not only larger than to Scotland, it is well known.

              The question is not whether Scotland is a basket case but whether indy will make you better off, specifically, whether it will get the faster recovery from the recession that many Yessers, and Brexiters, crave. It will not, and that is far clearer than for Brexit. Because the volume of trade affected is much larger, and because there isn’t a net fiscal transfer from the EU at all.

              Difficulties? Many, though not all, Yessers want indy in order to escape Tory austerity. Loss of the net fiscal transfer means far more severe austerity despite escaping the Tories. So which difficulties would you like? Ones easily solved by a change of UK government, or difficulties indefinitely? It would take many years of faster economic growth than the UK to make up the difference, and even the SNP did not claim this would happen in the white paper.

              Talk of “supposed burden”, “cover of the national emergency” and “that is down to Westminster” is irrelevant to what you’re gonna do about losing 6% of GDP. As with Brexit, the nationalists have no plan and their supporters dunno what’s coming.

              1. paul

                Is the rest of the UK going for complete autarky, is it going to stop trading with everyone?

                An independence vote is a starting point, I doubt hadrian’s wall would be rebuilt the day after.

                It is entirely unclear whether there is a net fiscal transfer as the treasury are so coy about the figures, but maybe you know more than everyone else on the subject.
                Some opinions here.

                Quite honestly, I would prefer our own difficulties, and that’s how I’ll vote. Council elections today, Westminster in june and the referendum when it occurs.

                I don’t have your certainty about the future,though it’s a lot easier to imagine what will happen under a continuation of the May government

                1. Adamski

                  Scots trade with the UK would be harmed by Scotland being inside the EU customs union and the UK being outside it. That’s Hadrian’s Wall. Similar to the UK getting hurt by Brexit. Scot indy is even worse.

                  “Entirely unclear”? You think there is a margin of error of 6% of Scots GDP? There is no coyness; an FOI request shows data has not been withheld from the SG. You’ll find that on Chokkablog where he debunks Murphy. Methodological differences, then? Those are for the SG to decide.

                  Wings has always been a fool. The Cuthberts don’t deny the deficit exists, they only state that iScotland would control its own taxes and spending. What I want you to tell me is which taxes you’d raise or services you’d cut! Deloitte doesn’t deny the deficit either, just makes the same point as the Cuthberts.

                  Ms MoneyWeek says revenues are “guesswork” (see above; it’s the SG’s work). “Un-negotiated oil”? Geographical split upon indy; the Scot deficit with the UK has still existed in nearly every year since the 80s oil boom.

                  Murphy is an accountant not an economist, and has retreated from calling GERS “nonsense” and “easily rigged” to merely “data could be improved”. See Chokkablog.

        2. Paul Greenwood

          Funding in Scotland is configured on an Uplift on Per Capita Spending in England which acts as a spending cap on public services in England which are relatively worse funded than in n Ireland or Scotland

      2. PlutoniumKun

        The latest polls indicate I think that a referendum would be resoundingly defeated. Its unsurprising as it would leave Scotland in an unprecedented legal black hole where nobody would know its status. Brexit is bad enough, the thought of adding a hostile split with England would probably be too scary for most Scots. The EU has stated that they would accept the GDR precedent and accept NI within the EU if it voted to join with Ireland, but I’m not sure they’d extend that to Scotland (although I wouldn’t rule it out as deliberate mischiefmaking in response to London’s arrogant stance).

        1. Adamski

          Earlier polls after the Brexit result had indy on 51% iirc. It has varied hugely historically.

          There was a black hole in 2014, the SNP couldn’t give straight answers on the currency or EU membership and still got to 45%. (Getting to 40% was achieved with a push poll they commissioned which contained other questions such as, do you hate the evil English Tories in Westmonster?)

          In other words, 45% voted for indy even though they couldn’t know if EU membership would be interrupted. And even though Salmond was discovered to have lied when he said he got legal advice that EU membership would be safe.

          As a couple of posts above indicate, some people think Scotland is richer inside the EU but not the UK, when the opposite is true.

          1. paul

            What was this push poll?
            It must have been strong stuff to turn my head without being aware of it.

            Salmond cleared of breach of code over EU advice

            The better together forces hardly acted with complete honesty and impartiality during that campaign, which was not about exactly what we would do with independence, but whether we should have independence.

            The scrutinity with which the SNP was faced with over every possible pitfall regarding independence was in marked contrast to the lackadaisical and cursory nature of the brexit debate.

            The better together camp said we would be chucked out of the eu if we voted yes. They neglected to say we would if we voted no as well.

            The conservatives, if they had a shred of honesty, would have had a party wide referendum on brexit and campaigned on it in 2015.
            It chose instead to continue with the punch and judy show and rely on Cameron and Osbourne’s charms to carry the day.

            1. Adamski

              Here’s the poll.

              I stand corrected. He received the “underpinning advice” but hadn’t actually sought a legal opinion. He then tried to hide that there wasn’t one.

              Party wide referendum is meaningless. The Tories set a policy of having a referendum and being on the Remain side but allowing campaigning on both. I take it you mean to compare them unfavourably with the SNP. But… the SNP no longer campaigns on independence in elections. It used to say it would have the right to negotiate it if it won most Scottish seats. Now they say they will hold a referendum and let the public decide. So they’re the same as the Tories in this respect. “Not a shred of honesty”?

          2. cirsium

            There was a black hole in 2014, the SNP couldn’t give straight answers on the currency or EU membership and still got to 45%

            The SNP’s policy on currency was to use the pound and the policy on EU membership was that membership would not be a problem given that Scotland as part of the UK had been in the EU since the 1970s. The EU said that it would offer its opinion on Scotland’s membership if asked to by a member state but the UK Government said that it would not ask. (I wonder why that was). Since the Brexit vote, various EU dignitaries have indicated that EU membership for Scotland would not be a problem.

            Getting to 40% was achieved with a push poll they commissioned which contained other questions such as, do you hate the evil English Tories in Westmonster?

            Really?! I must have missed this. Please give a link.

            even though Salmond was discovered to have lied when he said he got legal advice that EU membership would be safe.

            Alex Salmond obtained legal advice from Scottish government lawyers on EU membership. Given Scotland’s standing within the legal, economic, institutional, political and social framework of the EU, the Scottish Government’s legal position was that Article 48 of the Treaty of the European Union would be a suitable route to enable Scotland to become a member state at the point of independence. Scotland had been an EU jurisdiction of 40 years standing. Why wouldn’t its membership be safe?

            Scotland will be wealthier as an independent country that it will inside the UK.

            1. Adamski

              They didn’t give straight answers. They laid out options for the currency and a currency union was their favoured one — they said the UK “will” agree to that. (The same as they said the BBC “will be available” and pensions “will be paid in sterling” in the white paper). A sterling union would have fiscal rules, as they admitted, which is ironic as they promoted independence as an escape from UK fiscal policy.

              The “dignitaries” are not able to offer a legal ruling on the matter, and it’s only “would not be a problem” if you think having to go through the accession process “would not be a problem”.

              The only advice Salmond received was the lowest level, “underpinning advice”, and did not expressly seek their opinion on whether EU membership would be interrupted. He then fought through the courts to conceal that he hadn’t asked.

              As I keep saying, it is wealthier inside the UK despite Brexit, because Scots trade with rUK is much bigger than with rEU, and the EU doesn’t provide a net fiscal transfer to Scotland worth 6% of Scots GDP.

          3. Paul Greenwood

            The only way to win a Scottish Independence Referendum is to allow England to vote

    1. Paul O'Sullivan


      There are quite a few of us British people on here. Please stop embarrassing us.

    2. Yves Smith Post author

      You should have bothered checking our rules before commenting, as I explained above. It’s way too late for a show of seller’s remorse.

    3. ChiGal in Carolina

      This is not that kind of blog. Quit. And do not be rude to Yves, whose space you are in.

      Thank you.

  8. Musicismath

    The combination of arrogance and total cluelessness on behalf of Brexiteers really worries me. They really don’t seem to understand the economic underpinnings of what they have and how quickly it could all go away once cash flows dry up in the event of a disorderly Brexit. As an immigrant to the UK who remembers what happened to my own country in an analogous situation, I have a slightly different perspective on all this.

    I was born in New Zealand some years after Britain joined the EEC in 1973. Now, in 1973, New Zealand sent fully 85% of its exports to the UK. For decades, it had coasted by considering itself “Britain’s farm” and believed that it was wedded to the motherland by bonds of blood and imperial history. Part of an imagined “British World,” even, tied together by trade routes and telegraph lines. Britain’s entry into the EEC was a bona fide near-overnight disaster for New Zealand, which (a) didn’t really see it coming and (b) hadn’t lined up any alternative markets. Growing up in NZ in the late ’70s and early ’80s, the place felt like it was stuck in a weird time warp: everything seemed to date from before 1973, back when the country had money. Only later, after an unnecessarily harsh period of neoliberal “structural adjustment,” did we start seeking out new export markets (largely in Asia) and re-balancing the economy. But it came at a huge, enduring social cost. 1 in 3 New Zealand children now grows up in poverty.

    British nationalists merrily heading towards the door marked “Hard Brexit” remind me of New Zealanders in 1972. They’re just about to find out firsthand how harsh things are out there for an economy on its own in a WTO-rule world. New Zealand has never really recovered from Britain’s entry into the EEC. It’s a harsher, meaner, permanently poorer place than it once was. The global market isn’t kind to isolated economies led by politicians without ideas. The UK public is about to find out how that feels.

    I suspect there will be a large up-tick in Britons permanently emigrating once the shape of the future economy becomes clear. I also suspect that Brits will be surprised — as New Zealanders were — at just how quickly a vulnerable country in desperate financial straits can lose ownership of its public assets, businesses, housing stock, and farmland once the need to earn overseas capital from foreign buyers becomes acute.

    1. Synoia

      Hnn, 1973 also featured the Oil Shock, what permanently affected the world, with a massive asset swap to oil producing nations.

      It appears to me there was an intertwined twofer.

      The US economic history shows recessions in 73/74 and 79/81 then 81/82. I remember the period, from 73 to 82, all of it, as grim.

    2. a different chris

      I did some work in NZ 20 years after that and often felt like showing my friends there (“me mates” :)) a globe. They still regarded (I was of course young and unaware of all this background stuff) themselves as basically part of England, they spoke of it like it was a rowboat ride away.

      And that GB was an important country, which it already wasn’t.

    3. rfdawn

      Yes, that was the big moment for TINA rule in NZ. Many regretted it but some embraced the chances of privatization. It’s already been speculated that some Tories (TM included) may fancy Brexit as a prospect of the chaos that enriches. They may even look fondly upon the Greek example.

    4. AbateMagicThinking but Not money

      Europe is a social construct. New Zealand should have joined, after all there are other European Union islands in the Pacific Ocean. And anyway, Europe’s wars have been the worlds wars. Australia, New Zealand, India and other former empire countries have soldiers buried in France.

      If the European Union is basically about the avoidance of the European wars that these people from farflung places died in, then countries like New Zealand have blood legitimacy for membership. The US too has spilt blood during the two world wars in Europe and still operates in a European language . Russia has blood legitimacy as well: it runs it church on Greek model and its old aristocracy spoke French by preference. OooEee…this thing could grow like topsy!

      Britain’s abandonment of its former producers was disgusting, but that is business for you. Forget all those moral obligations and personal and historic cultural links when there’s a better buck to be made.

      Pip Pip

    5. Paul Greenwood

      You clearly don’t know about UK public infrastructure having been sold already. Chinese owned ports; Chinese owned gas pipelines in N England, US owned electric grid in N England, US owned Aldermaston building nuclear warheads, German and Dutch and French owned railways in UK, Malaysian owned water companies, Canadian owned National Lottery, Dutch owned farmland, Chinese-owned farmland, Air Traffic Control foreign owned, Airports Spanish owned.

  9. Richard

    “And your comments are now our intellectual property”

    Well here’s some more “intellectual property” for you, then.


    You just make it up as you go along.

    Singapore is DEAD SCARED about its future, now its cheap importer is going down the tubes (China). Singapore has no idea how to get itself out of its hole. Its real estate market is going to hell. Its tourism is drying up. Its exports are crumbling. But no, you invent all this crap about why Singapore’s gonna be OK… You know NOTHING. You are ignorant as the day is long.

    “The UK has refused to understand not just the EU’s rules but bizarrely, its own restrictions due to having signed many EU treaties.”

    You gave yourself away. What you’re REALLY saying is that the U.K signed the treaties, ergo, the U.K has no right to leave the EU.

    Which is what I knew from the very start which is why your loaded comments pissed me off so. But you won’t admit it. It’s not “cool”, is it?

    1. Yves Smith Post author

      I’m letting these comments through because they so discredit you and the Brexit booster case generally. I do recognize that there are Brexit fans that can do a much better job than you of applying porcine maquillage.

      You now can’t even keep your own arguments straight. You touted Singapore as a “gotcha” of a country which wasn’t an autarky but gets by just fine. I tell you it’s not comparable to the UK by virtue of among other things being a net exporter. You then undercut your earlier position by depicting Singapore as scared and vulnerable.

      If Singapore is more successful than the UK, yet “DEAD SCARED” about its future by supposedly being vulnerable to the loss of China as an importer, pray tell how is this any different from the UK’s vulnerability to loss of access to the EU as its main export market?

      And on top of that, your facts are yet again wrong. Singapore did take an export hit in 2016 due to a general fall in trade volumes (our Lambert follows this like a hawk in Water Cooler) but it has rebounded nicely in 2017 despite not favorable global trends:

      In addition, China (mainland China plus Hong Kong) represents 26% of Singapore’s total exports. By contrast, the EU accounts for 44% of the UK’s exports. So if Singapore is “DEAD SCARED” over a possible fall in China’s imports, the UK ought to be even more terrified of a hard Brexit.

      As for my intellectual property rights, you are welcome to sue me in the US and see how far you get.

      And your abuse towards me is showing to everyone on this thread that you have run out of arguments and are left only with self-defeating screeches.

      1. Synoia

        One cannot temper anger with reason. Denial is denial. I suspect the anger is because of the fear that you are correct.

        My hypothesis is the UK Tories either do not care (unlikely) or believe (wrongly) their class can escape unscathed.

        In some ways I’m a little surprised at the rigid adherence to a referendum in the UK. The British parliament is not well know for actually delivering on the will of the people – the phrase “Dictatorship by Parliament” applies.

        On the other hand, Brexit appears to give the EU a a way to avoid actually addressing its pressing problems with defects and surpluses among its states, North vs South.

        The English my have to eviscerate their assets, but so have the Southern Europeans.

        1. Adamski

          They think it will deliver them a politically independent and Thatcherite future. That all countries are interdependent or that Thatcherism could be wrong doesn’t occur to them.

          And since you mentioned the European North v South, the Brexiteer stubbornness is a bit like Greece holding on to the euro and Germany clinging to its surplus.

          1. Synoia

            Please review the discussion on the time and costs of leaving the Euro. The time required is considered over 2 years, and is a large, failure prone, IT project.

            1. Paul Greenwood

              There is an assumption that the EU is stable, prosperous and has a future. What if the EU is actually a burning house ? The UK economy is the size of Italy + Spain. Of 28 members of EU, 13 have <7.5 million population. and 12 have GDP <$200 bn.

              Most are countries with low GDP and population which will never be Net Contributors to the Budget and will never be export markets worth any effort.

              The truth is there are really only 7 countries to be considered and the rest have been given disproportionate voting rights – why Malta or Luxembourg should be taken seriously is unclear – 316,000 people in Malta and 570,000 in Luxembourg – the population of Sheffield or Wakefield respectively

  10. Tom_Doak

    The description of Ms. May’s posturing sounds to me much like the Democrats under the Clintonites. As Bernie Sanders observed, they’d rather have a first-class seat on the Titanic.

    One would like to believe that the immediate future of a whole country would matter to them more than “politics,” but they are, after all, just politicians.

  11. George Phillies

    The English have their own currency, so the particular challenges that the Greeks faced, with the lack of a supply of drachmas or an ability of banks to handle them, are not there. It does appear, though, with the increase in the tab to 100 billion from 60 billion, and so forth, that the outcome is a forgone conclusion, namely there will be a fairly rapid exit.

  12. Synoia

    Brexit is being performed by the UK Tories, and there a statements about how Brexit will hurt the people of the UK.

    The Tories historically have not cared, and because of their privileges, believe they will be unaffected. The Elderly British expats will be thrown to the wolves. They have no constituency or representation in the UK, especially not with the Tories (Not one of us, you know.)

    It also appears both sides are at fault, I do not share the implications the Europeans are dispassionate or are being unemotional. One cannot escape one’s history, and there are many scores to be settled.

    Its the rich wot get’s the pleasure
    Its the poor what get’s the blame.

    I suspect the division between “Public School” and “State Schools” is not fully understood outside Britain, and as a graduate of that system, I’m not sure that I fully understand its ramifications.

    1. Colonel Smithers

      Thank you, Synoia / Old Greshamite. I agree with you and, having been educated in both systems and abroad, can see who has the whip hand.

      1. Synoia

        Old Greshamian :-) or OG for short.

        Went back for a 50th reunion dinner. Some change.

    2. DJPS

      Asking someone to take responsibility for their personal well being on a luxurious foriegn retirement is hardly being thrown to the wolves. They can always go home.

      1. Synoia

        Many, if not most of the UK ex pats are not wealthy, and live in the sun because it is a lower cost of living than the UK.

        In addition the UK housing market is unfriendly, and very expensive.

        The British retire to warmer climes to cut the cost of keeping warm.

        1. DJPS

          I know, I did it myself. If I get into a pickle, and can no longer afford to finance my foreign adventures, Iwill have change my lifestyle to better fit my budget. Seems fair to me.

  13. Scott

    I have not followed the details of the Brexit talks as much as Yves and others, but I think many of the people are focusing too much on relative bargaining strength at the expense of the two parties’ overarching goals. If the two are largely in agreement on the latter than the comparative weakness of the UK shouldn’t matter that much. It seems to me that the primary goal of the British is to leave the EU in as the most favorable manner possible, retaining many of the benefits (i.e. Euro-clearing) while avoiding the immigration and other problems associated with EU membership. The primary goal of the EU seems to be punishing the UK for leaving to prevent other countries from doing the same and are using the negotiations to settle old scores with the British.

    Like with the Greeks, the other party does not want to find common ground, they are not negotiating in good faith. Under normal circumstances, the British would simply walk away from the table, but they can’t. This is where the EU’s power advantage comes in. The power allows them to take an adversarial stance, but the power differences wouldn’t matter if their primary goal was to act in the best interests of the people they serve.

    1. Adamski

      Immigration can be unpopular elsewhere in the EU, and giving Britain an opt-out would fracture the unity on freedom of movement, but removing the freedom would require all member states to ratify a new treaty. So I can see why it’s a non-starter. That’s to prevent other countries leaving, yes, but it’s not score-settling. Same with the budgetary matter. The UK doesn’t want to pay up, why would it want to? But why would the other members want to take that loss? That isn’t punishment either, it’s just a fundamental aspect of Britain deciding to leave.

      1. Scott

        I should have been more specific about score-settling; Spain’s desire to annex Gibraltar is one example of score-settling. There were a few others that occurred to me as I read about them, but I don’t remember them.

        1. Frenchguy

          Spain’s request to have an eye on Gibraltar is not “score-setting”, it’s just good policy. As a piece in the guardian said:

          “Britain’s response to Spain’s demand that it have a say over how Brexit affects Gibraltar has been one of almost universal fury, but it shouldn’t have been. If you imagine that, owing to some ancient treaty, Spain had a base in Dover, from which Russia’s chief spy had repeatedly sneaked into Kent, and smugglers had flooded the country with cheap fags, massively undermining our tax base, we would be pretty cross, too. It’s something of a wonder that Spain has put up with it for so long.”

    2. Paul Greenwood

      Negotiating strategy BEFORE the French Election on Sunday and Assembly Elections in June is to be expected. I really take it with a pinch of salt. I have no doubt UK expats in EU and EU nationals in UK will be taken care of – I do wish however that people commenting understood the UK problem.

      Since the UK has no Registration System for residents in each local authority it does not know who is in the country. The Nat Insurance System is compromised and the numbers issued far exceed population. Germans have the AZR – which registers ALL Non-Germans as defined under Art 116 of the German Verfassung which defines Germans and Non-Germans making EU Nationals the same as Non-EU Nationals – although EU Nationals have no ID Card other than their passport and Non-EU Nationals have an ID Card

  14. glib

    Too much ado about nothing. Divorces are messy, and the principals less than pleasant people. But just about every European country, including the one I was born in, will be better off long term out of the EU. So despite the theater, the long term effects for our children (in my case, nephews and nieces who live in Europe) will be good. A disjointed EU, for those who live on the left side of the pond, amongst other things discourages the US from starting big wars in Eastern Europe. So I think everyone should be happy about the long term trends.

    1. JTMcPhee

      …there should be an algo to figure it all out, right? Maybe between the CIA and Goldman Sachs, consulting with Putin, they can lay down the proper code…

      1. Dontknowitall

        There is indeed an algorithm at CIA to figure such things out. It is based on game theory and it is called appropriately FACTIONS. Based on the work of Bruce Bueno de Mesquita at NYU.

        1. JTMcPhee

          I knew I’d seen that somewhere… Thanks. I bet the goal of the algo is global hegemony, not “decent lives for ordinary people…”

    2. Ed Seedhouse

      Well, you can die of starvation in the short term waiting for the long term to kick in…I believe it was Keynes who said “in the long term we are all dead”.

  15. JTMcPhee

    For some reason a Russian fairy tale comes to mind:

    The peasant is out cutting wood in the forest, fuel for his family’s house and hearth. Most of the trees have been cut down already, so he sees a stump that looks possible to dig out and haul home. When he excavates the stump, he finds an ancient bottle. Curious, hoping it might be treasure, he removes the stopper.

    Out pops a scary-looking djinn, huge, hot, and hairy. “I should thank you for releasing me from that prison where a wizard penned me up ages ago. I will grant you one wish. But since I am a djinn, I will give your neighbor double what I give you.”

    The peasant thought about it for a long while, as the shadows lengthened around him. FInally he said, “You promise you will give to my neighbor, that rotter, twice what you give me?”

    Says the djinn, “Speak your wish, and it shall be done as I have said.”

    Says the peasant, “Then make me blind in one eye.”

  16. Dontknowitall

    May’s stint as Home Secretary required constant engagement of magical thinking and underhanded messes to justify the existence of the overwhelming national security apparatus in consequence she is poorly prepared to deal with normal politicking. I worry what she might do since the woman who only knows hammers will call everything a nail…

    1. Synoia

      The Iron Law of Institutions applies.

      Prime Ministers has wonderful pension packages.

      Wot me worry? or “I’m all right Jack!”

    2. Paul Greenwood

      She had a horrible problem with Cameron and Osborne and it is a very difficult office of state. Only Winston Spencer Churchill, Home Sec 1910 did not become PM until 1940 and was not elected to be PM until 1951…………and Theresa May have made it from the Home Office

  17. Colonel Smithers

    Thank you to Yves and all other Nakeds. Great insight and debate as always.

    Perhaps the most distressing aspect of Brexit is that there are no other fora that can match this blog and group of commentators for news, analysis and debate, even City of London fora like the Centre for the Study of Financial Innovation.

    1. Paul Greenwood

      There are some Constitutional Law Blogs but seemingly few Economics Blogs. My view is that the UK screwed up in 2007 when it had a chance to re-focus its economy but Gordon Brown chose to set aside FSMA 2000 and by-pass Parliament to fund Banks to bring Offshore Liabilities onshore to be underwritten by taxpayers driving UK Debt up to 1000%. Ireland did something similar and underwrote German tax-dodges through the Harbour Brass Plate businesses sheltering German banks and chemical companies from German taxation

      BreXit is the second chance to prevent the UK blowing up

  18. Ebr

    Well this post & Richard’s comments sent my eyebrows to eleven.

    Someone translated that Article from the German about the May / Junker dinner

    I keep hoping that the UK noping its way out of Europe would lead to some national cohesion, you know the “we are all in it together” but when times are bad more often petty jealousies turn bitter. Look, I really like the UK, but every time I visit it is very obvious to the outsider that you don’t all like each other very much. There is a lot of hidden rage there, and yeah sure you are all polite and try not to talk about it in front of the guests, but it is not as though we don’t see it.

    If I offer any suggestion, accept that hard Brexit is going to happen and start asking “well where do we go from here?” My advice would be to ignore the City of London & the financial district and focus on manufactures and agriculture. But to focus on manufacture would promote a different sort of citizen — and crucially one who attends a different sort of university. In American terms that would be to devalue the Ivy League for the Public Agriculture & Engineering schools. To promote agriculture the UK might have to do some land reform. I am loathe to be specific because for the life of me I don’t understand your land system. It seems like an awful lot of it is still owned by families once aristocrats and not always put to the most productive of uses.

    But I cannot imagine that any of those suggestions would be pursued as there is not party yet to pursue them. Labor (and I mean this as constructive criticism guys) keeps putting itself in the position of a supplicant to power by focusing on public services & workers rights instead of asking how the economy could be restructured. As for the Conservative Party, well I can’t imagine them changing the economy in any way that does not privilege the & those like them.

    If I can find any links on the UK Agriculture I will send them.

    1. purplepencils

      I agree on the focus on manufacturing. As I have privately noted to friends, and I think others must have as well, the only way to build a better future (and no one is saying that’s impossible) is to actually develop a coherent plan. This is precisely the problem with the political class at the moment. No one seems to have a clue what the future should be like.

      The challenge for the UK was always going to be far tougher: the country has to both negotiate the exit, and craft a new future. Ah, if only they had a plan…

  19. DJPS

    In my personal experience as an expat in Spain, it was impossible to get “free” healthcare before registering . You needed to show the card to get the services, else pay. The reverse isn’t true, anyone can get NHS services, the UK doesnt have a similar card and can’t be keeping track to seek reimbursement. So that part of the post seemed back to front from my limited perspective.

    1. PlutoniumKun

      The point is not about ‘registering’, it is whether you apply as a resident or non-resident. Non residents use the EHIC card, retired residents use the S-1. And it is certainly not true that ‘anyone can get NHS services’. You have to be a resident (the fact that they rarely ask is down to administrative convenience and that frontline health workers aren’t interested in adding to patients stress by grilling them on their citizenship). If you turn up at any NHS emergency room with an American accent looking for a prescription they will almost certainly ask for your details and will bill your insurance if you can’t prove you live in the UK.

      1. DJPS

        In my own experience with US citizens and the NHS, this wasn’t the case. When my relation who is a US citizen needed to go to casualty, they were only concerned with her medical problems and were happy to help. When we asked at the end how we should cover the cost of the services, they laughed and said they don’t do that in England.

      2. Synoia

        If you turn up at any NHS emergency room with an American accent looking for a prescription they will almost certainly ask for your details and will bill your insurance if you can’t prove you live in the UK.

        Umm. no.


        1. makedoanmend

          There is not a billing system for patient care specifically a la the USA system. Of course, the NHS handles billing and invoices for a multitude of transactions. For example, an Irish hospital billed the NHS for services provided to a pal of mine from the six counties who was injured working in Dublin. There is a reciprocal arrangement for Irish people who seek help in the six counties.

        2. expat

          I broke my foot in London, limped into an A&E, got x-rayed, met a very charming doctor, and limped out. When I asked about paying (and mentioned I was a Yank) I was given a quizzical look and then politely told there was no charge.

    1. makedoanmend

      Wowsers Colonel Smithers. If this dude is as savvy as you say, and his prognostications about what the UK must do post-brexit have validity, I just cannot see a Tory govt. taking his advice.

      Mind you, his advice seems like a common sense approach to the economy that many countries, not just the UK, would be wise to pursue.


    2. Paul Greenwood

      If you are speaking of the FAZ article I have read it. What is interesting is how rueful the FAZ is….it identifies Selmayr in effect as the leaker. This has blown up and there are some unhappy people who know what Five Eyes can do.

      Germany knows that the UK was its backbone against France + Club Med wanting Protectionism and Germany underwriting EU Debt – it will be outvoted without the UK – and having the UK outside the tent has very bad karma in German minds

  20. fosforos

    Does anyone still think Corbyn was right to refuse abstention on the “Brexit” referendum?

  21. Hayek's Heelbiter

    Less than five minutes ago, I read this piece by Andrew Walker in The Observer.

    As I have tremendous respect for both Yves and Walker [or Smith and Andre :)] not sure whom to believe.

    Clarifications anyone?

    1. Yves Smith Post author

      Brexit is a lose/lose, and unlike what the Brexit fans say, the UK will take much bigger losses than the EU. The European leadership seems aware of the damage, but they have always prioritized keeping the EU together over GDP growth. And while the non-Eurozone members of the EU might in theory exit, the candidates are Eastern European countries. If any one leaves, it loses all sorts of trade business to its immediate neighbors, who are sure to target it.

      And as for the Eurozone, as we’ve discussed, the very substantial payment systems obstacles to launching a new currency means any exit would have to be a cooperative process and would still take well over 5 years to implement. I must also point out that Euroskeptic Ambrose Evans-Pritchard, who has repeatedly said that Italy is the one Eurozone member with the economic heft and most clear-cut benefits to make leaving the Eurozone a credible option, said earlier this year that the economic window for Italy being able to leave is closing rapidly:

      The report said the optimal moment to leave the euro has already passed – in narrow financial terms – and that it will become progressively more costly to do so as each year passes. Within four years it will become prohibitive.

      As for this Observer fellow, he’s got the UK calculus all wrong. And he undermines his credibility in a big way in attributing the hardline position on the Brexit bill to Juncker and even more ludicrously, depicting him as being in charge of the negotiations (Barnier, as we pointed out in the post, is the EU chief negotiator, and he has considerable experience).

      The 27 nations are unified on this matter. This is not a Brussels plot. If you read the FT article to which I linked on the new, higher Brexit bill demand, you can see the demands that led to increases all came from member states.

      Other points that are incorrect:

      1. The pound will fall, but it will not improve the UK’s export balances. This is a widespread misconception. This is the overview:

      I’m posting this article that Philip Pilkington wrote in 2014 because it highlights some interesting things about the UK current account and the sterling. Pilkington argues that the sterling is only propped up by financial inflows into the City of London and that any scare to these financial flows can easily result in a sterling crash (he made a similar argument in this Guardian article which came out around the same time). He argues that the UK is not like the US which, because of its reserve currency-issuing status, can run very large current account deficits with little or no consequences for the dollar. The sterling crash after the Brexit confirms his argument: all it took was a big scare.

      But this is where the problems come in. As Pilkington shows, last time the sterling took a big hit in 2007-08 export prices didn’t fall and make the UK more competitive, they rose and made the UK less competitive! The reason? Global supply chains. The inputs that UK companies use to make exports are themselves imported. When the sterling falls, the inputs rise in price so the firms have to raise the prices on their export goods. As Pilkington points out this means that all the adjustment must take place on the side of real incomes: that is, peoples’ living standards must fall through rising prices.

      2. With a higher trade deficit and a falling pound, interest rates will go up, not down.

      3. The dislocations in the UK economy that will result from even a well managed Brexit would take a lot more than a short-term Keynesian bit of deficit spending to fix. The UK needs war-level spending to make its economy more of an autarky. It in theory should provide support to national champion industries, but the EU has already put the UK on notice that those would be seen as illegal trade subsidies and the EU would retaliate.

      4. A hard Brexit would be an epic disaster for the UK. Even a well-managed Brexit will result in a significant permanent reduction in living standards in the UK.

      1. hayek's heelbiter

        Many thanks for the prompt and succinct reply and reminder about the Pilkington cite and unfortunate example of the previous sterling fall import/export equation.

        As always, always look forward to the NC analysis of 8th June and its aftermath.

        Keep up the great work.

        1. hayek's heelbiter

          Ps. Just occurred to me that you and Lambert and have been right more often than Krugman recently (though maybe not as much as Bob Dylan). I think you guys should get a Nobel Prize or at least a nomination.

      2. Paul Greenwood

        I am concerned that you are so definite in your views and see you as having an a priori position from which you will not budge. Maybe your extreme case will come true and validate your position, but I am not sure it is realistic. Politicians are incompetent like lawyers, they shoot off their mouths, and they end up backtracking.

        I do not believe the EU is stable. I watch convoys of trucks moving across Europe with Ukrainian, Russian, Bulgarian, Lithuanian, Polish, Hungarian, Czech, registration plates and how much US military equipment lands in Bremerhaven to be driven to the Russian frontier…….that a further 5000 tonnes munitions landed in Feb.

        You have no idea what is going on and how everything is being primed for war. Without Russia as a market the Eu has no growth which is why factories are moving from Western Europe to Russia. Mexico is No 4 car exporter yet Russia exports VW Polos to Mexico. Mercedes is building a new SUV plant outside Moscow. Voronezh is raising beef cattle with Montana cowboys. China wants a high-speed rail link to Rotterdam from Shanghai.

        People are so besotted with trivia when big projects are afoot. 30% EU white goods are made in Poland with names like Bosch, AEG, LG, Samsung, Siemens – factories close in Germany. Car production will be gone within the decade – moved to Central Europe and Russia. Continental tyres come from Rumania, Audi engines from Hungary, wiring harnesses from Slovenia.

        SIG-Sauer is a Swiss weapons maker but its factories are now in the USA and its contracts with German police forces replaced by H&K.

        The discussions are so static. German is de-industrialising at a rapid clip – the East is long gone but empty derelict factories in West Germany are commonplace

        1. Yves Smith Post author

          The Eurozone is a roach motel by virtue of the incredible difficulty of launching a new currency. So any of them leaving would entail a massive negotiation process as to how to cooperate on the new currency and other exit arrangements. It would be way worse than Brexit.

          As for the EU but non Euro members, they are mainly smaller Eastern European countries. Even though the find the EU dues and rules far more onerous that they thought, any one of them leaving puts them at a big trade disadvantage relative to their neighbors.

          The EU will lurch from problem to problem, but a breakup or substantial reworking will happen well after Brexit. Oddly, Brexit is proving to be a unifying device that will relieve pressure on some of the EU fault lines.

    2. Harry

      Thanks for this. I wondered what the other side is thinking. So I would suggest Yves is right and Walker is wrong. Never bluff with a limited stack.

      Also this isn’t about macro economics. This is micro – or game theory if you like. Macro arguments about who has more to lose are as off the point as the arguments about why Italy would never qualify for euro membership back in the 90s.

  22. Frenchguy

    Btw, some news on the Gibraltar front, Spain doesn’t want to annex Gibraltar (well, it does but it won’t use Brexit to do that), its demands are much more sensible (stop being a tax haven):

    Spain will use the Brexit negotiations between Britain and the EU to attack Gibraltar’s low-tax economic model, which Madrid sees as a “tax haven” that engages in “unfair competition”.

    “[Gibraltar] has developed a regime that is extremely permissive on issues such as tax, customs and the law with regard to the establishment of companies that in practice has converted it into a tax haven,” Spain’s foreign ministry says in an unpublished document seen by the FT.

    The document goes on to describe the situation of Gibraltar as one of “unjustified privilege”, and warns that Spain “cannot accept that the EU and the UK negotiate a relationship with regard to Gibraltar that is not completely acceptable to Spain”.

    Spain, which claims sovereignty over the territory, says it will “not try to resolve its sovereignty dispute in the context of the Brexit negotiations, nor will it draw the EU into it”. But the document adds, Madrid will push for a post-Brexit relationship that “prevents an economic situation of unfair competition [between Gibraltar] and the territory of Spain”.

    1. vlade

      You know, this is actually a sensible strategy.

      If EU shows some sort of reason, the third players can see the UK’s leadership incompetence and act accordingly. Which means the UK loses not just in the deals with the EU, but _also_ in the deals with the rest of the world.

      I suspect it will take a generation or more to deal with the damage from the idiotic Brexit that’s now shaping as the result.

      TBH, this was exactly the reason why I voted remain. Not because I had any love lost for EU – I don’t. But given the leave campaing and the overall UK/EU relationship at the best of times, I never believed there was a politician (in the current crop) that could do it w/o inflicting a terrible damage on the country.

      1. ChrisPacific

        And more dangerous for being sensible, since there will be zero sympathy for the UK if it tries to oppose it. Defending the right of small populations to self-determination might have won some support from within the EU, but defending the right of small populations to take advantage of favourable tax status to rip Europeans off isn’t going to bring anyone to the barricades. (Except maybe Luxembourg or Monaco, and that’s not much of a foundation for a revolution).

  23. Expat

    May is screwed. She got exactly what she wanted and now realizes she has put herself and her country in a terrible position.
    May: “Give us a good deal or we will leave the EU.”
    EU: “Um, you ARE leaving. And you can’t have a good deal.”
    May: “Well then, I am warning you. If we don’t get a good deal, we will accept no deal at all! Ha!”
    Eu: “Ok with us. I am sure Trump will pay you to build golf courses or something in Wales.”
    May: “I am warning you! I can be a real bitch.”
    Eu: “We know. Now fuck off”

    May’s ace in the hole will the the East Germany Ploy. If the EU doesn’t give her a good deal, then Britain will collapse back into the shithole 3rd world country it was before the CIty became the world’s largest money laundering center. Refugees will swim the channel and overwhelm the French and Belgians.

    Now THAT might get Barnier’s attention.

    (sorry for the sarcasm and lame humour, but I lived in London and worked in the City for nine years. Now I live on the other side of the Channel. This whole episode is ridiculous and so typically British)

  24. ChrisPacific

    “And what is scary isn’t that May exposed no clue as to who is doing what to whom. It is that she thinks a Prime Minister could handle this task. This is an overtime time job from when the negotiations get started until they get done or fall apart, with at most a truncated version of the European August holiday and a year-end respite. May would have to abandon all her official duties to negotiate, and that isn’t on. And she’s so obviously so far behind the eight ball that catchup would be a huge task.”

    From the Cliffe tweet storm:

    8) May wanted to work through the Brexit talks in monthly, 4-day blocks; all confidential until the end of the process.

    Now I might be reading that wrong, but I think it means she expects whoever is dealing with the Brexit talks to work for 4 days a month (possibly with prep time on top of that, but nonetheless four days of face to face negotiations per month).

    Never mind being on a different planet – I’m starting to wonder if May is even inhabiting the same galaxy. Was she not paying attention to what happened during the Greece negotiations? And Brexit is likely to be at least an order of magnitude more complex. Granted the UK isn’t nearly as badly off as Greece was, but that just means they have more to lose from doing it wrong.

  25. Kalen

    Fantastic discussion, really discussion that we should have had daily since the date Cameron utter first words of Brexit referendum, now is kinda too late, unless it is all a political charade and in fact negotiation technique between a British elite and U.K. global banking sector and Brussels bureaucratic elite and ECB system with euro, while all the noise I.e. immigration, trade etc., will remain vastly unchanged under some legal, trade, arrangements when the major problem of EU further unifying financial regulations as as official superstate status of EU is defined and declared.

    The idea of Brexit as a whole is in my take a negotiating ploy that is perhaps aimed as determination of fate of future U.K. monarchy and further integration of Europe into one monetary financial and most of all one political and sovereign entity.

    It seems to me that Brussels wants to make big integration leap and that move has opposition among EU , UK, FRANCE, Italy and even eastern EU and hence all those must be resolved while disintegration of EU will not be allowed, the unity of EU will be preserved in the end, hatred of otherwise intelligent EU elites, to Russia is an element of this push for unity among EU elites.

    1. Kalen

      I admit that legal and economic/social arguments against Brexit are overwhelming as Yves pointed out clearly.

      Moreover, it is exactly as it was designed by EU integrationists to entangle EU states so much in EU Legal/financial construct that they would clearly see overall benefit to stay within EU and grave perils of leaving as any imperial power did throughout history from Roman to British empire and hence freedom of nations could only come via collapse of imperial rule or violent decolonization and civil wars of divided nations, divided by loyalty to the imperial rule.

      So far I do not see collapse of imperial EU or civil strive or civil war in UK and hence my admittedly conspiracy theory about hidden agenda behind Brexit as I mentioned above.

      My experience is that when something like Brexit does not make any sense in a format presented there must be something I do not know, some facts, circumstances, motivations and objectives that makes the apparent officially disseminated story of suppose political trepidation and uncertainties we are faced with understandable.

      1. GOS

        “My experience is that when something like Brexit does not make any sense in a format presented there must be something I do not know, some facts, circumstances, motivations and objectives that makes the apparent officially disseminated story of suppose political trepidation and uncertainties we are faced with understandable.”

        English bloody mindedness.

        I am Irish and live in Canada, Darkest Rural Ontario, to be more precise, and, for a year or so, lived in London, (UK, not the local one) although that is not my only experience of English mentality.

        A month or so before the referendum, a staff member at Walmart, don’t ask me which one – I move about a lot, asked me if I thought there was any possibility that the the UK might vote to leave the EU. I told him I would not be surprised.

        My thinking was that, from experience, the second world war, never mind winning the World Cup fifty years ago, had never ended for much of the English people.

        Subsequent pronouncements from No. 10 have not changed my opinion on the matter.

        There are times when I can but laugh. There are times when I want to cry.

        I can see what is happening but I do not,in any way, fundamentally, understand it.

  26. Bob Bollen

    Lots of interesting stuff here. As a UK citizen I’m fully convinced that May won’t be able to get a deal that satisfies the different players to whom she’s made commitments.

    Yves: my question to you is: which segments of UK business have probable real financial benefits from Brexit, and what is their political influence around the cabinet table v those who have certain losses?

    I think the answer to this question is key to predicting the final outcome.

    Thanks a lot.

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