Euro Clash

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The views and opinions expressed in this article are those of the authors. CdR Capital Ltd is authorised and regulated by the Financial Conduct Authority. This article is for professional clients and eligible counterparties as defined by the FCA only.

Should I stay or should I go, now?

`We must add to our heritage or lose it, we must grow greater or grow less, we must go forward or backward. I believe in England, and I believe that we shall go forward’ – George Orwell

On Thursday June 23rd, the British people will vote on continued participation in the European Union. An astonishing array of celebrities, domestic and international political figures have been wheeled out to persuade British citizens of the catastrophic consequences of leaving. One or two have also addressed the merits of staying.

Even scientists have weighed in, with the eminent God-denier, Richard Dawkins seeing only emotion in the ‘leave’ camp and rationality on the ‘stay’ side. Britain’s most ‘recognisable’ politician, the former Mayor of London, Boris Johnson, is for leaving. But his taller, less-obviously-self-serving, brother is for staying (as are his father and sister).

It is not obvious that the Conservative Party will survive any outcome, even if Boris is winning the war of quotes: “biggest stitch up since the Bayeux tapestry“.

Does anyone truly know what they are voting for and, moreover, are those that could determine the outcome of the vote being addressed at all?

If polls are to be believed, the elder generation mainly want out and women and younger voters would like to stay. The former view voting as an exciting day out meanwhile the ‘digital natives’ see it as a chore. If someone allowed the younger demographic to exercise their democratic rights via a remote or a smartphone app, Britain would stand a better chance of staying in.

So, could rain or Millennial apathy cause problems on referendum day? Sifting through the YouGov data, one could conclude that key ‘swing’ voters can be found in what used to be the Labour Party’s core constituency of Northern males, as well as in women, the other voter-group that is still largely undecided.

While national media coverage  seems to be loaded with Brexit-biased questions, are the wrong questions being asked to the wrong audience? Has new (social) media changed the voting landscape or has propaganda always been part of the ‘news’ agenda?

In his classic Manufacturing Consent: The Political Economy of the Mass Media, Noam Chomsky suggests that when media news coverage of issues is biased in favour the status quo a number of results can be observed: the breadth of the debate is limited; people with different views are not heard as much; and attention is often diverted away from the main point.

“The beauty of the system, however, is that such dissent and inconvenient information are kept within bounds and at the margins, so that while their presence shows that the system is not monolithic, they are not large enough to interfere unduly with the domination of the official agenda,” Chomsky argues.

If we do, indeed, live in an age of manufactured consent, you’d think that ‘they’ would at least run this manufacturing process with some degree of professionalism. And if that process demands a fact-free or fictions-as-fact ‘fear’ campaign¹, then at least alarm an audience who can deliver the result that you seek.

Both campaigns appear shambolic. Arguments are easily classified as either economic (stay) or democratic (leave). And EU leaders have been fairly noticeable by their absence, as if the famous, ‘democratic deficit’ is (with a Gallic shrug) just one of those things.

Of course, none of the polemic addresses how Britain came to be in the EU in the first place. A necessary read for a voter seeking to make an informed decision, is Hugo Young’s This Blessed Plot: Britain and Europe from Churchill to Blair.

Young reminds us that Winston Churchill was one of the first to articulate the need for a ‘United States of Europe’ but, like Charles de Gaulle, was unsure of the merits of participation. For his part, De Gaulle was overtly hostile to the notion of British membership.

Today, being British at a Parisian dinner party invites the assumption that we all want out, an assumption that remains unshaken even after a gentle reminder that France herself voted ‘non’ to the EU constitution in 2005. “Et Alors?”.

In Young’s book, Sir Henry Tizard, chief scientific adviser at the Ministry of Defence, echoes Orwell: “We persist in regarding ourselves as a Great Power capable of everything and only temporarily handicapped by economic difficulties. We are not a Great Power and never will be again. We are a great nation, but if we continue to behave like a Great Power we shall soon cease to be a great nation.”

Those words written in 1949 are still valid as the foundation for ‘Bremain’. The real scandal for Britons, when we did vote for entry, was the systematically inaccurate portrayal of EU as simply a free trade zone when the mandarins who govern us and the politicians who govern them knew this to be a falsehood. David Cameron is paying the price for that falsehood today.

Brexit, in everyday-speak, is about heart versus head. At heart, we all believe that democracy works best in small units. Just how big was Ancient Greece? But markets work best with scale. Few would deny that the rise in global living standards, even if the ownership of wealth is dangerously disproportionate, is a direct product of an increasingly tariff-lite world.

Furthermore, investors don’t like abrupt, discontinuous, change. It makes modelling cash flows hard. Warren Buffet buys companies where he recognises brand strength and bets that the natural tendency of markets to trend towards monopoly will make this a better bet for increased top line and/or margins.

But markets today are faced with much potential discontinuity. Militant Islam with a medieval value-system allied with front-line troops left behind economically by globalisation but sustained by the (EU) welfare state; and the rising tide of populist politics (Marine Le Pen, Nigel Farage, Donald Trump/ Ted Cruz). Not forgetting every stock sector threatened by tech-enabled ‘disrupters’ that could make many established ‘brands’ worthless.

Investors do like free trade. Borders and tariffs are bad. Single markets are good. Nations are fine as long as they contain large numbers of consumers. But ‘United States’ are better. Thousands of years of regional and local identity, as well as citizens’ innate desire to determine their own affairs, or at least catch an occasional glimpse of their elected representative (in the flesh), run counter to this.

Large single markets are facilitated by common central banks and fiscal policies. Americans don’t have to worry about the bankruptcies of Illinois or California’s precarious unfunded liabilities, because, as the United States, they are solvent or massively too-big-to-fail.

The EU taken as a whole is 508 million people (third largest population after China and India) with a collective GDP of $18.51 trillion, according to The World Bank, and could collectively even have one of the largest armies in the world. The European whole is immeasurably stronger than the sum of its parts.

On the subject of security, Chathman House’s Richard Whitman points out that irrespective of the referendum’s outcome, the UK’s foreign and security policy will remain inexorably intertwined with the policies, preoccupations and crises of the EU.

From a British perspective, we need to be ‘in’ to be relevant. From the perspective of the rest of the world, ‘Great Britain’ cannot be allowed to become the leading anti-globalisation brand. That’s why Obama came.

As market professionals we have to contemplate a worst-case world, so picture this: on June 24th 2016, the UK is ‘out’ and come November 9th Trump is ‘in’. If rhetoric becomes reality then walls go up around the world.

But meanwhile, if polemic matters more than reason and with our two key groups of undecided voters in mind: vote ‘leave’ and roaming charges will rise, not fall; vote ‘leave’ and half of your team’s best players will need work permits (and we might be excluded from the Champions League).

Post Scriptum. If this is a Union of European nations with a self-acknowledged ‘democratic deficit’ why can’t all 508 million of us vote together, en masse, once and for all?

¹See: Fear, loathing and George Osborne dominate the Brexit campaign (18.4.2016) The Financial Times

 

The views and opinions expressed in this article are those of the authors. CdR Capital Ltd is authorised and regulated by the Financial Conduct Authority. This article is for professional clients and eligible counterparties as defined by the FCA only.